Jefferies positive on Mankind Pharma's growth prospects but valuations remain a sore point

Aside from valuations, Jefferies remains bullish on Mankind's strong future prospects, thanks to its well-diversified portfolio and consistent track record of outperforming market growth.

Global research and broking firm Jefferies is confident of Mankind Pharma's growth prospects, thanks to its a well-diversified portfolio and consistent track record of outperforming market growth. However, the expensive valuation of the stock as it trades at a PE (Price to Earnings ratio) multiple of 31x remains a sore point for the brokerage, prompting it to initiate coverage on Mankind with a 'hold' call.

The firm believes that despite the strong fundamentals, the rich valuation of the stock leaves little room for a steeper upside as it assigned a target price of Rs 1,830 for the scrip. The price target reflects an upside potential of just over 7 percent from Mankind Pharma's Friday closing price of Rs 1,706.80.

The price target also values Mankind Pharma at a PE multiple of 32.5x, which is at a discount to that offered to peers like Torrent Pharma and Sun Pharma as Jefferies believes they have have a better product mix and margin profile. Nonetheless, it still stands at a premium to large-cap peers like Alkem, Cipla, Dr Reddy's and Lupin due to Mankind’s superior revenue/EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) growth and ROE (Return On Equity)/ROCE (Return On Capital Employed) profile.

Its not just Jefferies that feels uncomfortable with Mankind's rich valuations. Previously, another brokerage firm Kotak Institutional Equities also initiated coverage on the drug maker with an 'add' call due to its stretching valuations.

Also Read: Mankind Pharma gains as Kotak initiates coverage with 'add' call

Aside from valuations, Jefferies is positive on the drug maker as its well-diversified prescription portfolio, strong OTC (over-the-counters) brands with smart celebrity selections, volume led growth and flawless execution has allowed Mankind to outperform industry growth by 3 percent over FY20-23.

"Having established the right infrastructure, we believe Mankind Pharma is well-placed to sustain outperformance in India," Jefferies stated in its report.

Also Read: Why have MFs fallen in love with Mankind Pharma just a month since its listing?

The firm feels that this outperformance will be led by a focus on increasing share in covered markets through targeted new launches, acquisitions of differentiated products  which provide doctor face time through which
Mankind can cross-sell other brands and new launches backed by in-house research and development.

The Street has also been in love with Mankind Pharma since its listing as the stock has soared 58 percent from the upper band of its issue price of Rs 1,026-1,080 in just a couple of months since its listing in early May. Post its debut on the bourses, mutual funds and insurance houses also jumped on the opportunity to add the stock in their portfolios, making it the top-five buys for May.

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