Brokerage firm HDFC Securities expects smallcap pharmaceutical company Marksans Pharma to deliver a 10 percent upside in base case over the next two or three quarters.
The optimism emerges from the drugmaker's focus on regulated markets of the US and the UK while concentrating on higher-margin softgels and over-the-counter (OTC) products, HDFC Securities said in a report on March 16.
Marksans Pharma capitalised on opportunities by monetising its presence in these markets and its OTC segment is likely to see stable demand with minimal price erosion, it said.
The company also boasts a strong balance sheet, which is likely to support inorganic growth through acquisitions of abbreviated new drug applications (ANDAs), product licences and capacities, the brokerage said.
According to HDFC Securities, the company's focus on backward integration will also improve its operating margin in the coming quarters.
Expectations of a margin improvement also arise from normalisation of operating expenses and a balanced focus on both over-the-counter and prescription segments along with a backward integration in its active pharmaceuticals ingredients (APIs) business.
The acquisition of Access Healthcare, which has a presence in North Africa, is expected to enable the company to use its front-end sales and marketing infrastructure for marketing its products manufactured in India, the UK, the US, and Middle East-North Africa (MENA) regions, the brokerages said.
HDFC Securities expects revenue to grow at a compound annual growth rate (CAGR) of 17 percent over the next two financial years, led by strong growth in the UK and Australia & New Zealand and healthy growth in the US.
The brokerage also expects a margin of around 17-18 percent over the next two years.
"On that account, we feel investors can buy the stock in the band of Rs 68.80-69.50 and add more on declines to Rs 59.50 for a base case target of Rs 75.50 and bull case target of Rs 83.60 over the next two-three quarters," the brokerage firm wrote in its report.
In November, HDFC Securities had initiated coverage on Marksans Pharma with a “buy” rating, suggesting investors accumulate the stock in the band of Rs 56-57 and add on dips to Rs 50 for a base case target of Rs 62.40 and a bull case target of Rs 66.60 over the next two quarters.
The stock achieved the bull case target in January, several months earlier than expected.
On March 16, it closed 1.8 percent higher from the previous day at Rs 67.35 on the National Stock Exchange.