Mankind Pharma Limited (MANKIND) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Mankind Pharma Limited Q2 and H1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this meeting is being recorded. I now hand the conference over to Mr. Archit Gupta from Mankind Pharma Limited. Thank you, and over to you, sir.

Thank you, Yashashri. Good evening, everyone, and thank you for joining us for our second quarter and H1 FY '27 earnings conference call. On call today, we have Mr. Rajeev Juneja, our Vice Chairman and Managing Director; Mr. Sheetal Arora, Chief Executive Officer and Whole-Time Director; Mr. Arjun Juneja, Chief Operating Officer; Dr. Anil Koul, Group Chief Scientific Officer; Mr. Sudipta Roy, Senior President, Sales and Marketing; Mr. Ashutosh Dhawan, Global Chief Financial Officer; and Mr. Prakash Agarwal, President, Strategy and IR. We will begin today's call with Mr. Rajeev Juneja, who will provide an overview of the quarter, followed by key business updates from Mr. Sheetal Arora. Mr. Ashutosh Dhawan will then take us through the financial performance, after which we will open the floor for Q&A. Before we proceed, please note that certain statements made during today's call may be forward-looking in nature and are based on management's current expectations. These statements are subject to risks and uncertainties that could cause actual results to differ materially. Mankind undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the detailed disclaimer available in the investor presentation uploaded on our website earlier today. With that, I now hand over the call to Rajeev sir for his remarks.

Thank you, Archit, and a very good evening to all of you. Welcome to quarter 2 and H1 financial year '27 earnings call. At Mankind, our strategy is centered around three priorities: strengthening our core business, scaling chronic and specialty therapies and investing in future growth platforms. We made steady progress across each of these during the quarter, resulting in another period of strong operating performance. During the quarter, overall revenue increased to INR 4,338 crores, up 17% year-on-year, while EBITDA for the quarter increased by 27.2% to INR 1,175 crores, and EBITDA margin improved by 210 bps year-on-year to 27.1%. PSE portfolio continued its 20% growth momentum for the second consecutive quarter, led by strong performance in both domestic and international markets. Revenue from domestic business, excluding consumer health care, increased by 15.9% year-on-year to INR 3,428 crores in quarter 2 financial year '27, driven by strong double-digit growth in both Mankind and BSV specialty business. Mankind's strong foundations combined with disciplined execution over the last few quarters have resulted in outperforming to IPM in quarter 2 financial year '27. According to IQVIA, our secondary sales grew by 15.7%, representing a 1.1 outperformance versus the IPM growth of 14.2%, excluding tirzepatide. This was largely driven by a 1.2x volume outperformance, continued strength in chronic therapies and strong recovery in key acute therapies led by Gastro and Our initiatives across leadership and field changes, process optimization, focused product portfolio, doctors' engagement and extensive use of technology have resulted into improving volume growth trend from 0.5% growth in financial year '25 to 2.3% volume growth in financial year '26, 4.7% volume growth in first quarter this year to now outperforming IPM with a volume growth of 6.7% in quarter 2. One of our key strategic priorities has been to increase the contribution of chronic therapies through focused initiatives, including medical marketing, new product launches, in license and selective brand acquisition. We have consistently outperformed the chronic market and strengthened our position in key therapies area. As a result, our chronic share, excluding BSV, expanded by 80 bps year-on-year to 37.4%, led by 1.1x outperformance in cardio and anti-diabetes, again, excluding tirzepatide and a strong 1.9x outperformance in chronic respiratory during the quarter. While we are expanding our recently launched multi-therapy mass market division, Vistar, we are also progressing towards the launch of new divisions in cardio, gastro and dental therapies. These divisions will enhance focus on high-potential brands, improve specialist engagement to accelerate growth. Our Consumer Healthcare business delivered a revenue of INR 229 crores in quarter 2 '27, impacted by slower offtake in category for the industry and some regional impact in East and South, despite softer growth, we gained market share in key brands like Manforce and Prega News. Our modern trade and e-commerce share increased to 18% from 12% a year ago, supported by 55% growth in that channel. Innovation and specializations continue to remain central to our long-term strategy, and we are steadily building differentiated science-led pipeline that complement our existing portfolio. Happy to share our in-house pipeline asset, MKP11093, a best-in-class JAK inhibitor has received funding from PRIP program by the Government of India, a first for Mankind. Building on this journey, we recently announced our strategic acquisition of Armed Cell Therapeutics, providing us access to next-generation CAR-T cell therapy platform being developed by highly experienced founding team, we view this as an important step towards creating an innovation platform for future growth as we continue to strengthen our leadership across acute therapies, build scale in chronic and specialty segments and selectively invest in innovation platforms, we remain confident in our ability to deliver sustainable growth and accelerate long-term value for patients and shareholders. Now I invite Sheetal to walk you through more details on our business performance.

Good evening, everyone, and thank you for joining us for Mankind Pharma's Quarter 2 and H1 Financial Year '27 Earnings Call. It is a pleasure to have you with us as we share our performance and key developments for the quarter. As our business continue to evolve, we are seeing the benefit of strategic choice made over the past few years. The quarter was marked by the strong operating momentum and continued advancement of our long-term priorities. Let me take you through the key developments. Our domestic business delivered another quarter of strong growth with revenue increasing by 14.8% year-on-year to INR 3,657 crores. This was driven by 16% growth in Mankind core domestic ex consumer and mid-teen growth in BSV domestic business, partially impacted by muted growth in Consumer Healthcare. Importantly, we continue to outperform the IPM by 1.1x led by 1.1x outperformance in chronic with 19% year-on-year growth in cardiac and 16% growth in antidiabetes. Recovery in acute continued with 1.1x outperformance driven by 26% year-on-year growth in vitamin and Minerals and 19% growth in Gastro, further supported by key brands such as [indiscernible] Anti-infective continued to recover quarter-on-quarter with a growth of 5.4% in quarter 2 financial year '27 versus 3.6% in quarter 1 financial year '27. business also delivered strong momentum with robust growth in key brands, -- 51%; Lupin, 45%; -- 37% and ASVS, 45%. Another encouraging effect is the increasing scale of our brand portfolio. We have added 9 new brand families with sales over INR 50 crores, taking the total to 63 in September '26 versus 54 in financial year '26; and four brand families with sales over INR 100 crores, taking the total to 26 from 22 during the same period. This reflects the continued productivity and scalability of our commercial engine. Additionally, we are seeing encouraging traction across our newer brands, including Monarom, AmpagGrid, Neurobraine PFS and While still in the early stage of their life cycle, these brands strengthen our future growth pipeline and have the potential to evolve into meaningful scale over time. Our focused efforts to expand our presence in the hospital segment are gaining healthy traction. During the quarter, we saw a strong 23% year-on-year growth in hospital revenues. We see strong long-term growth potential in this segment through specialized engagement and targeted launches. Moving to our international business. Revenue for the quarter increased by 33% year-on-year to INR 680 crores, driven by strong growth in both Mankind International and BSV's brands Specialty. BSV continues to increase global adoptation of its specialty portfolio across fertility, critical care and women's health. Looking ahead, our priorities remain clear: driving profitability growth at scale, increasing the contribution of chronic and specialty therapies, expanding our international footprint through our differentiated product portfolio, strengthening our innovation pipeline and creating long-term value through disciplined execution. What gives me the greatest confidence is not our numbers, but our people. Every day, more than 27,000 colleagues across factories, R&D centers, offices and the field carry forward the Mankind purpose. They are hunger to grow, humility to learn, honesty in action and hard work remain our greatest competitive advantage. As we build the next Mankind, we will remain guided by the same values that have defined us since the day 1, integrity, humanity, hard work and an unwavering commitment to improving lives. Our journey continues with confidence, purpose and optimism. With that, I would now like to hand over the call to Ashutoshji, who will take you through the financial performance in greater detail. Thank you so much.

Thanks, Sheetalji. Good evening, everyone. I'm delighted to have you all with us on our quarter 2 and H1 FY '27 earnings call. Let me give you a brief of financial highlights of our quarterly performance for quarter 2 FY '27. Our revenue from operations during quarter 2 FY '27 has increased by 17.3% year-on-year basis to INR 4,338 crores as compared to INR 3,697 crores in quarter 2 FY '26, driven by strong growth in our base business as well as PSV specialty business. Our gross margins for the quarter has increased by 90 basis points year-on-year basis to 72.2% from 71.3% in quarter 2 FY '26. This year-on-year increase is primarily driven by three factors: firstly, the impact of sales price increase, which we have taken; secondly, the favorable sales mix as our chronic contribution has increased by 80 basis points on a year-on-year basis; and thirdly, there has been a favorable base effect as quarter 2 last year, our gross margins were compressed due to GST 2.0 transitioning impact. Our reported EBITDA margin for the quarter has increased to 27.1% as compared to 25% in quarter 2 FY '26. This increase of 210 basis points is primarily driven by three factors: 90 basis point increase is from gross margin expansion, reduced R&D expense by 40 basis points and the balance 80 basis point benefit has come from operating leverage due to sales growth. The EBITDA margins for H1 FY '27 is 26.7%, which has increased by 230 basis points year-on-year basis. The improvement is primarily due to increase in gross margins by 160 basis points and the balance 70% benefit has come from operating leverage. The R&D expenses for the quarter was INR 108 crores, which is at 2.5% of sales and the same is lower than R&D spend of 2.9% of sales during quarter 2 FY '26. This 2.5% is lower than our guidance of 3% for the full year FY '27. The finance cost for quarter 2 FY '27 has declined to INR 105 crores from INR 110 crores during Q1 FY '27 as Q1 FY '27 had an NCD repayment of INR 1,250 crores. In quarter 2 FY '27, the depreciation and amortization expenses has increased to INR 236 crores as compared to INR 222 crores in quarter 2 FY '26. This is in line with the asset capitalization undertaken during the period. The effective tax rate for H1 FY '27 was at 24%, which has increased from 17.1% in H1 FY '26. The increase in effective tax rate is due to adoption of new tax regime this year following the expiry of the tax exemption period. The profit after tax for quarter 2 FY '27 grew by 37.7% year-on-year basis to INR 716 crores with PAT margins improving to 16.5% during the quarter as compared to 14.1% in quarter 2 FY '26, resulting in an increase of 240 basis points. This growth was primarily driven by stronger EBITDA margin and lower finance cost, which has got partially offset because of increased ETR. Our diluted EPS is INR 17.2 per share of INR 1 paid for the quarter. The cash EPS, which is EPS adjusted for noncash items, like depreciation and amortization, has increased during the quarter to INR 22.9 from INR 17.7 in quarter 2 FY '26, an increase of 29.1% year-on-year basis. The net operating working capital for the quarter on trailing 12 months basis has increased to 51 days as compared to 46 days in the corresponding period last year mainly due to increased working capital. In H1 FY '27, our cash flow from operations has increased to INR 1,819 crores as compared to INR 1,637 crores in H1 FY '26, which is on a year-on-year basis, an increase of 11.1%. In H1 FY '27, our cash flow to EBITDA ratio has decreased to 81% as compared to 92% in H1 FY '26. The drop of 11% in cash flow to EBITDA is due to increased working capital. Our CapEx spend during the quarter has increased to INR 214 crores [indiscernible] as compared to INR 163 crores in quarter 2 FY '26. The CapEx as a percentage of revenue is 4.9% of the total revenue, which is lower than our guidance of 6% to 7% of revenue for FY '27. In line with our prudent financial strategy, we have reduced our net debt to INR 2,639 crores as on 30th September '26, resulting in the net debt to adjusted EBITDA ratio of 0.6x in quarter 2 FY '27 on a trailing 12 months basis. We remain on track to repay the acquisition-related debt by FY '28. With this, we conclude our financial update and welcome any questions which you may have. Over to you, Prakash.

We are open for Q&A now.

[Operator Instructions] We'll take our first question from Rashmi Shetty.

I'm Rashmi from Dolat Capital. Am I audible?

Yes, you are.

Congratulations on good set of numbers. Sir, what is driving your export business? Because when I'm trying to adjust your numbers and splitting between your organic and inorganic growth, both seems to look strong this quarter. So what exactly is driving this? And how should we look for the entire year?

Rashmi, we gave the guidance of 20% growth rate on a constant currency dollar basis for the export and the actual growth is coming to upward of 30%, and the delta is driven because of the currency exchange benefit.

To add to it, our international business growth is driven by both BSV as well as Mankind, supported by strong performance in branded specialty products and new U.S. launches. So BSV grew by 34%, while Mankind, U.S. and other international market grew by 29% and 37%, respectively. So we expect double-digit growth in international business in the financial year '27.

Okay. And generally, if -- in earlier just 1 to 2 years before U.S. was something a bigger contributor to the overall export market, we had reached around 70% to 75%. We still hold it or your other branded markets are also equally contributing it now?

So I think the U.S. market and other branded markets are almost more or less equal now. And we expect going forward, the other emerging markets to take over the U.S. market in terms of the contribution.

Okay. And my next question is related to the EBITDA margin. This quarter, we have achieved on the higher end of the guidance, that is around 27%. If you can split that whether this expansion we are seeing mainly because of your higher ramp-up in the BSV segment, where the margin was around 28%. There we are seeing a big expansion in your operating margin or it is your base portfolio that is the Mankind portfolio?

So it's a mixed bag of both the things, and we highlighted in our earlier calls also that BSV margin is approximating to the overall company margin. So it's the overall growth which has been driving this. And as we highlighted that 0.7% is coming because of operating leverage in this number because of the higher sales growth.

So if we account for a higher domestic growth, that is a high gross margin business and chronic is also increasing. So that is leading to that kind of margin drop down.

So is it fair to assume that every year because of a good operating leverage and operating efficiency coming up, at least we should aim at 100 basis point expansion that -- 27% to 28% is the peak level that we can achieve.

So fundamentally and directionally, what you are saying is correct, Rashmi, and we will come up with a reliable guidance -- when we will come up for FY 2028 data point. The operating leverage should play a positive role in increasing the margins.

Our next question is from Neha Manpuria.

This is Neha from Bank of America. Two questions from my side. First, on the India business. Sir, I think after the underperformance for the last few quarters, we had mentioned that it is an aspiration to grow higher than the industry. Obviously, we have gotten there this quarter. Now if you were to think about the India domestic, the Rx growth for Mankind more near term and slightly more longer term, do you think we should be -- you are confident that we should be able to sustain this higher than industry growth? Or do you think realistically, it will still be in line with industry growth in the near term before we start outperforming more sustainably?

Thank you, Neha, for the question. Look at the legacy of Mankind, we've always been in the past for a good number of years, not 1 year for many decades, IPM by 1.3 to 1.4. Just look at the history and draw some kind of a conclusion. We have always said that we are in the process of making our foundation stronger, and we have done so. So when what you say comes true, you feel very happy and very, very excited now. Next phase of Mankind would be -- And as Mr. Ashutosh told you, we'll keep informing you what we expect in future, but we always believe that we should say less and do more. That's the philosophy of Mankind, and we want to continue on that. Again, I must tell you one thing that focus has always been India. We know India very well. So our focus is always domestic growth from where we are drawing maximum growth. And in the past, we have said a number of times that we want our chronic share should increase from 39% to 50%. We stick to that. We want that we'll be outperforming the IPM, absolutely. And we have some planning for that. We will be doing much better in hospital side, chronic side, and we have identified certain states where we have a ranking, which is less than our right ranking. So we are just focusing over there and hope that we come to your expectations.

That's great, sir. My second question, Ashutoshji, is on the margins. I think we have guided to 25.5%, 26.5% margins. We are obviously tracking ahead of that. I know seasonally, this is a strong quarter. But is it fair to assume that there is a possibility of us probably being at the higher end of that margin range or probably higher than that? And also, how do I think about -- given that we have a 70% stake in Armed Cell, the R&D spend there, would that also now start flowing through our P&L?

No, no, absolutely right, Neha. So as far as the margin guidance is concerned, so we would like to maintain the same guidance, 25.5% to 26.5%. And as far as the R&D guidance, so guidance was given 2.8% to 3% of the revenue. For this fiscal, we expect the R&D guidance to -- the R&D spend to be upper end of the guidance, which will be close to 3% of the revenue with accounting for the impact of ACTx in the R&D.

And sir, how should we think about the -- I know you have an analyst meet tomorrow, but in terms of the spend that ACTx needs, the funding that we put, how long do you think that can sustain before it needs more capital to progress on the R&D? Just some color there.

So the current commitment, whatever has been done is to the extent of [ $48 ] million and this is the business plan and the discussion. So this is good up to fiscal year 2028.

[Operator Instructions] Our next question is from Simran Thakkar.

My name is Simran from the Capital. So my question goes like this.

We can't hear you. Can you speak a bit louder?

Sure. Am I audible now?

Better. Thank you.

Okay. So my question goes like this, sir. Given the Supreme Court judgment, the Supreme Court mandated committee on the marketing practices and the 29 Jan 2027 hearing. So how is the company strengthening its marketing compliance framework and governance? I mean, what -- how do you see the regulatory direction for the industry altogether? That's my question one.

Thank you, Simran. So I think this whole UCPMP guideline is not something which has come to light right now. This has been there since 3 to 4 years. However, this has been voluntary in nature. And also there is some sort of statute which is there from the Department of Pharmaceutics. But now with this whole Supreme Court ruling, the government wants it to have more statutory powers. However, if I talk about from Mankind's perspective, we have been preparing for it, not just since the last 3, 4 years, but since the last 7 to 8 years. And we are all geared up. And I think from -- even if whatever the committee recommends, whatever guidelines they come up with, we are fully geared up to comply with it.

I understand, sir. Sir, on the second thing on the tax litigation front, the annual report review of 2026, wherein INR 1,609 crores of disallowance under Section 371. So if that holds up, how do you see the tax plus interest going there and the contingent liability that we have created for?

So thanks, Simran, for the question. As far as the tax demand is concerned, so we are pleased to inform you that we have received a favorable order from the Commissioner of Appeals. So wherein they have quashed the 4 years in the order, favorable order has been passed. And the overall exposure has been brought down from the old level by INR 300-odd crores. And having said that, whatever is there, the accounting provision as well as the financial or the payout, everything has been accounted for in the books of account. So because of this particular tax litigation, we don't expect anything to change on the financial metrics or the financial parameters of the company.

[Operator Instructions] Next question is from Makhran

My name is Makhran. I'm from Grimiti Investment Advisors. I was just curious about that we have seen quite a weaker monsoon in many parts of country this year. So has this impacted any negatively?

Makhran, we have seen our growth trend in last quarter. It has not been based on anti-infective, if you see. So seasonality and monsoon affects more or less anti-infective and acute part, but our business has been dominated -- our growth has been dominated by chronic part mostly. And to some extent, gastro and multi vitamines, so which is not dependent on season. Though there has been some impact, but it's not too much because our contribution to chronic, semi-chronic portfolio in terms of growth was much higher.

Next question is from Rahul Jeewani.

This is Rahul Jeewani from IIFL. Sir, on the India Rx business, obviously, this quarter's growth was partly aided by the lower base of last year. So India Rx grew 16% for us. And last year, same quarter, the business had grown 5%. So if I look at on a 2-year CAGR basis, our India Rx growth is still around 11%, which is slightly below industry growth given that IPM is now growing at around 12%, 13%. So where do you think we are still lacking versus market? Is it largely the acute business, which is, let's say, still growing slower for us, which is leading to our growth being below industry?

Rahul, very good question, but let me explain to you that if you just look at last year, this quarter was having the highest sales. But I mean even that I say that, yes, whatever you are saying is right. But look at the growth of Mankind is 15-point-some percent is the growth this quarter. And this is not the end of the growth. We feel that going forward, we'll be doing better. That's kind of a confidence we carry in our head. Because whatever corrections were supposed to happen, they have happened. They are the past. Going forward, quarter after quarter and year after year, you see the -- new Mankind, better Mankind, the same kind of a Mankind, which used to perform a few years back. That's kind of what we're carrying our head now. And continuously, if you just look at our volume-wise growth, just look at this quarter 2 '26, our volume growth, that basically is the right metrics. Our growth was minus 0.5%. Quarter 3 last year, it was 1.5%. Quarter 4 last year, it was 2%. This year, first quarter, the volume growth is 4.7%. Quarter 2, our volume growth is 6.2%. And apart from this, just look at the performance of new products. When you just -- how we basically see our own performance -- on 2, 3 fronts. One, what is the PCPM, productivity, what is the growth, what is the jump in the sales. And most important, the volume growth and the launches of new products. So that basically talks about that fundamentally company is doing better. I mean this is how we basically operate. And on all fronts, we are seeing consistently, we are improving and hope that we'll keep surprising the market in future.

Sure, sir. So let's say, on a sustainable basis over the medium term, do you think that the India portfolio can clock this consistent 11% to 12% kind of a growth trajectory?

We feel that we will outperform IPM, IQVIA, whatever is that, the Indian pharma market will definitely outperform that.

And any...

I'd like to add here in terms of the corrective action, if you see, there's a huge improvement in the leadership and the field force. The team has stabilized. There was some small disruption in the last 6, 8 quarters. So those have been stabilized in the last 3, 4 quarters, and you started seeing some improvement with Rajeevji highlighted that the volume kept on improving. And this momentum has picked up both in chronic as well as acute. That's why we are able to see broad-based growth, and that's why we're able to now outperform IPM, which we believe that we will continue to do so for the foreseeable period.

Sure, Prakash. Are we giving out any quantitative number in terms of the outperformance, which we are targeting versus the IPM? In the past, our outperformance had been 1.2x versus the IPM.

I think, Rahul, two points I want to mention. One is we are still -- this quarter also, we have been outperforming the market. And traditionally, what even Rajeev sir has told that we have been 1.3, 1.4x earlier. But this is a phase where even there is some unpredictability in terms of IPM growth also. So if you see today, we cannot say that what kind of growth of IPM will be there for next 2, 3 quarters. So -- but in terms of outperforming the market, it would be around 1.2 or 1.1 to 1.2, which we can see in next 2 quarters. But in addition to that, I think one point needs to be added here because quarter 2, when you are talking about, Rahul, last year, the basic key metrics like cardio, diabeto or even for that matter, vitamins and gastro, our -- Mankind's performance was still more than the market even in quarter 2 last year. So comparing that we are still doing better in those key metrics for our success.

Sure, sir. And just on the chronic side, can you talk about your GLP-1 strategy? Because obviously, there, we were trailing competition in terms of market share. So what's your thought process in terms of scaling up on the semaglutide opportunity in India?

We mentioned in the past as well that we said that let the competition -- competitors become a bit common and sensible, and we'll start working on it. And the working has been started. We are entering this market very strategically, launched one in cardiodiabeto, one in And going forward, you'll see the response.