Mankind Pharma: Mankind may end up spinning out a winner in consumer brands unit

ET Intelligence Group: One of the most successful pharmaceutical companies in creating a consumer OTC (over-the-counter) products business, Mankind Pharma is now doing what Sanofi India, Cipla and Zydus Lifesciences had done in the past. It has carved out its consumer brands business into a wholly-owned subsidiary.

The company entered the OTC business in 2007 and it has grown to have established brands such as Manforce, HealthOK, Prega News, AcneStar, Unwanted and Gas-O-Fast. Four of its brands ranked No.1 in their respective categories. The business made revenue of ₹706 crore and an Ebitda margin of 19.9% in FY24 – contributing 7% to the company’s overall revenue. For the June quarter of FY25, the business posted revenue of ₹206 crore and an Ebitda margin of 19.5%. The company aims to increase the consumer business’s contribution to 15% of the total revenue in the long run through dedicated focus and better capitalisation as a subsidiary.

However, this development raises several questions: Does carving out a consumer business as a separate subsidiary help a pharma company? Did Mankind’s peers benefit from such a move? And will Mankind list its consumer products subsidiary like Zydus Lifesciences (formerly known as Cadila Healthcare)?

Pharma companies in India have had a history of spinning off subsidiaries related to different segments such as R&D, active ingredients, trade generics and consumer brands. A consumer products business is different from a prescription pharma business. The former requires much less regulatory compliance compared with the latter but needs higher investment in marketing and brand building. Subsidiarisation of this business helps in developing a focused strategy for marketing, distribution, innovation, brand building as well as resource allocation. It can also help attract investments and unlock value for investors.

Carving out a subsidiary for consumer health products has largely benefited the parent pharma companies. For instance, in June this year, Sanofi India spun off its consumer healthcare division into a subsidiary that will sell prescription drug brands like Allegra, Combiflam and DePura. Last month, Sanofi Consumer Healthcare was listed on the stock exchanges.

In 2015, Cipla carved out its consumer healthcare division as a subsidiary called Cipla Health. The subsidiary made revenue of ₹1,045 crore (4% of the company’s overall top line) and a net profit of ₹86 crore for FY24.In a notable move, Zydus Lifesciences spun out the consumer products business into a subsidiary named Zydus Wellness and unlocked its value by listing. Zydus Wellness has gained nearly tenfold since its listing in 2009.Mankind Pharma shares have gained 85% since the company’s listing in May last year. It acquired Bharat Serums & Vaccines in July this year. Now it is carving out its OTC business into a company. There will always be a possibility or need to raise funds in the primary market for investing in building brands. This could result in value unlocking for investors. Mankind’s investors can do well by watching out for the company’s growth strategy on this front.