Mankind Pharma's margins have recovered, but acquisition costs still hold its profit back

Mankind Pharma, which sells medicines mainly in India, had a strong September 2026 quarter on its own terms. Sales rose 17.3% from a year earlier and operating margin, calculated from the filed results as operating profit over sales, reached 27.0%. Set the quarter against the same one two years earlier, before the company borrowed to buy the BSV business, and the picture narrows: net profit was only 8.6% higher, on sales 41.7% larger.

The business itself has grown. Operating profit, the earnings left after running costs but before depreciation, interest and tax, rose 38.3% over those two years. What changed sits below that line. Depreciation and interest together grew so much that they absorbed about 72% of the gain in operating profit, by our calculation from the filed results, which left profit before tax only a little higher.

Both charges trace back to the acquisition. Borrowings went from ₹207 crore to ₹8,511 crore in the year to March 2025, and the company describes the debt as acquisition-related, to be repaid by FY28. In July management put roughly half of the quarterly depreciation charge down to the acquisition. Depreciation does not take cash out of the business, but it does come out of reported profit, and repaying debt does not reduce it.

The past year shows repayment starting to work. Borrowings have since come down to ₹5,422 crore, and interest last quarter was lower than a year earlier, adding to the gain in operating profit, as the chart below shows. Net profit rose 37.7%, less than profit before tax did, because the tax rate went up once a tax exemption expired.

Management did not raise the margin it is guiding to. It kept the full-year EBITDA margin guidance, its own measure of earnings before interest, tax, depreciation and amortisation, at 25.5% to 26.5%, although operating margin for the first half, on Inve's basis, was 26.6%. It did not say why on the call. The CFO did say research spending should reach the upper end of its guidance once the newly acquired cell-therapy unit ACTx is included; in July management had warned that commodity prices and a stronger dollar could squeeze gross margin in the next quarter or so. It did slip, from 72.8% the quarter before to 72.2% last quarter, still above the company's guide of upward of 71%.

Debt repayment adds to the gains from sales growth: each repayment lowers interest, which was ₹105 crore last quarter, while the tax rate the company guided for the full year is still above what it paid in the first half, so part of that saving is already spoken for.