Glenmark Life Sciences, one of the leading manufacturers of select high value, non-commoditised, low-cost active pharmaceutical ingredients in chronic therapeutic areas, is all set to launch its initial public offering (IPO) on Tuesday. The company aims to raise Rs 1,514 crore from primary market investors. The initial public offering comprises a fresh issue of Rs 1,060 crore and an offer for sale of up to 63 lakh equity shares by promoter Glenmark Pharmaceuticals. The company has fixed the price band at Rs 695-720 per equity share. At least 50 per cent will be reserved for qualified institutional investors, 35 per cent for retail and 15 per cent for HNIs.
Considering the pharma company’s unique position in the market and future prospect, most analysts suggested a subscribing rating for Glenmark Life Sciences IPO. The wholly owned subsidiary of Glenmark Pharmaceuticals Limited, is a leading developer and manufacturer of select active pharmaceutical ingredients, including cardiovascular disease, central nervous system disease, pain management and diabetes. As of May 31, the company owned or co-owned 39 granted patents and had 41 pending patent applications in several countries and six pending provisional applications in India. Over the decade, it has established a strong relationship with leading global generic companies. At least 16 of the 20 largest generic companies globally were its customers, the data till March 31 showed. The key customers include Glenmark, Teva Pharmaceutical Industries, Torrent Pharmaceuticals, Aurobindo Pharma, Krka etc.
The unlisted share of Glenmark Life Sciences reported to be trading at a price of Rs 120, over the issue size of Rs 720. The shares were trading at around Rs 815-840 apiece, signalling a premium of over 16 per cent over the IPO price, according to reports. Grey market premium is an indicator that investors follow to understand the likely listing gain that an IPO can offer.
“Based on FY-2021 PE of 22x and EV/EBITDA of 12.9x at the upper price band of the IPO price, valuations are slightly better than the peer companies. Similarly, the company has one of the best ROCE of 32.7%. Company has a healthy balance sheet and will be Net Debt free after the IPO. We expect the upcoming expansion plan in Ankleshwar & Dahej will be the next growth driver for the company. We are assigning a ‘Subscribe” recommendation to the issue," said Yash Gupta Equity Research Associate, Angel Broking Ltd.
“At the upper price band of Rs 720, Glenmark Life Sciences is available at a P/E of 25x (diluted) which appears fairly priced. We assign a ‘Subscribe’ rating for the issue on a long-term basis considering its strong focus on R&D, expansion plans (1726.6KL when completed), growth opportunity in CDMO services and
expanding complex API portfolio," said Geojit in a note.
The proceeds from the offer for sale will go to the selling shareholders. The amount received from the sale of fresh issue will be utilised for payment of outstanding purchase consideration to the promoter for the spin-off of the API business (Rs 800 crore), funding capital expenditure requirements (Rs 153 crore) and general corporate purposes.
Key Areas of Concern
According to market analysts, the investment concerns will be
1) High dependence on a limited number of customers: Five largest customers accounted for 55% of the total revenue from operations, and the promoter is the largest customer(40%).
2) Requires a significant amount of working capital: Glenmark Life Sciences Limited generates a significant portion of the total revenue from the API business from the sale of products in a limited number of therapeutic categories.
“We believe Glenmark Life Sciences is well placed in the API business (earns 90% of revenue) with a product portfolio of 120 products including therapy areas like cardiovascular, CNS, diabetes, anti-infectives. It has strong relationships with leading global generic pharmaceutical companies that have helped them expand its product offerings and geographic reach. Further, its R&D laboratories focus on new product development and complex molecules, cost improvement programs and process improvements which augur well for the growth. Going forward, the company plans to diversify the customer base by increasing geographic market coverage, grow the CDMO business along with API and improve operating efficiency. On the financial front, its performance has been strong. We have a positive view on the company from the long term perspective," said Nirvi Ashar, Religare broking.
“The Indian API market is expected to grow at 9.5% CAGR from 2021-2026,
owing to strong domestic demand, transition to specialty segments and an
increased focus towards newer geographies in the global pharmaceutical industry," it further added.