09 Nov

The IPO consists of a fresh issue of Rs 1,250 crore and an offer for sale of 3,48,63,635 equity shares by the promoter and other selling shareholders.

The initial public offer (IPO) of Hyderabad-based injectable-focused Gland Pharma opened for subscription today with an issue price band of Rs 1,490-1,500 per share.

The Fosun Singapore and Shanghai Fosun Pharma-promoted Gland Pharma aim to raise Rs 6,480 crore from the issue. The company has already raised Rs 1,944 crore from anchor investors last week ahead of the IPO.

The IPO consists of a fresh issue of Rs 1,250 crore and an offer for sale of 3,48,63,635 equity shares by the promoter and other selling shareholders.

Most brokerage houses have a bullish view on Gland Pharma and have assigned a 'Subscribe' rating to the issue.

Nirali Shah, Senior Research Analyst, Samco Securities noted that it will be the only listed player in the pure formulations space in India.

“The company follows a B2B model with sales in 60 different countries and long-term contracts with various partners which provide a good forward-looking pipeline in terms of sales. Its top 5 clients contribute over 40 percent to its revenue. Financially too, Gland is extremely strong with a CAGR of upwards of 25 percent in both its top and bottom line from 2018-20,” Shah said.

Margins were 39 percent in FY20 and its Q1FY21 margins were even more impressive at 48 percent. Moreover, the company believes in utilizing internal cash for its working capital needs and future expansion plans which is visible through its debt levels which are nil. Even before the IPO, Gland has sufficient cash on its books, and post IPO, the management aims to look for inorganic growth opportunities to strengthen its vertical integration.

From a valuation perspective too, on a P/E basis, Gland Pharma trades at a 30x multiple while its global peers such as Recipharm and Lonza trade much higher at 44x and 55x respectively. "Due to the abundant positives and tailwinds from the pharma sector in general, we feel this IPO is a good bet and can be subscribed to for the long term," she added.


Choice Broking

Coming to valuations, at a higher price band, Gland Pharma is demanding a TTM P/E valuation of 31.7x (to its TTM EPS of Rs. 47.3), which is in-line with the pharma industry P/E of 32.3x.

"As such, there is no comparable listed in the domestic market having business operations similar to Gland Pharma. If we consider international peers like Recipharm AB, Catalent Inc., and Lonza Group AG, the average TTM P/E comes out to be 56.5x. However, considering valuation metrics in a couple of M&A deals (like Aurobindo Pharma’s acquisition of certain business lines of Spectrum Pharma in 2019 and Recipharm acquisition of majority stake in Nitin Lifesciences in 2019) which happened in the recent past, the demanded valuation by Gland Pharma seems to be stretched." said the brokerage.

Thus, considering the strong fundamentals and stretched valuation, the brokerage assigns a “Subscribe with Caution” rating on the issue.

Source: CNBC

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