DSIJ Mindshare

Lauras Lab IPO- A sweet pill for portfolio

About the IPO

Lauras Lab is coming up with an IPO from December 6 – December 8, 2016 with price band of Rs 426- Rs 428 for face value of Rs 10 per share. This IPO is a mix of fresh issue and offer for sale. The company will raise upto Rs 300 crore through fresh issue. Promoters, Warburg Pincus and Eight Roads Ventures will dilute their 24,107,440 equity shares through offer for sale and will make partial-exit from the company.

Purpose of IPO

Fresh Issue- The company will use net proceeds from the IPO for pre-payment of term loans and other general corporate purposes.

Offer for Sale- The proceeds of the Offer for Sale shall be received by the Selling Shareholders, and Company will not receive any proceeds from the Offer for Sale.

Industry Outlook

Change in lifestyle, environmental issues, inorganic food habits are leading to a rise in health issues among world population. There  Pharma companies have a role to play. Recent changes in WHO guidelines make all 37 million people living with HIV/AIDS eligible for ART (Anti-Retroviral Therapy) regardless of CD4 count across ages. 54% of HIV population is still to receive treatment and is growing at 11.4% CAGR over FY15-18, which leaves opportunity for Pharma companies dealing in ART. Majority of HIV population resides in LMICs (Low and Medium Income Countries). Europe and US ARV (Anti-Retroviral) markets are growing at growth rate of 7.7%/ 2.8% over FY16-20. There is significant opportunity for generic manufacturers post 2018 with patent expiries of some of key ARV products like Atripla, Truvada, Sustiva and Viread.

In India 12-18 million people are infected with Hepatitis C. The number of patients to receive DAA (Direct Acting Anti-Viral Drugs) treatment in India is expected to grow at 23.4% CAGR over FY16-21. Hepatitis C market growth would be driven by factors such as a reduction in drug prices, convenience of therapy administration and negligible side effects. Sofosbuvir is the market’s preferred treatment regimen for Hepatitis C and is the backbone of other therapies. Size of Sofosbuvir, Daclatasvir and Ledipasvir API market is growing at CAGR of 21%/ 15%/ 19% respectively over FY16-21.

Global Oncology Chemotherapy markets are also rising at CAGR of 8.4% over FY15-21. Market growth is driven by chemotherapy agents going off-patent and next generation technologies like MRI providing more reliable cancer therapy.

Company Outlook

Laurus Labs Limited researches, develops, manufactures, and sells active pharmaceutical ingredients (APIs) in India and internationally. It offers APIs for anti-retroviral and hepatitis C; and APIs in oncology and other therapeutic areas. The company operates in four business lines: Generics – APIs, Generics – FDFs, Synthesis, and Ingredients.

The company has 9 clients out of 10 largest global generic pharma companies, in their client base. It has 1 billion tablets / year capacity facility which is expandable upto 5 billion tablets/ year. On the whole, it has three manufacturing facilities and a kilo lab facility with approvals from US FDA, WHO. The company enjoys leadership position in high growth therapeutic areas of API. It has Efavirenz (EFV), Emtricitabine (FTC) and Tenofovir (TFV) in its API portfolio. TDF + FTC + EFV are the WHO recommended first line treatment options for HIV patients. It contributes 70.4% in revenue pie with focus on LMIC, US and UK markets. It enjoys 10 year contract on 50:50 profit/loss sharing for Hepatitis C API product with NATCO. Products covered: Sofosbuvir, Ledipasvir, Daclatasvir and Velpatasvir. Laurus Labs is the exclusive supplier to NATCO for Sofosbuvir. Its focus markets are India and high end emerging markets and contributes 11% in revenue pie. High margin Oncology products contribute 7.9% in revenue with focus on US and EU markets. Its synthetic business is growing at 104% CAGR and has executed 37 projects till date.  Meanwhile ingredient business is growing at 11% CAGR.

It has launched 59 products since inception in 2005. Lauras owns 32 patents and had 150 pending patent applications. Its R&D team comprises of 617 scientists (24.4% of total employee strength) including 42 PhDs. Top 5 customers have been Laurus customers for the last 5 years – accounted for 67.8% of total revenues in FY16.  (Mylan, NATCO, Aspen, Cipla, Aurobindo)

Financial Performance

The company registered strong revenue growth by 41% CAGR, mainly driven by increased sale of ARV APIs & intermediates and Sofosbuvir (Hepatitis C) over FY12-H1FY17. EBITDA is rising at CAGR of 48% over FY12-H1FY17 and enjoys healthy EBITDA margin at 22.2%. PAT has also grown by whopping 57.5% since last five years.

Peer Comparison and Valuation

The company looks attractive with EPS of 20.86 and upper price band P/E of 20.51x which is lower than listed peers like Divis Lab and Aurobindo Pharma. Considering strong portfolio and financial performance of company, we suggest you to subscribe this IPO with long term vision.

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