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IPO Analysis: Gland Pharma

Henil Shah
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IPO Analysis: Gland Pharma

IPO Rating - Invest for listing gains

 

About the issue

Gland Pharma, a company promoted by Fosun Singapore and Shanghai Fosun Pharma, is tapping the primary capital market with its initial public offer (IPO) of equity shares of the face value of Re 1 each. The price band has been fixed between Rs 1,490 and Rs 1,500.

 

The total issue size is Rs 6,480 crore at the upper price band, including a fresh issue of Rs 1,250 crore and an offer for sale of Rs 5,230 crore shares by the existing shareholders at an upper price band of Rs 1,500. After this issue, the promoter’s stake will come down to 58.36 per cent from 74 per cent that existed before this issue.  

 

The proceeds from the fresh issue of IPO will be used to fund the incremental working capital requirements (Rs 769.5 crore) of the company and capital expenditure (Rs 168 crore). The rest will be used for general corporate purposes.

 

The IPO will open for public subscription on November 9 and would close on November 11.

 

Gland Pharma

IPO Date

November 9, 2020 - November 11, 2020

Issue Type

Book Built Issue IPO

Issue Size

43,196,968 Eq Shares of Re1
(aggregating up to Rs 6,479.55 Cr)

Fresh Issue*

8,333,333 Eq Shares of Re 1
(aggregating up to Rs 1,250.00 Cr)

Offer for Sale

34,863,635 Eq Shares of Re 1
(aggregating up to Rs 5,229.55 Cr)

Face Value

Re 1 Per Equity Share

IPO Price

Rs 1490 to Rs 1500 Per Equity Share

Market Lot

10 Shares

Min Order Quantity

10 Shares

Listing At

BSE, NSE

Market Cap (Rs crore)*

24,492

*At the upper price band

 

About the company

Gland Pharma was incorporated on March 20, 1978, and is promoted by Fosun Singapore and Shanghai Fosun Pharma. The company was one of the fastest-growing generic injectables-focussed companies by revenue in the United States from 2014 to 2019. It sold products primarily under a business to business (B2B) model in over 60 countries as of June 30, 2020.

 

In markets such as the United States, Europe, Canada, and Australia as well as the rest of the world (RoW) as in, Brazil, Africa, Asia Pacific, Middle East, North Africa, Commonwealth of the Independent States & South Africa, the company’s primary business model is B2B, covering IP-led, technology transfer and contract manufacturing models. In such markets, it partnered with leading pharmaceutical companies. As of June 30, 2020, the company, along with its partners, had a total of 1,427 product registrations, comprising 371 product registrations in the United States, Europe, Canada, and Australia, 54 in India, and 1,002 in the RoW. Exports contributed 40 per cent to its revenue in FY20 and grew at a CAGR of 18 per cent over FY18-20.

 

The company’s primary business model in the Indian market is B2C, where its products are primarily marketed and sold to institutions such as hospitals, long-term care facilities, and clinics through stockists and distributors. They also have a B2B presence in India, where they supply products to pharmaceutical companies.

 

Revenue Based on customer location

Q1FY21

Q1FY20

FY20

FY19

FY18

United States

62.61%

65.49%

66.74%

62.50%

71.25%

Europe

3.40%

4.85%

4.44%

5.38%

3.39%

Canada

2.34%

0.78%

1.78%

1.12%

1.08%

Australia

0.43%

0.16%

0.50%

0.44%

0.69%

Total for US, Europe, Canada & Australia

68.78%

71.28%

73.46%

69.44%

76.41

India

14.52%

17.13%

17.74%

18.97%

18.49%

Rest of the world

16.70%

11.59%

8.80%

11.59%

5.10%

 

Gland Pharma has a presence in sterile injectables, oncology & ophthalmics, and focusses on complex injectables, NCE-1s, first-to-file products. They have seven manufacturing facilities in India, comprising four finished formulation facilities and three API facilities. The company has 267 ANDA filings, comprising 191 ANDA filings for sterile injectables, 50 for oncology, and 26 for ophthalmics-related products, of which, 215 have been approved. Around 62 per cent of the company’s revenue is derived from the USA. The key customers of pharmaceutical chemicals include Hetero Labs, Laurus Labs, Aurobindo Pharma, Lantech Pharmaceuticals, Ind–Swift Laboratories, Vivin Drugs & Pharmaceuticals, and Macleods Pharmaceuticals.  

 

Financials

The company has witnessed decent growth in its financials in the last few years. Total revenue from operations has grown at a CAGR of 27.38 per cent between FY18 and FY20. It has grown from Rs 2,394 crore in FY18 to Rs 3,630 crore in FY20. In the first quarter of FY21 also, revenue grew by 30 per cent. EBITDA grew at a faster pace, at a CAGR of around 37 per cent in the same period to Rs 1,094 crore in FY20. The profit after tax has grown at a CAGR of 55.15 per cent between FY18 and FY20.  

 

Financials

Particulars (Rs in Crore)

Q1FY21

Q1FY20

FY20

FY19

FY18

Equity Share Capital

15.5

15.5

15.5

15.5

15.5

Reserves as stated

3,947.97

3,028.32

3,630.74

2,846.50

2,394.86

Net worth as stated

3,963.47

3,043.82

3,646.24

2,862.00

2,410.36

Revenue from Operations

884.21

674.46

2,633.24

2,044.20

1,622.89

Revenue Growth (%)

31.10%

-

28.82%

25.96%

-

EBITDA as stated

444.7

296.98

1,094.64

792.07

584.08

EBITDA (%) as stated

50.29%

44.03%

41.57%

38.75%

35.99%

Profit Before Tax

420

274.33

992.87

686.28

501.47

Net Profit for the period

313.59

183.77

772.86

451.86

321.05

Net Profit as % to Revenue

35.47%

27.25%

29.35%

22.10%

19.78%

EPS (Rs)

20.24

11.86

49.88

29.16

20.72

RONW (%)

7.91%

6.04%

21.20%

15.79%

13.32%

Book Value per share(Rs)

255.79

196.44

235.32

184.71

155.56

ROCE

7.76%

5.79%

20.74%

15.11%

12.59%

 

Valuation and our take

At the upper end of the price band of Rs 1,500 and on an expanded equity base, the company is being valued at a market cap of Rs 24,492 crore. Hence, the issue is demanding a market cap to sales (FY20) of 6.7 times, which looks on the higher side. Although the business model of the company is not comparable with any currently listed pharma company, other pharma companies of comparable revenue are available at less than five times market cap to sales. When it comes to PE, the offer is demanding a PE ratio of 31.69 times of its FY20 EPS. Nonetheless, if we annualise EPS (20.24*4) of Q1FY21, the offer is available at a PE of 19.5x. It will be naïve to assume that the company will be able to replicate its growth in the first quarter for the entire year. Assuming a tempered growth of 40 per cent, EPS for FY21 comes at Rs 66, which discounts the offer price at 22 times. 

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