Glenmark Life Sciences, the subsidiary of Glenmark Pharmaceuticals, is expected to see the listing premium of around 10-15 percent over its final issue price of Rs 720 given the strong subscription from investors, reasonable valuation, healthy prospects of the API going forward, and positive market conditions, experts feel. This would the first listing in the month of August.
The Rs 1,513.6-crore public issue of the company witnessed strong demand from investors, subscribing 44.17 times during July 27-29, 2021. The qualified institutional investors had put in bids 36.97 times their reserved portion, and non-institutional investors 122.54 times, while a part set aside for retail investors was oversubscribed by 14.63 times.
The IPO comprised a fresh issue of Rs 1,060 crore and an offer for sale of Rs 453.60 crore by promoter Glenmark Pharmaceuticals. The company will utilise fresh issue proceeds for payment of outstanding purchase consideration to the promoter for spin-off of the API business from the promoter into the company, and capital expenditure requirements.
"According to the trend in grey market premium, one can expect to get listing gains of around 10 percent to 15 percent," Akhilesh Jat, Pharma Analyst at CapitalVia Global Research told Moneycontrol.
Considering healthy response from HNI category, Prashanth Tapse, VP Research at Mehta Equities believes it would list over Rs 810 levels, which translates to 13 percent premium over the upper0end of the IPO price Rs 720.
"Listing gain seems to be justified as the issue was reasonably priced when compared to other listed peers and given the healthy prospects of the API going forward," he said.
He further said Glenmark Life has well planned to list its IPO encasing on the fancy demand of pharma segment amidst pandemic with extreme bullishness in the sector which argues for a decent listing gain candidate.
Grey Market Premium
Glenmark Life Sciences shares were trading at a premium of Rs 90 in the grey market, the IPO Watch and IPO Central data showed.
This resulted into a trading price of Rs 810 in the grey market, which is 12.5 percent higher compared to issue price of Rs 720.
But the premium has been reduced drastically from Rs 150 levels seen initially this week and Rs 200 levels seen before the opening of public issue.
Company Profile
Glenmark Life Sciences is a leading developer and manufacturer of high value, non-commoditized active pharmaceutical ingredients (APIs) and its portfolio comprises of 120 products (10 products in laboratory development; four products in laboratory validation and 106 products being commercialized) ranging across various therapy areas like cardiovascular, central nervous system disease, diabetes, anti-infectives and others.
The company also provides contract development & manufacturing operations (CDMO) services to a range of multinational and specialty pharmaceutical companies. As on FY21, APIs and CDMO contributed around 91 percent and 8 percent to the revenue, respectively
All brokerages had assigned a subscribe rating for the issue citing reasonable valuations, business growth outlook, strong pharma prospects and stable operating margins.
"Based on the forecasted FY24E earnings, the demanded valuation comes out to be 11.4x, which seems to be attractive for a company generating a return on equity of around 20 percent," said Choice Broking which had recommended a subscribe rating for the issue.
Prashanth Tapse is optimistic on this company considering its niche and specialized product portfolio, parent group's credentials, strong relationships with global generic companies, expected growth in CDMO business and knowledge in regulatory environment & approvals in the markets.
Financials
On financial performance front, Glenmark Life has demonstrated a solid business growth with consistency in the profitability margins, said Choice Broking.
On the back of increased sales of APIs over FY19-21, the operating revenue grew at a CAGR of 45.8 percent and EBITDA margin expanded by 341bps over FY19-21 to 31.4 percent in FY21.
The profit after tax increased by 34.1 percent CAGR to Rs 351.6 crore in FY21.
Going forward, "based on our quick estimate, we are anticipating an 18.7 percent CAGR rise in the topline over FY21-24 to Rs 3,154.2 crore in FY24. Earnings before interest, tax, depreciation and amortisation (EBITDA) and PAT margin are expected to expand by 333bps and 594bps, respectively, to 34.7 percent and 24.6 percent in FY24," said Choice Broking.
"Bottomline will be boosted by lower finance costs, which in-turn resulting from the utilization of IPO proceeds to lower the related parties financial liabilities," the brokerage added.
Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.