Gland Pharma open for subscription; why should you subscribe?

Hyderabad-based injectable-focus-med drugmaker Gland Pharma opened its public issue for subscription on November 9 at Rs 1,490-1,500 per share with the issue band. The company, backed by Chinese Fosun Pharma, aims to collect Rs 6,480 crore through a public offer, of which it has already raised Rs 1,944 crore from last week's anchor investors before the IPO. 

According to a report in Moneycontrol.com, the company will get the funds from the new issue of Rs 1,250 crore, but the remaining money, which will be raised through an offer to sell 3.48 crore equity shares, will be sold to the promoters and shareholders.

Most of the brokerage houses have fast views on Gland Pharma. Hence, they have given the issue a 'subscribe' rating, attractive valuations, healthy balance sheets, strong financials, high entry barriers to complex injections, strong product pipeline, solid business model, And no comparable listed peer positive outlook in the pharma sector.

"In the upper price band of Rs 1,500, Gland Pharma is available on an annual basis at a PE of 20x, which seems attractive. With a solid business model, no listed peers, and a positive outlook for Pharma, we offer membership ratings. The issue" said Geojit Financial Services.

One of the largest pharma IPOs, Gland Pharma, reported strong revenue growth (CAGR of 27 percent) and PAT (55 percent CAGR) in FY 18-20 with a 328 bps margin expansion. Its debt / equity ratio is 0.01 in FY 2010.

GEPL Capital said the company focuses on complex injections, with high penetration barriers and strategic partnerships to enter new markets such as China, which could prove to be an attractive opportunity for the company.

With a robust product pipeline and more complex products under development, focus on B2B expansion and licensing, and opportunities to enter more medical fields, the offer looks attractive, the brokerage seems.

Gland Pharma sells its products under a Business to Business (B2B) model by June 2020, primarily in more than 60 countries, including the United States, Europe, Canada, Australia, India, and the rest of the world.

As of June 2020, the company had 267 ANDA filings in the United States with its partners, of which 215 were approved, and 52 were pending approval. It has a consistent regulatory compliance track record, and all facilities have been approved by the USFDA, with no warning letters since the start of each facility.

Nirali Shah, a Senior Research Analyst at Samli Securities, also feels that the Shanghai-based Fosun-backed company has several factors.

"First of all, it will be the only listed player in the space of pure formulations in India. Secondly, the company follows a B2B model with sales in 60 different countries and has long-term contracts with various partners that reference it provides an excellent forward-looking pipeline. Sales. Its top 5 customers contribute more than 40 percent of its revenue. The margin was nearly 39 percent in FY15, and its Q1FY21 margin at 48 percent even more impressive. Were, "she argued.

The company also believes in using internal cash for its working capital needs and future expansion plans visible through its debt levels that are zero. Even before the IPO, the gland has sufficient cash on its books, and to post the IPO, management aims to look for inorganic growth opportunities to strengthen its vertical integration.

Nirali said that even from a value perspective, on a P / E basis, Gland Pharma trades 30x multiple, while its global peers such as Rekipharma and Lonja trade at 44x and 55x, respectively. Therefore, due to the abundant positives and tailwinds from the pharma sector in general, he feels that this IPO is a good bet and can be subscribed for an extended period.

Given the complex nature of the business with niche players in the pharma space, improved business performance, healthy balance sheets, and a strong product pipeline, BP Equities also gave a subscription rating on the issue from medium to long term.

The gland has an extensive portfolio of complex products supported by internal R&D, which is awaiting commercialization in the markets. The gland has an experienced management team and is promoted by Shanghai Fosun Pharma. B2B business accounts for about 96 percent of FY15 sales.

"This focused on injectable space and coupled with a strong compliance track record are the major plus points for the gland. The financial performance of the gland is impressive from FY18 to FY 2020. Return on equity (ROE) is also in FY 2018, Improved from 13.3 percent to 21.2 percent. In FY20. Given strong domain expertise, a strong and consistent income track record, and a healthy return ratio, the future looks good. Has been," said Sharekhan.

As of June 2020, 67 percent of revenues come from the US, 15 percent from India, and the rest from countries. The top five customers accounted for 49 percent of total income from operations in FY20.

In the future, the company hopes to benefit from a focus on high-growth US markets (growth of over 16 percent), the launch of new products, expiration of patent protection on branded injectables (approximately US $ 70 billion), etc. Choice Broking said that Choice Broking. Only brokerages say subscribe carefully.

"Coming at a valuation at a higher price band, Gland Pharma is seeking a price of TTM P / E at 31.7x (Rs. 47.3 of its TTM EPS), with the pharma industry P / E at 32.3x with International K Against. Peers like Recipharm AB, Catalent Inc., and Lonza Group AG have an average TTM P / E of 56.5x. However, consider valuation metrics in some M&A deals (such as Aurobindo Pharma's 2019 spectrum Acquisition of some business lines and acquisition of Recipharm. (Majority stake of Nitin Lifesciences in 2019) which took place in recent times is boosting the valuation demanded by Gland Pharma. Thus, strong fundamental and stressed valuations Looking at, we offer subscriptions with a careful rating of the issue, "brokerage." Explained.

Based on quick estimates, Choice Broking expects Gland Pharma to report a 22.4 percent CAGR increase in FY 2015–23, with EBITDA margin likely to improve to 84 GB, while PAT margin to 81 GB Is likely to be contracted. In FY23, ROIC and ROE are projected to be 15.3 percent and 16.6 percent, with 216 GB and 84 GB improvement.