Gland Pharma Ltd IPO - Should You Subscribe?

 

Incorporated in March, 1978, Hyderabad based Gland Pharma Ltd is going to debut in the security market on November 9,2020. Fosun Singapore and Shanghai Fosun Pharma are the promoters of the company. By the way, they are not original promoters of the company. Basically, the company was incorporated by PVN Raju in 1978. However, incorporated in July 2016 in Singapore, Fosun Singapore acquired majority shareholding and control in and of the company in October 2017. As on date, it holds 74% of the pre-offer issued, subscribed and paid up equity share capital of the company. Shanghai based company Shanghai Fosun Pharma does not directly hold any of the equity share of the company. Actually, Shanghai Fosun Pharma holds 100% of the share capital of Fosun Industrial Co Ltd which holds 100% of the share capital of Fosun Singapore.  So, ultimately it is owned by Shanghai Fosun Pharma, China. The majority of directors are Chinese including Chairperson.

EquitasSFB IPO  debuted in the security market in the third week of October 2020. The IPO got lame response from every category of shareholders. There were negative sentiments about that IPO from the very beginning. Grey market was completely negative about the IPO. It barely managed to subscribe. The share was not worth paying the price the company asked for. It was a mix of Fresh Issue and Offer For Sale. Yet, it failed to attract the investors to bid religiously. And as expected, it disappointed its investors on the listing day. The share listed with 6% discount. Currently, Equitas SFB share is trading below its issue price.

Coming back to Gland Pharma, the company is a cash rich profit making company.  Fundamentals are very strong, financial statistics are impressive, the business model carries a huge potential to grow. However, the pricing is a little bit on the higher side. Nothing much left on the plate for subscribers. One should bet for long-term wealth appreciation, not for listing gain.

The company was established in Hyderabad, India in 1978 and has expanded from liquid parenteral to cover other elements of the injectables value chain, including contract development, own development, dossier preparation and filing, technology transfer and manufacturing across a range of delivery systems. It has a professional management team and one of its promoters Shanghai Fosun Pharma is a global pharmaceutical major.

Issue Details:

The issue is opening on November 9, 2020 and closing on November 11, 2020. The tentative dates of allotment and listing are November 17, 2020 & November 20,2020 respectively. Linkintime is the registrar of the company. One can check IPO allotment status on this link www.linkintime.co.in once allotment is done. Out of 4,31,96,968 shares, 35% shares are reserved for Retail Investors. The more details are given below:

Object of the issue :

Offer for Sale: 

The offer is a mix of fresh issue and offer for sale. The company will not receive any proceeds from the offer for sale. The proceeds of the Offer for Sale shall be received by the Selling Shareholders. Four existing shareholders including promoter Fosun Singapore are offloading 3,48,63,635 equity shares of face value Re 1 each.

Fresh Issue:

The company proposes to utilize the Net Proceeds towards funding of the following objects:

1. Funding incremental working capital requirement of the company;
2. Funding capital expenditure requirements of the company; and
3. General corporate purposes

The net proceeds are supposed to be utilized in accordance with the details provided in the following table:

Manufacturing Facilities:

Over the years, the company has made substantial investments in its manufacturing infrastructure to support its product portfolio needs and reach. It has seven manufacturing facilities in India, comprising four finished formulations facilities with a total of 22 production lines and three API facilities. As of June 30, 2020, it had manufacturing capacity for finished formulations of approximately 755 million units per annum. Its API facilities provide it with in-house manufacturing capabilities for critical APIs, enabling it to control costs and quality and mitigate supply chain related risks around its key products. Its capabilities as a vertically integrated company include internal research and development (“R&D”) expertise, robust manufacturing capabilities, a strict quality assurance system, extensive regulatory experience and established marketing and distribution relationships.

Revenue & Profitability:

The company’s total revenue from operations has grown at a CAGR of 27.38% from Fiscals 2018 to 2020. Its EBITDA has grown at a CAGR of 36.90% from Fiscals 2018 to 2020. Its restated profit for the year has grown at a CAGR of 55.15% from Fiscals 2018 to 2020. 

Pricing of the issue :
PE Ratio : 

The company has set the price range between ₹1490 - ₹1500. The company's EPS in Fiscal 2018 was ₹20.72 which jumped to ₹49.88 in Fiscal 2020.

At Fiscal 2020's EPS, PE at higher and lower price band ranges between 29.87 - 30.07. Higher PE implies higher asking value. Prima facie, the share seems to be little costly.  As I said nothing much is left on the table while arriving at the pricing. However, because there are no listed companies in India that is engaged in a similar line of business to that of Gland Pharma, it is vague to say that share is over-priced or underpriced. 

The company's RoNW (Return On Net Worth) and RoCE (Return on Capital Employ) for Fiscal 2020 were 21.20% and 20.74% respectively which are quite reasonable.

Price /Book:  

The NAV as on June 30,2020 was ₹255.79. At higher and lower price band PB ranges between 5.83 - 5.86. From this angle also, the price seems to be little on the higher side. However, as I said there is no listed peer. And because of absence of peer comparison, it becomes difficult to say that price is over – priced.

Dividend:

The Company has not declared dividends on the Equity Shares during the current Fiscal and the last three Fiscals. The company is conservative in paying dividend. One should not expect dividend in future as well.

Debt/Equity Ratio:

As I mentioned earlier, the company is the cash rich company. Lower debt/equity ratio implies that company is dependent on its own fund for its business. Interest liability is less which brings more profit on table for shareholders.  The company's debt equity ratio was as low as 0.001 as on June 30,2020 which is good sign

Employee Strength:

As of June 30, 2020, the company had 3,766 full-time employees, excluding contract laborer. Its personnel policies are aimed at recruiting talented individuals and promoting the development of their skills, including through in-house as well as external training programs. As of the same date, the company 3,496 contract laborer.

Competitive Strength:

• Extensive and vertically integrated injectable manufacturing capabilities with a consistent regulatory compliance track record
• Diversified B2B led model across markets, complemented by a targeted B2C model in India
• Extensive portfolio of complex products supported by internal R&D and regulatory capabilities 
• Track record of growth and profitability from a diversified revenue base with healthy cash flows
• Experienced and qualified team and promoted by Shanghai Fosun Pharma

Conclusion:

APPLY for LONG TERM. The fundamentals are strong; balance sheet is strong. Revenue & Profitability is good. And top of that the company is cash rich. The pricing seems a little bit on higher side, but worth taking risk.  The company sells its products primarily under a business to business ("B2B") model in over 60 countries as of June 30, 2020 including the United States, Europe, Canada, Australia, India and Rest of the world.

Thank you for reading...Jai Hind

(Note: Please note that I write review based on my knowledge and understanding. The reader of this article should do his/her own research before taking any investment decision)