Laurus Labs IPO – Should you Invest or not?
Hyderabad based, Laurus Labs IPO would open for subscription on 6th December, 2016. Laurus Labs Ltd is a pharma company operating from Hyderabad, India. Its revenues grown at 24% CAGR in last 3 years. It earned 7.4% profits in FY16. What are the positive factors in Laurus Labs IPO? What are the hidden factors in Laurus Labs Limited IPO? In this article, I would provide some interesting insights and do Laurus Labs IPO Review.
About Laurus Labs Limited
Company is a leading research and development driven pharmaceutical company in India, with a leadership position in generic active pharmaceutical ingredients for select, high-growth therapeutic areas of antiretrovirals and Hepatitis Company also manufacture APIs in oncology and other therapeutic areas. Company strategic and early investments in R&D and manufacturing infrastructure have enabled them to become one of the leading suppliers of APIs in the ARV therapeutic area to multi-national pharmaceutical formulation companies which cater to the large and fast-growing “donor-funded access-tomedicines markets” of Sub-Saharan Africa, South-East Asia and Latin America. During the financial year 2016, company sold company APIs in 32 countries. company also have growing synthesis and nutraceutical/cosmeceutical ingredients businesses. Further, company are increasingly focused towards growing company integrated generics finished dosage forms business in which company have made significant investments over the last two financial years.
Issue details of Laurus Labs IPO
IPO opens: 6-Dec-2016
IPO closes: 8-Dec-2016
Face Value: Rs 10 per share
Issue price band: Rs 426 to Rs 428 per share
Issue size: Rs 300 Crores
Market lot: minimum of 35 shares
Minimum investment: Rs 14,910 on lower price band
Leading Managers: Kotak Mahindra Capital, Citigroup Global Capital, Jefferies India Pvt Ltd and SBI Capital
Listing: BSE / NSE
Objects of the Laurus Labs Limited IPO issue
The issue Offer comprises of the Fresh Issue and the Offer for Sale.
a) 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.
b) Requirement of Funds
Company proposes to utilise the Net Proceeds from the Fresh Issue towards the following objects:
1) Pre-payment of term loans and
2) General corporate purposes
In addition, company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges, enhancement of Company’s brand name and creation of a public market for our Equity Shares in India.
Company Financials (reinstated-consolidated)
The company generated revenue of Rs 1,168.53 Crores for the year ended Mar-14 and Rs 1,791.37 Crores for the year ended Mar-16.
The company posted a profit of Rs 97.22 Crores for the year ended Mar-14 and profit of Rs 132.65 Crores for the year ended Mar-16.
Its consolidated restated basic EPS for FY ending Mar-16 is Rs 20.86 and last 3 years average EPS Rs 16.77.
Reasons to invest in Laurus Labs IPO
Revenue grew at 24% CAGR in last 3 years.
Good profits of 7.4% for the year ended Mar-2016.
Leadership in APIs in Select, High Growth Therapeutic Areas.
Strong R&D Capabilities and Process Chemistry Skills.
Industry Leading, Modern and Regulatory Compliant Manufacturing Capacities.
Long-standing Relationships with Multi-National Pharmaceutical Companies .
Experienced Promoters and Qualified Operational Personnel.
Established Track Record of Delivering Growth.
Reasons not to invest in a Laurus Labs Limited IPO
Any manufacturing or quality control problems may subject them to regulatory action, damage company reputation and have an adverse effect on company business, results of operations, financial condition and cash flows.
Company derive a significant portion of company revenue from the sale of products in certain therapeutic areas and any reduction in demand for these products could have an adverse effect on company business, results of operations, financial condition and cash flows.
If company products become obsolete due to a breakthrough in the development of alternate drugs, company business, results of operations, financial condition and cash flows may be adversely affected.
company derive a significant portion of company revenue from a few customers, most of whom company do not have long term contractual arrangements with, and the loss of one or more such customers, the deterioration of their financial condition or prospects, or a reduction in their demand for company products could adversely affect company business, results of operations, financial condition and cash flows.
Company inability to effectively manage company growth or to successfully implement company business plan and growth strategy could have an adverse effect on company business, results of operations, financial condition and cash flows.
A slowdown or shutdown in company manufacturing operations could have an adverse effect on company business, results of operations, financial condition and cash flows.
Other risk factors (Internal and external) can be viewed in the draft prospectus from Page no. 17 onwards.
Recommendation / Investment strategy – Laurus Labs IPO
On the upper price band of Rs 428 and on FY16 EPS of Rs 20.8, P/E ratio works out to 20.5x. Similarly, on last 3 years EPS of Rs 16.77, P/E Ratio works out to 25.5x. Means company is asking the upper band of issue price of Rs 428 for a P/E ratio between 20.5x to 25.4x. Highest P/E ratio in pharma industry (Including Aurobindo pharma and Divis Laboratories) is 27.69 and lowest is 22.1 and industry average is 24.9. Hence Laurus Labs IPO higher price band of Rs 428 is reasonably priced.
Company revenues grew at 24% CAGR in last 3 years. It generated profits of 7.4% in FY16, however lesser margins prior to that. Its issue price is reasonably priced. However it has short term operating history of only 3 years. Stock market is taking corrections these days. One may or may not get listing gains. High Risk Investors can invest in this IPO with a 2-3 years time frame.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment plans.
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Laurus Labs IPO – Should you invest or not