Gland Pharma IPO – Issue Details, Objects of the offer, Reasons to invest, Risks, IPO Price Valuations
Hyderabad based Gland Pharma is coming up with an IPO that would open for subscription on November 9, 2020. Gland Pharma is one of the fastest growing companies that manufactures high quality complex generic injectables. It has posted strong revenue and margin growth in the last 3 years. However, not everything is a rosy picture here. Should you invest in Gland Pharma IPO? What are the risk factors of investing in this IPO? Let me review and provide my analysis in this article.
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About Gland Pharma Limited
Gland Pharma Limited is based out of Hyderabad. It is one of the fastest growing generic injectable companies that manufactures a diversified high quality complex injectables. This company manufactures products like sterile injectables, oncology, and ophthalmics, complex injectables, NCE-1s, First-to-File products, etc. Company sells its products to 60+ countries across the world that include US, Canada, Australia, India, Europe, etc. Currently it has 7 robust manufacturing units across India which comprises 4 finished formulations facilities, 22 production lines, and 3 APIs.
Shanghai-based Fosun Pharma has acquired 74% of stake in Gland Pharma in 2017 for USD 1.2 Bn. It’s what then the largest acquisition of an Indian company by a Chinese firm.
Gland Pharma IPO Details
Here are the IPO issue details.
Of the total IPO shares, up to 50% of the offer value would will be given in qualified institutional investors and 35% to retail investors. Balance will be available for subscription by non-institutional bidders.
Download Gland Pharma IPO DRHP
Download Gland Pharma IPO RHP
Objects of issue
Here are the objects of the offer:
(i) Offer for sale (OFS) – The promoter selling shareholder shall be entitled to the proceeds from the offer for sale. The company will not receive any proceeds from the offer for sale.
(ii) Fresh issue: Company is coming up with the fresh issue of shares and would utilize the proceeds for the following:
- Incremental working capital requirements
- Capital expenditure requirements and
- General corporate purposes.
Who are the company promoters?
Fosun Pharma Industrial Pte. Ltd and Shanghai Fosun Pharmaceutical (Group) Co. Ltd are the company promoters.
Here is the summary of the financial information of the company.
In FY 2019-20, about 2/3 of company revenue came from US which is the world’s largest pharmaceutical market and around 18% coming from India.
Its EPS for FY2020 is Rs 49.88 and last 3 years average EPS is Rs 38.11.
What are the key strengths of Gland Pharma Limited?
Every investor should understand the company’s key strengths so that one can compare with its competitors to know how unique is such company in their business. Their investment decision would change based on these facts. Here are the key strengths of the company.
1) Extensive and vertically integrated injectables manufacturing capabilities with a consistent regulatory compliance track record
2) Diversified B2B-led model across markets, complemented by a targeted B2C model in India
3) Extensive portfolio of complex products supported by internal R&D and regulatory capabilities
4) Track record of growth and profitability from a diversified revenue base with healthy cash flows
5) They have an experienced management and qualified team and are promoted by Shanghai Fosun Pharma
What are the various strategies that Gland Pharma want to adopt?
Company strategies would help investors to know what company is intending to do in the future and whether these strategies would help in revenue or margin growth. Such information would help investors to decide whether to invest for short term, medium term or for the long term. Here are the company strategies.
1) Expand product portfolio and delivery systems to drive revenue growth
2) Continue to invest in manufacturing and related technological capabilities to meet future demand
3) Increase current market presence and enter new markets
4) Align with Shanghai Fosun Pharma to increase market share
5) Pursue strategic acquisitions and partnerships
6) Continued focus on cost management
Reasons to invest in this IPO
Here are a few reasons to invest.
1) Gland Pharma is the fastest growing high complex generic injectable companies. Its products are sold to 60+ countries across the world.
2) The company has posted strong revenue growth in the last 3 years. Its revenues grew from Rs 1,671.6 Crores in FY2018 Vs Rs 2,772.4 Crores in FY2020.
3) It is generating consistent and improved margins in the last 3 years.
Risk Factors in this IPO
These risk factors can impact company revenue and margins which would affect its share price. Investors should go through these points and understand them before investing.
1) Pharma industry is heavily regulated and company business requires several approvals, licenses, registration and permissions. Any change in such regulations can delay the approvals and can impact the cash flows and results of the company.
2) A company’s success depends majorly on the business arrangements with its marketing partners and customers for the sale of its products. If such arrangements are terminated for various reasons, it would impact the company business.
3) Company API production interruption could impact its sales.
4) Manufacturing or quality control problems may disrupt pharma business, damage company reputation and expose for potential litigation or liabilities which would impact company performance.
5) Company business is dependent on the sale of products in 60+ countries through its key customers and key markets. Any loss of such customers can result in a reduction in sales and further impact company margins.
6) For complete internal and external risk factors, you can refer the RHP of the company.
How to apply Gland Pharma IPO?
You can follow these steps to apply for this IPO.
1) Login to your demat account
2) Visit IPO section
3) Check for Gland Pharma IPO link and click to bid
4) Select the IPO price and select bid Qty and submit
Ensure you have sufficient amount in your bank account before you submit.
Gland Pharma IPO price valuations
1) On the upper price band of Rs 1,500 and EPS of Rs 49.88 for FY20, the P/E ratio works out to be 30x.
2) For the last 3 years average EPS of Rs 38.11, the PE ratio is 39.3x.
3) Means, the company is asking the issue price of Rs 1,500 of the upper price band in the P/E range of 30x to 39.3x.
4) There are no listed peers who is doing similar business, hence one cannot ascertain whether the issue price is under priced or overpriced. However, considering 30x to 39x P/E is very high.
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Gland Pharma IPO – Should you invest?
Gland Pharma is one of the fastest growing generic injectable companies in India. It has posted strong revenue growth in the last 3 years. Its margins have improved year on year in the last 3 years. Its IPO issue price is highly priced. Chinese promoters on the board – This would definitely have negative sentiment in this IPO. While fundamentals are good, investors should think whether it is worth paying a higher price for this IPO? I would personally like to wait for some price correction + stabilize China and India border tensions, before I take a call on investing in this IPO.
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Good analysis. Yes it’s valuated pricey and not worth for investment through IPO. Last YOY profit 770 Cr and this year Q1 330 Cr. But IPO details that IPO money to pay for working capital to the tune of 700 Cr and Capex. When company is so profitable why would one raise money for working capital and what happened to profits made? With Other nation Promoter on-board, it’s not worth to take risk with investing on this highly priced IPO.
Thanks for your comments Basker.
Very open, candid, detailed and simple analysis.
Actually, one should wait for some correction in the price before entering into such high growth/high risk sector/company. Apart from China border issue also.
Thank you Kamalji