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Gland Pharma IPO Analysis

Introduction

Gland Pharma Ltd is a Hyderabad based company and manufactures a diversified range of high-quality complex injectables. It has a B2B business model and sells its products in more than 60 countries including US, Canada, Australia,Europe, India, etc. It has recently come up with an IPO which is active from 9^th November’20 to 11^th November’20.

Gland Pharma IPO Review

IPO details

• Gland Pharma has come up with an IPO to raise ~ INR 6,479.6 crore from the equity market.
• IPO is open for subscription from 9^th November’20 to 11^th November’20, with a price band in the range of INR 1,490-INR 1,500 per share. Minimum lot size is of 10 shares in one lot.
• IPO is a mix of Fresh issue and Offer for Sale (OFS). Fresh issue is of INR 1,250 crore while Offer for Sale (OFS) is of INR 5229.6 crore.
• In OFS, majority of stake is offloaded by Fosun Pharma Industrial Pte, which is a Chinese firm.

• Pre and Post IPO shareholding is as shown below:

• The IPO size excludes anchor book portion of over 1.29 crore equity shares as the company has already garnered Rs.1,944 crore from 70 anchor investors on November 6, 2020.

Company Overview

• Gland Pharma was established in 1978 in Hyderabad and involved in the manufacture of diversified range of high-quality complex injectables. It has a presence in sterile injectables, oncology, and ophthalmic.
• Injectables market is a high growth market with expected growth rate of 12-15%.
• Manufacturing facilities: Company has 7 manufacturing facilities in India which includes 4 finished formulations facilities with a total of 22 production lines and 3 API facilities.
• Marketing : Undertakes domestic marketing for products across therapeutic segments, including anti-infectives, pain management, orthopedics and cardiology.
• International Presence: Company majorly follows a B2B model to sell its products in more than 60 countries US, Canada, Australia, India, Europe.
• Key Customers : Sagent Pharmaceuticals, Apotex Inc. Athnex Pharmaceutical Division, LLC, Fresenius Kabi USA
• Gland Pharma has 265 drug filings : a. 189 filings for Sterlite Injectables b. 50 for Oncology and c. 26 for ophthalmic-related products

Financial Trend

• Company has posted strong revenue growth over previous years and has also posted healthy results for this quarter.
• Company has robust EBITDA margins of 36% in FY20 and has increased to whooping 47% in Q1FY21. This indicates that company has good operating leverage.
• Strong revenue and EBITDA growth has translated into healthy PAT growth and PAT margin of 55.2% and 35% respectively.
• Company’s net cash flow from operations has also witnessed a massive growth of 2.8 x to INR 701 crores.

Revenue Mix (%)

• Majority of company’s revenues come from USA, followed by India, Europe, Canada, etc.
• Its top five customers accounted for nearly 50% of its total revenue from operations in fiscals ended March 2018, 2019, 2020 and the June quarter.
• This indicates that the revenue is concentrated in top 5 clients, which is a bit worrying sign.

Strengths and Weaknesses of Gland Pharma

Key Strengths

• Company has extensive product portfolio of complex injectables with a consistent regulatory compliance track record.
• It has a diversified B2B-led model across markets, complemented by a targeted B2C model in India
• Gland Pharma has developed an extensive portfolio of complex products supported by internal R&D and regulatory capabilities.
• High growth segment – Injectables way of delivery. Global market expected to grow at 12-15% in next 5 years.
• Strong track record of growth and profitability from a diversified revenue base with healthy cash flows.
• Experienced management & qualified team.

Key Risks

• Dependency on regulations: The injectable manufacturing industry is heavily regulated and require various approvals, licenses and permissions. So, Failure or delay in obtaining necessary permits or approvals, would adversely affect the business, financial condition, cashflows etc.
• High revenue concentration from USA.
• Raw material supply disruptions due to strained India-China relations. Chinese promoter.
• Gland Pharma has significant working capital requirements. Insufficient operating cash flows to fund its working capital requirements may have an adverse effect on its business, cash flows and results of operations.

Valuation

• Based on FY 20 EPS, company is currently trading at PE of 30 x. By annualising the Q1FY21 EPS, we the EPS for FY21 as INR 76.
• Considering this, forward (FY21E) PE comes to 19.7 x.
• Company is trading at cheaper valuations as compared to its global peers like Recipharm and Lonza.
• In India, its peers are Divi’s lab , Suven Pharma and Syngene, which are trading at higher multiples (PE) of 49 x, 29 x and 61 x respectively as compared to Gland Pharma.