Glenmark Life Sciences IPO- 6 Point Detailed Analysis

Introduction:

Glenmark Life Sciences, a unit of Glenmark Pharmaceuticals has launched its Initial Public Offerings of Rs. 1,500 Cr. which will be open for subscription from 27^th July 2021-29^th July 2021. Here is a 6 point analysis of the IPO:

1. IPO Details:

• The IPO Window for subscription is open between 27^th July 2021 to 29^th July 2021.
• The Issue Size of the IPO of Glenmark Life Sciences is Rs. 1,513.6 Cr. Out of which, fresh issue comprises of Rs. 1,060 Cr. and Offer for Sale is of Rs. 453.6 Cr.
• The Price Band of the IPO ranges between Rs. 695 to Rs. 720 per equity share. The Face Value of Equity Share is Rs. 2 per equity share.
• The Stock will list on both the stock exchanges i.e., BSE and NSE.
• An investor can apply for 20 shares in 1 lot and hence in multiples thereof up to 13 Lots.
• The Objective of the Fresh Issue of the company is:
• Payment of outstanding purchase consideration to the Promoter for the Spin-off of the API business from the Promoter into their Company according to the Business Purchase Agreement: 800 crores
• Funding working capital & CAPEX requirements: 152.8 cr
• General corporate purposes:107.2cr
• The company will not receive any proceeds from the offer for sale.
• The company has already raised Rs. 454 Cr. from Anchor Investors. Anchor Book saw participation from multiple pools of capital: FPI, Domestic Mutual Funds, Insurance Companies, and Alternative Investment Funds.
• Key Names Among 15 Anchor Investors: HSBC Global Investment Fund, Government Pension Fund Global, Oaktree Emerging Market Equity Fund LP, Copthall Mauritius Investment Ltd, Societe General, Kuber India Fund, and Reliance General Insurance Company
• The Reservation Quota of the Investors are as follows: Qualified Institutional Buyers (QIBs)-50%, Non-Institutional Investors (NIIs)- 15%, and Retail Investors- 35%.

2. Company Overview:

• The company was incorporated on 23^rd June 2011 as, research & development-driven API manufacturer.
• It is a wholly-owned subsidiary of the Promoter, Glenmark Pharmaceuticals.
• The company is It is a leading developer & manufacturer of select high value, noncommoditized API in chronic therapeutic areas including Cardiovascular Disease (CVS), Central Nervous System(CNS), Pain Management & Diabetes
• The company owns 39 patents & 41 patents pending application globally & 6 pending applications in India
• The company is having 2 Key Business Segments:

i) API- Generic & Complex which includes a Portfolio of 120 Molecules sold to India & exported to various countries.

ii) Contract Development and Manufacturing– Procuring permission to market & manufacture  in regulated markets

• CDMO is a Company that serves other companies in the pharmaceutical industry on a contract basis to provide comprehensive services from drug development through drug manufacturing.
• Revenue Mix of Glenmark Life Sciences: API-91%, CDMO-8%, and Others-1%.
• Revenue Share from Regulated Markets is 66%, Emerging Markets is 33%, and Others 1%.
• 213 personnel at R&D laboratories constituting 14% of total strength with 2.15% of sales in 2021 contributed to R&D at 40.5 crores.
• 4 Manufacturing Facilities with an installed capacity of 726.6 KL and capacity utilization @83%. The company intends to expand  API capacity by 200 KL till 2023
• 403 Drug Master Files & Certificates of suitability across US, Europe, Russia, Brazil, South Korea, China, and Australia
• 16 of the largest 20 generic companies are the customers of Glenmark Life Sciences

3. Industry Overview:

• Global API market set to reach US$ 259.3 billion by 2026.
• India is the world’s largest provider of generic medicines. Generic drugs account for 20% of global generic drugs export.
• Indian Pharma market set to grow at 10-12% till 2026.
• Country Ranks 3^rd in terms of Pharma Production by volume & 14^th by value.
• India has the highest no of USFDA approved plants outside the US.
• India has 44% of global Abbreviated New Drug Applications (ANDA).
• India supplies 40% of total American Drug & overall 25% to the UK.
• India accounts for 60% of global vaccine production.
• India imports around 68% of API in value from China In January 2021, the Central government announced to set up three bulk drug parks for Rs. 14,300 crores (US$ 1,957 million) to manufacture (APIs) for medicines and reduce imports from China.
• Global CDMO Market: Total growth in the United States, Europe, APAC, and India was around 7.1% between 2018 and 2020 and is expected to further grow by a
  CAGR of 7.6% between 2021 and 2026. The top Indian CDMO companies have grown at a CAGR of 14.1% over the last 5-year period compared to the top global CDMO companies which grew at a CAGR of 9.7%.

4. Financial Valuations:

• The company has shown decent growth in the last 3 financial years between FY19 to FY21.
• The revenue growth in CAGR terms between 2018 to 2021 stands around 15.8% from Rs. 886 Cr. in 2019 to Rs. 1,886 Cr. in 2021.
• EBITDA growth of the company in the CAGR terms is around 17.3% in the same period.
• Whereas the Profit After Tax (PAT) growth of the company between 2019-2021 is 9.6%. The PAT of the company in FY21 is Rs. 352 Cr.
• The PAT Margin of the company has decreased from 22.1% in 2019 to 18.6% in 2021.
• The ROCE and ROE of the company have improved over the years and are in a great position which is at 32.7% and 46.7% respectively.
• The company is debt-free and is having a zero debt-to-equity ratio.
• CAPEX of the company has increased from 2.6 Cr. in 2019 to Rs. 67.9 Cr. in 2021.
• The expected PE of the company at the time of listing is around 25.1.
• Other financials of the company are provided below:

5. Financial Valuation- Peer Comparison:

• Firstly looking at the Sales figure of the companies, Glenmark looks like a strong player in the segment.
• The Glenmark is having an Operating Maring of above 20% which is also quite good among peers.
• The expected market capitalization of the company at the time of listing is around Rs. 9,000 Cr.
• Comparison of Glenmark Life Sciences along with its peers are as follows:

6. Key Strengths and Risks:

i) Key Strengths:

• Total Market Size of Company’s API Portfolio to reach the US $ 211 by 2025 growing at 6.8%.
• 16 of the largest 20 Pharma Companies are the Clients of the company globally
• Maintaining the highest Quality Standards with no US FDA Warnings & increasing R&D expenditure.
• Manufacturing Facilities have Zero Liquid Discharge with high adherence to SOPS.
• Zero Debt Company with decent return ratios & operating margins.
• Experienced promoters and a strong management team.

ii) Key Risks:

• Concentrated Product Portfolio with 90% of Revenue from API.
• Top 10 products contributing to 66% of revenue.
• The 5 Largest customers account for more than 50% of revenue with the promoter being the largest.
• High Reliance on 3 suppliers for imports. India & China imports accounting for 40%.
• A highly Regulated business subject to various inspections & regulations.
• High Working capital Requirement of around 6 months with pricing pressure from the customer.

Conclusions:

The Glenmark Life Sciences IPO has received a strong response from the retail side and it has been oversubscribed by 7.89 times on the 2^nd day. QIBs have subscribed by 0.55 times and NIIs by 1.61 times. Currently, the stock IPO is demanding a GMP of around Rs. 120. Follow due diligence before making any investment decisions