Nureca IPO Review | Should I Subscribe?

Detailed Analysis of Nureca IPO

Introduction

Nureca Ltd. is a Business-to-Consumer (B2C) company involved in business of Home Healthcare and wellness products. Nureca offers quality, durability, functionality, durability and innovative designs. This IPO seems to be incredibly loved by retail bidder as on the first day itself, the IPO has been subscribed by 31.22 times by the Retail Investors. The IPO is open for applications till 17^th February’20.

Nureca IPO Analysis

IPO Details

• Nureca is bringing IPO worth ₹100 crore as Fresh Issue, there is no Offer for Sale (OFS).
• The IPO window of Nureca is opening from 15^th Feb. 2021 till 17^th Feb. 2021 at price band of ₹396-₹400. There is discount of ₹20 for Employees. The minimum Lot Size is of 35 shares.
• Of the Total Issue, 75% is reserved for Qualified Institutional Buyers (QIB), 15% for Non-Institutional Bidders (NIB) and only 10% for Retail Investors.
• Nureca has raised ₹44.55 crore from 2 Anchor Investors (namely Nexpact Limited and Next Orbit Ventures Limited) on 12^th Feb. 2021.
• The objects of the issue are 75% of the net proceeds will be utilized for funding incremental working capital requirement and rest will be used for general corporate purposes.

Pre and Post IPO Shareholding (%)

Company Overview

• Nureca Ltd. was founded in the year 2016. and it is the fastest growing B2C company engaged in the business of home healthcare and wellness products.
• Nureca is digital first company wherein they sell their products through online channel partners such as e-commerce players, distributors and retailer. Further, they also sell their products through their own website drtrust.in.
• Nureca is having great presence over home health market in India. “Dr. Trust” is one of their famous brands which provides innovative product in the market.

Brands and Product Portfolio

Subsidiaries

• Nureca has 3 subsidiaries namely :
• Nureca, INC:
  • Incorporate on 26^th October 2016.
  • Nature of Business: Engaged in Business of Healthcare products.
• Nureca Technologies Private Limited:
  • Incorporated on 13^th July 2020
  • Nature of Business: Business of Manufacturing, formulating, Processing, Developing, Refining, Importing & Exporting, Trading or Wholesaling of Pharmaceuticals, Drugs, medical diagnostic or family or life equipment’s.
• Nureca Healthcare Private Limited:
  • Incorporated on 11^th August 2020.
  • Nature of Business: Business of Manufacturing, formulating, Processing, Developing, Refining, Importing & Exporting, Trading or Wholesaling of Pharmaceuticals, Drugs, medical diagnostic or family or life equipment’s.

Manufacturing Facilities

• In – House Manufacturing
  • Recently set up manufacturing unit in Chandigarh on 28^th July 2020. Chandigarh Unit has installed capacity of producing 200 units per day, and 60,000 units per anum. That provides the company 20% Capacity Utilization.
• Outsourced Manufacturing
  • Company majorly outsources their product manufacturing to foreign vendors as well as some domestic vendors.
  • They exercise control and regular supervision over manufacturing operations of facilities of their manufacturing partner through their personnel who periodically inspects the manufacturing site and production quality.
  • They basically follow Asset Light Business Model for their smooth operations.

Asset Light Business Model

• Company enters into agreements with vendors who manufacture the products as per the specifications of Nureca which allows it to scale its operations quickly at a pre-determined cost and as per quality standards of Nureca without incurring any capex or manufacturing facilities.
• This business model does not require any heavy investments on physical assets such as plant & machinery, land & property.
• Nureca accepts this model in order to manage better cash flow and to reduce risks.

Distribution Network

• Nureca Ltd. majorly sell their products via online mode through e-commerce players, distributors and retailers. They sell their products through their own website Drtrust.in
• 95% of the revenue of Nureca come through digital channels (e-commerce)
• To build their offline base, Nureca joined with Croma, India’s first Omni-Channel electronics retailer from the Tata Group in October 2019. Nureca will sell its Dr. Trust and Dr. Physio brands at 30 Croma stores across the country. They are planning to increase their presence in offline mode in future as well.

Industry

Home Healthcare Products Market

• Market is estimated at ₹20,757 crore in 2019. It is expected to grow at CAGR of 11% and reach ₹38,920 crore by 2025.
• Growth Drivers can be:
  • Increase in Geriatric Populations (People above 60 years) & Chronic Disease and rising healthcare cost for patients.
  • Rising awareness due to Pandemic and healthcare consumerism.
  • Increasing income levels have contributed to middle class bulge.
  • Focus of reducing hospital induced infection.
  • Advances in home health technology.

Competitors:

• There is no single listed peer in the Indian market which are engaged in similar business. But there are many small and big unlisted players in the market. Currently the market is highly fragmented
• There are more than 50 Indian and Global Players in the Market.
• Strong Competitors with Technological Advances, features and Competitive Pricing are Omron, Philips, Johnson & Johnson, Roche, Bayor.

Financials

Revenue of the company has increased over the time at 122% CAGR from ₹20.05 crore in FY18 to ₹122.15 crore in H1FY21.

Along with revenue, the EBITDA of the company has faced a drastic growth from ₹9.76 crore in FY20 to ₹50.01 crore in H1FY21 due to favorable demand caused by Pandemic and operating leverage.

• Similar to its EBITDA, the company has witnessed a good jump in their Net Profit in H1FY21 due to increase in demand of their products especially Chronic disease products, etc. caused due to pandemic situation. The Net Profit has reported CAGR of 44% over the time period of FY18 to FY20.
• The Net Profit has gone up to ₹36.18 crore only in the first half of FY21 from the total Net profit of ₹6.4 crore in the whole FY20.

Key Ratios

Corporate Governance

• Ongoing “Search and Seizure” Operations by Income Tax Department on Mr. Saurabh Goyal (Promoter, Chairman & Managing Director of Nureca), Mr. Aryan Goyal (Chief Executive Officer), Rajinder Sharma (Non-Executive Director) and family member of the promoter group in the case of Nectar Life sciences Limited since December 2020. No further communication has received in this regard from the authority.
• No pledged shares by promoters

Valuation

Key Strengths

• Strong Portfolio of products and consistent focus on quality and innovation. They are having 66 trademarks, 6 copyrights & 92 designs registration.
• Asset light business model and competitive products.
• Proper understanding of consumer preference of India public and also possesses technical expertise.
• Strong senior management having domain knowledge.

Key Risks

• Dependency on third parties for manufacturing of products. Failure of this parties in any case will directly harm Nureca operations.
• High dependencies on channel partners such as 3^rd party e-commerce player, distributors and retailer.
• Dependence on existing product and acceptance by public towards new products for earnings and growth.
• Chances of High competition in future especially from Global Players.
• Promoters, their members and some directors are under ‘Search & Seizure’ by Income Tax Department.

Conclusion

Nureca Limited is the First Digital Company”, wherein they sell their Home Healthcare & Wellness Products via e-commerce retailer, distributor and retailer, but there are few matters of concern like the Promoter issue, Earning Visibility, Growth Visibility, High Competition Risk, etc. which should be carefully evaluated. There might be no existing listed player in the market but in future the new company may greatly affect their market share. IPO can provide good listing gains, however for long term, investor should carefully assess the key strengths and risks and take decision accordingly.