by Another week and another IPO now this time it is an API manufacturing company and the company name is Glenmark life Sciences. We will review this IPO and decide if it is worth applying for the IPO or not. If you are following my IPO reviews I reviewed Zomato and is listed at a bumper valuation.
In this article we’ll cover the Glenmark life Sciences IPO by understanding more about the company and its business its key strength, competitors, key risk, future growth potential, and financials then we will look at the IPO details along with valuations.
Finally, we will conclude if Glenmark life Sciences is a fundamentally strong company or not and whether it is available at the right valuations or not. I will tell you my verdict on the IPO and whether I will apply for the IPO or not all right.
Glenmark Life Sciences Bussiness Model
- let’s get started incorporated in 2011 Glenmark Life Sciences is the leading manufacturer of active pharmaceutical ingredients that is API. API is the key ingredient in any medicine it is the holy subsidy of Glenmark pharmaceutical limited which was established in 1977.
- It has got a strong promoter base the company manufactures high-quality APIs for cardiovascular disease central nervous system disease pain management diabetes gastrointestinal disorder anti-infectives and other therapeutic areas it further operates in contract development and manufacturing operations to offer services to specialty pharmaceuticals companies.
- If you look at the business breakup 84 business is from generic APIs and 13 is from the contract manufacturing company and has four manufacturing facilities in Gujarat and Maharashtra with a total production capacity of 725.8-kilo liter as of December 20.
- The company has a portfolio of 120 molecules it also exports the APIs to all over the world including Europe, North America Latin America, Japan, and so on.
Key Strength of Glenmark Life Sciences
If you look at the key strength its first trend is leadership in APIs in chronic therapeutic areas Glenmark Life Sciences is a leading developer and manufacturer of few high-value non-commoditized APIs in chronic therapeutic areas including cardiovascular system central nervous system pain management system and diabetes its second strength is a strong relationship with leading global generic pharma companies over the years.
Glenmark Life Sciences have built a strong relationship with some of the leading generic pharma companies in fact it works with 16 out of 20 largest generic companies globally some of its key customers include Torrent pharma, Aurobindo pharma, Tewa pharma, Glenmark, etc.
R&D and quality Glenmark Life Sciences
The third strength is focused on r d and quality Glenmark Life Sciences is a total of 39 patents granted and 39 patents pending for approval it has been inspected multiple times by top regulators including u.s FDA on a regular basis and did not receive any warning letter or import alerts.
This signifies the quality of their work fourth strength is experienced management their CEO Dr. Jesse Rashie has over two decades of experience in the global API industry their operation team is headed by Mr. Vinod Nayak who has over two decades of industry experience. Their CFO Mr. Bhavesh pujari has over 15 years of experience in finance so overall a very experienced management team.
if you look at the listed competitors of Glenmark life Sciences it includes divis lab, Lara’s lab, Shilpa medicare, rt drugs, solar active pharma, etc.
Key Risk for Glenmark Life Sciences
Clearly, there’s strong competition for Glenmark life Sciences, if you look at the key risk its first key risk is that the pharma sector is a highly regulated company that has to always comply with the strict regulation from various regulators including us FDA any failure in compliance could adversely impact the business of the company.
Second risk revenue concentration risk Glenmark Life Sciences top five customers contribute more than 50 percent share in the revenues and the biggest customer is its promote Glenmark pharma if any of the top customers discontinued API purchase then it would significantly impact the business of the company.
The third risk is a dependency on China for a key starting material that is ksm company imports a significant portion of ksm from various vendors in china its three largest vendors contribute 40 in total purchase any disruption in raw material supply would impact the business of the company.
The fourth risk is competition risk Indian API market is highly competitive and there is always pressure to reduce the cost to stay competitive.
Future Growth Potential of Glenmark life Sciences
If you look at the future growth the total market size of APIs where Glenmark life Sciences operate is estimated to be around 140 billion dollars in 2020 and is expected to grow by about 4.3 percent over the next five years to reach about 180 billion dollars by 2026.
The future growth of these products is expected to remain stable driven by increasing diseases like heart disease, stroke cancer. diabetes and chronic lung disease then there is a growing demand from the regulated market for drugs required for hypertension, diabetes, cancer, etc.
The next growth driver is the aging population moreover there is a growing demand for contract manufacturing and customized and generic APIs due to specialized technology requirements which leads to the outsourcing of these products on top that India is the only country after China with low-cost manufacturing capabilities due to strict environmental control measure in china many Life Sciences have been suspended in china leading to lower supply.
This has created a huge demand for Indian companies from all over the world and that’s where companies like Glenmark life Sciences would have an advantage even the Indian government wants to reduce dependency from china for API import and encouraging API manufacturing in India as a part of atmanirbhar initiative company intend to increase its API manufacturing capability by enhancing the existing production capacity at a glacier facility during FY 22.
Financials of Glenmark Life Sciences
The facility during FY 22 and FY 23 by total install capacity of 200 kiloliters this additional production capacity is expected to help them further expand their generic API production and also grow their oncology product pipeline Glenmark Life Sciences intend to develop a new manufacturing facility in India for manufacturing of generic APIs from FY 22which is expected to become operational in the fourth quarter of FY23.
The future looks bright if you look at the financials of the Glenmark life census its revenues have grown from 886 crores on March 18 to 1885 crores on March 21. so that’s more than doubled in just two years its profits have grown from 195 crores on March 18 to rupees 351 crores by March 21.
Both revenue and profit growth are looking good if you look at the profitability its operating margin is in the range of 25 percent and latest return on equity stood at 38 hence profitability is also looking good if you look at the borrowing the company is completely debt-free.
Please note that this excludes the amount payable to the parent company Glenmark Life Sciences IPO window is between 27th July to 29th July the IPO price band is between 695 rupees to 720 rupees.
Valuation of Glenmark Life Sciences
The shares are available at face value of rupees 2 and 1 lot is of 20 shares so the total investment for 1 lot would be rupees fourteen thousand four hundred.
The issue size is rupees one thousand five hundred thirteen point six crores out of this there is fresh equity of rupees 1060 crore and remaining rupees 453.6 crore is offered for sale.
Promoters are selling the majority of their stake of money raised from the IPO would be used for payment to the promoter for the spin-off of the API business from promoter into the company then the company would use some money for funding its capital expenditure to expand its manufacturing facility and other corporate expenses.
The most important part is valuation at a price band of rupees 720 the company would be valued at PE of 25 if you look at the industry PE the range is between 11 to 70 with average PE of 31.
At a PE of 25 Glenmark Life Sciences is looking very attractive at rs 720 the valuations of the company would be around rupees 8 800 crores.
If you look at the grey market premium Glenmark life Sciences has a current GMP of around 40 percent which suggests that there are high chances of solid listing gains.
Conclusion
Overall if we conclude Glenmark LifeSciences is a subsidiary of Glenmark pharmaceuticals it is in the business of API manufacturing in the area of cardiovascular disease, central nervous system, disease pain management, diabetes, etc.
It is a very experienced management team with a strong relationship with top generic pharma companies in the world although there is strong competition to Glenmark life Sciences the future of the API industry in India is looking very bright on account of rising lifestyle diseases like heart attack cancer diabetes etc.
Due to the shutdown of manufacturing facilities in China, India has emerged as a strong alternative due to low-cost manufacturing and vast experience in the pharma industry even the Indian government wants to reduce the dependency on china and encouraging domestic manufacturing financials of the company are looking good at a price of rupees 720 the p ratio of the company would be around 25 which is looking reasonable overall a good company available at an attractive valuation.
One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.
Personally, I would be applying for the IPO what is your take on this IPO. If you like this post kindly leave a comment in the comment section so that we can know what your thought are about these 5 investing psychology points. For more trading ideas do follow us on
