Aanjaneya Lifecare Ltd IPO Review (Avoid)

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Review By MLR Securities Private Ltd on May 9, 2011

Issue Date: 9th May - 12th May
Price Range: INR 228-240
Issue Size: INR 114-120 Cr
Mcap: INR 287-302 Cr
IPO Grading: CRISIL IPO Grade 1
Promoters Holding: 60% (Post Issue)
BRLM: Anand Rathi, IDBI Cap
Listing: BSE,NSE

Incorporated in 2006, Aanjaneya is engaged in manufacturing and marketing of APIs (active pharmaceutical ingredients) with focus on anti-malerial and finished dosage forms (FDFs) catering to various therapeutic segments. The company aims to be an integrated player through bulk drug manufacturing, intermediate drugs and finished dosage forms.To achieve this, it acquired assets of Prophyla Biologicals at Mulshi, Pune in 2010. Prophyla Biologicals is engaged in the business of formulations and FDFs contract manufacturing. Aanjaneya's portfolio consists of second and third-generation anti-malarial APIs and FDF's. It plans to enter various other therapeutic areas such as pain management, hormone replacement therapy, anti obesity and others. It also supplies contract manufacturing services to Wockhardt, Cipla and Glenmark. It has a few products in branded segment too.

Promoters are Finaventure Capital Ltd (name changed to Aasda Life Care Ltd, yet to be approved by the BSE) and Dr. Kannan K. Vishwanath. Finaventure Capital Ltd is a BSE-listed company with a market capitalisation of Rs 100 Cr. Dr. Kannan K. Vishwanath and his father Mr Kashi Vishwanathan were the erstwhile promoters of Benzo Chemicals, which focused on anti-malarial and anti-cancer segments.

Concerns

Cinchona Bark - A key raw material

The major raw material used by ALL in its production of salts of Quninie (Anti-Malarial API) is cinchona bark which is sourced from Africa. It constituted 87% and 55% of the raw material consumed in FY10 and 10mFY11 respectively. Any shortfall or non availability of the cinchona bark as well as any fluctuations in its prices would affect the operations and margins of the company.

Concentration of revenues

The company's top five customers contributed approximately 53% and 84% and top 10 customers contributed approximately 78% and 95% of revenues for FY10 and for 10mFY11 respectively. The company has not entered into long term contracts with any of its customers. Any loss of business from one or more of them may adversely affect
the revenues and profitability of ALL.

• Active Pharmaceutical Ingredients constituted 60% of the revenues in 10mFY11 while the rest 40% was from the formulations business. The company's sales grew at a CAGR of 95% in the last three years to Rs 162 Cr in FY10 while bottomline grew at CAGR of 96% to Rs 15 Cr during the same period.
• In 10mFY11 the company posted revenues of Rs 280 Cr which includes revenues of Prophyla Biologicals, the company ALL acquired on 1st April ‘10. The company posted consolidated PAT of Rs 31 Cr in 10mFY11.
• The utilization levels in the APIs segment have been quite low on account of gradual capacity additions. In 10mFY11 its utilization level was just around 65%. In formulations segment utilizations are even lower at 28%.
• The margins of the company have been quite volatile. In FY10, the company posted EBITDA margin of 18% while PAT margin of 9%. With the acquisition of formulation business the margins improved in 10mFY11 with EBITDA margin of 21% and net margin of 11%.
• Receivables have gone up by five times in the 10 months ended January 2011. Receivables-sales ratio rose to 39% from 22.5% in FY10.
• The company's leverage position is quite comfortable with Debt equity level of 0.9:1 which will come down to 0.5:1 post issue. RoE decreased to 24% in 10mFY11 from 31% in FY10 on the back of capital infusion.