Laurus Labs Ltd (LLL) is a leading research and development (“R&D”) driven pharmaceutical company in India, with a leadership position in generic active pharmaceutical ingredients (“APIs”) for select, high-growth therapeutic areas of antiretroviral (“ARVs”) and Hepatitis C. It also manufactures APIs in oncology and other therapeutic areas. Company’s strategic and early investments in R&D and manufacturing infrastructure has enabled it to become one of the leading suppliers of APIs in the ARV therapeutic area to multi-national pharmaceutical formulation companies which cater to the large and fast-growing “donor-funded access-to medicines markets” of Sub-Saharan Africa, South-East Asia and Latin America. During the financial year 2016, LLL sold its APIs in 32 countries. The company also has growing synthesis and nutraceutical/cosmeceutical ingredients businesses. Further, it is increasingly focusing towards growing integrated generics finished dosage forms (“FDFs”) business in which it has made significant investments over the last two financial years. LLL operates in four business lines: Generics – APIs, Generics – FDFs, Synthesis and Ingredients.
LLL has launched 59 products since inception in 2005. Company’s key customers include Aspen Pharmacare Limited, Aurobindo Pharma Limited, Cipla Limited, Mylan Laboratories Limited, NATCO Pharma Limited (“NATCO”) and Strides Shasun Limited. For the financial year 2016, nine out of the 10 largest generic pharmaceutical companies in the world, by revenue, were its customers. The company believes in “research-first” approach that has been critical to its success and a differentiating factor from its competitors. LLL’s kilo lab at its R&D center at Hyderabad has received approvals from the United States Food and Drug Administration (“US FDA”), Pharmaceuticals and Medical Devices Agency (“PMDA”) of Japan and the Korea Food and Drug Administration (“KFDA”). As of September 30, 2016, LLL employed 605 scientists at R&D center in Hyderabad and 12 scientists at R&D centre in Greater Boston, which constituted 24.4% of its total employee strength. LLL is currently in the process of expanding R&D center in Hyderabad and setting up another R&D center in Visakhapatnam, Andhra Pradesh. As of September 30, 2016, the Company owned 34 patents and had 152 pending patent applications, in several countries. LLL enjoys leadership in API categories. As on September 2016 end, the company has accreditation for USFDA from US, FDA from S. Korea and PMDA from Japan.
To pre-pay some of its term loans and to generate general corpus fund, the company is coming out with a maiden IPO of fresh equity issue as well as offer for sale to mobilize Rs. 1331.8 crore (at the upper price band). Fresh issue will be for Rs. 300 crore and the rest will be the offer for sale. For fresh issue, company is issuing approx. 70.09 lakh equity shares. This issue is via book building route and the price band is Rs. 426-428. Issue opens for subscription on 06.12.16 and will close on 08.12.16. Minimum application is to be made for 35 shares and in multiples thereon, thereafter. It has reserved 5% shares for eligible employees for preferential allotment and will be entitle for a discount of Rs. 40 per share. With this IPO company is diluting around 29% of post IPO equity.
BRLMs to this offer are Kotak Mahindra Capital Co. Ltd, Citigroup Global India Markets Pvt Ltd., Jefferies India Pvt Ltd and SBI Capital Markets Ltd. Karvy Computershare Pvt Ltd is the registrar to the issue. Post allotment, shares will be listed on BSE and NSE. It issued majority of its equity at par except some shares in a price range of Rs. 25 to Rs. 150 per share during March to June 2007. It has also issued bonus in the ratio of 3 for 1 in July 2016. Post IPO its current paid up equity capital of R. 98.75 crore will stand enhanced to Rs. 105.8 crore.
On performance front, the company has posted turnover/net profits of Rs. 1168.53 cr. / Rs. 97.22 cr. (FY14), Rs. 1360.66 cr. / Rs. 68.37 cr. (FY15) and Rs. 1791.337 cr. / Rs. 132.65 cr. (FY16). For first half of current fiscal, it has reported net profit of Rs. 75.10 cr. on a turnover of Rs. 941.79 cr. It has posted CAGR of 41% in revenues, 47% in EBITDA and 57% in PAT . Lower net for FY 15 was due to company’s higher spending for R & D that was not capitalized. If we annualize the latest earnings and attribute it on fully diluted equity capital then asking price is at a P/E of 30 against peers trading around same P/Es.
On BRLM’s front, the four merchant bankers associated with the offer have handled 30 IPOs in the past three years out of which 11 IPOs closed below the issue price on listing date.
Conclusion: Company is having good contracts from world leaders and enjoys leadership position in APIs and generics. Investments made by the company will start adding to revenues and profits from FY 18 onwards and thus poised for bright prospects. Although issue appears to have been priced in line with peer’s trending, it may be considered for medium to long term investment.
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. As SME issues have entry barriers and low preference from broking community, any reader taking decisions based on any information published here does so entirely at own risk. Above information is based on information available as on date coupled with market perceptions. Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
Dilip Davda (SEBI registered Research Analyst-Mumbai), a freelance journalist for more than 25 years, is a stock market analyst and news article writer. Since 1985, he has contributed to print media, electronic media and often appears on TV channels as visiting stock analyst. His articles are regularly publishes in Corporate India, Smart Investment (English and Gujarati weekly published from Ahmedabad), Free Press Journal and many other news papers & magazines. He is also a visiting stock analyst on DD News TV Channel.
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