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Earum Pharmaceuticals BSE SME IPO review (Avoid)

Review By Dilip Davda on Jun 15, 2019

  • EPL is engaged in pharma products trading activities only and has now own manufacturing unit.
  • The issue is fully priced based on its recent financial performance.
  • Currently, the pharma sector is being ignored by investors.
  • Pharma trading is a high volume – low margin business with high competition.

 
ABOUT COMPANY:
Earum Pharmaceuticals Ltd. (EPL) is engaged in the pharmaceutical business involving marketing, trading and distribution of wide range of pharmaceutical formulation products such as antibiotic drugs, anti-malarial drugs, anti-allergic & anti cold drugs, analgesic/ antipyretic & anti-inflammatory drugs, dermatology products, cerebral activator drugs, neurological drugs, gastrointestinal drugs, steroids, gynecology drugs, calcium, multivitamins, anti-oxidants and injections. As on the date of Prospectus, it offers around 125 pharmaceutical formulation products, of which around 24 products are marketed by it under own brand name, the manufacturing of which is outsourced by it to third parties. Apart from pharmaceutical formulation products, EPL also deals in trading of active pharmaceutical ingredients (API's) such as Levofloxacin Hemihydrate IP Albendazole IP, Amoxicillin Trihydrate IP etc. It has no own manufacturing unit and is purely engaged in trading activities. EPL is in high volume-low margin business with high competition.
 
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital (Rs. 5.00 cr.), general corpus fund (Rs. 0.86 cr. ) needs, EPL is coming out with a maiden IPO of 1848000 equity shares of Rs. 10 each at a fixed priced of Rs. 36 per share to mobilize Rs. 6.65 cr. The issue opens for subscription on 21.06.19 and will close on 26.06.19. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 29.96% of the post issue paid up capital of the company. EPL is spending Rs. 0.79 cr. for this issue process.
 
The issue is solely lead managed by Hem Securities Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Securities Ltd itself is the market maker for this issue.
 
Having issued initial equity at par, EPL issued further equity in the price range of Rs. 75 to Rs. 125 per share between July 2015 and February 2018. It has also issued bonus shares in the ratio of 13 shares for every 1 share held in April 2019.   
 
The average cost of acquisition of shares by the promoters is Rs. 6.53 per share.
 
Post issue EPL's current paid up equity capital of Rs. 4.32 cr. will stand enhanced to Rs. 6.17 cr.
 
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, EPL has posted turnover/net profits of Rs. 18.63 cr. / Rs. 0.10 cr. (FY16), Rs. 23.69 cr. / Rs. 0.16 cr. (FY17) and Rs. 35.85 cr. / Rs. 0.86 cr. (FY18). For the first nine months ended on 31.12.18, it has earned a net profit of Rs. 0.87 cr. on a turnover of Rs. 34.50 cr.
 
For the last three fiscals, EPL has posted an average EPS of Rs. 2.25 and an average RoNW of 14.85%. The issue is priced at a P/BV of 1.89 on the basis of post issue NAV of Rs. 19.02. Its NAV as on 31.12.18 was Rs. 164.50 (on the pre-bonus issue basis).
 
If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 19 against the industry average of 23. This issue is fully priced.
 
COMPARISION WITH LISTED PEERS:
As per offer documents, it has shown Vaishali Pharma as its listed peer that is currently trading at a P/E of around 30 (as on 14.06.19). However, it is strictly not comparable.
 
MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's front, this is the 36th mandate from its stable in the last four fiscals. Out of last 10 listings, 2 opened at discount, 1 at par and the rest with a premium ranging from 0.04% to 20%  on the day of listings.


Conclusion / Investment Strategy


EPL does not own manufacturing unit and is engaged in trading activities only. The issue is fully priced. Third-party contract business raises concern. Currently, the pharma sector is not fancied by investors. Merchant Banker has average track records. Considering all these, investors may skip this issue.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Jun 15, 2019

Review Author

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 before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Earum IPO FAQs

  1. 1. Why Earum IPO?

    The initial public offer (IPO) of Earum Pharmaceuticals Limited offers an early investment opportunity in Earum Pharmaceuticals Limited. A stock market investor can buy Earum IPO shares by applying in IPO before Earum Pharmaceuticals Limited shares get listed at the stock exchanges. An investor could invest in Earum IPO for short term listing gain or a long term.

  2. 2. How is Earum IPO?

    Read the Earum IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Earum IPO what should investors do?

    Earum IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Earum IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Earum IPO good?

    Our recommendation for Earum IPO is to avoid.

  5. 5. Is Earum IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Earum IPO.

  6. 6. When will Earum IPO allotment status?

    The Earum IPO allotment status will be available on or around Jul 1, 2019. The allotted shares will be credited in demat account by Jul 3, 2019. Visit Earum IPO allotment status to check.

  7. 7. When will Earum IPO list?

    The Earum IPO will list on Thursday, July 4, 2019, at BSE SME.