Gland Pharma IPO review (May apply)

Review By Dilip Davda on Nov 4, 2020

•    GPL has a major stake (74%) from China-based Fosun Pharma.
•    IPO constitutes 26.45% of the post issue paid-up equity.
•    Issue appears fully priced based on P/E and P/BV parameters.
•    The company has not paid any dividend in the last three fiscals.
•    Negative sentiment for China connection globally raises major concern.

PREFACE:
Gland Pharma has been the talk of the town ever since it filed DRHP for its mega maiden float in pharma segment. It has a very interesting story of its existence. The company formed by PVN Raju in 1978 found a big stakeholder in the form of Fosun Pharma of China that acquired 74% stake in October 2017. Thereafter, the company marked tremendous growth in top and bottom line till FY20. However, ever since COVID-19 pandemic, China is facing a trade war and boycott from the world over and thus this company with major China stake is at the center stage for the Indian capital market.

As we know not only the Government of India, but even countries like the US, UK, Germany, Japan have started cutting their business deals with China. As this process has been aggravated since April/May 2020, it would be of major concern for the future outlook of this pharma company. According to market circles, unless some big Indian or other multinational stakeholder jumps in to acquire the stake, it will be very difficult to presume the fate of this company in the near term.

In the past, we have seen pharma/healthcare sector IPOs of Eris Life (Rs. 1741.16 cr.), Alkem Lab (Rs. 1349.61 cr.), Laurus Lab (Rs. 1331.80 cr.), Metropolis (Rs. 1204.29 cr.), Aster DM (Rs. 980.14 cr.) and thus, this is the biggest ever IPO in pharma sector for Indian capital market history so far. So on this count too this IPO is a talk of the town.

It's a known fact that over 80% raw material for pharma business is coming in India from China and it dominates this space globally. But in the present context of negative sentiment for China connections globally post COVID-19 pandemic, once again this IPO is drawing the attention of one and all in regard to responding it. This is indicative from the GMP as it started with a big bang even when formal pricing announcement was missing. And now that pricing announcement is made, it has witnessed a big slide in GMP quotes. If market circles to be believed, this IPO may see a re-run of SBI Card that created fancy before IPO and marked dull listing on debut day.

ABOUT COMPANY:
Gland Pharma Ltd. (GPL) is one of the fastest-growing generic injectables-focused companies by revenue in the United States from 2014 to 2019 (Source: IQVIA Report). It sells products primarily under a business to business ("B2B") model in over 60 countries as of June 30, 2020, including the United States, Europe, Canada, Australia, India and the Rest of the world. The company has a consistent compliance track record with a range of regulatory regimes across these markets. It also has an extensive track record in complex injectables development, manufacturing and marketing and a close understanding of the related sophisticated scientific, technical and regulatory processes.

It has expanded from liquid parenterals to cover other elements of the injectables value chain, including contract development, own development, dossier preparation and filing, technology transfer and manufacturing across a range of delivery systems. Its promoter, Shanghai Fosun Pharma, is a global pharmaceutical major.

GPL is focused on meeting diverse injectables needs with a stable supply of affordable and high-quality products. It has established a portfolio of injectable products across various therapeutic areas and delivery systems. GPL is also present in sterile injectables, oncology and ophthalmics, and focus on complex injectables, NCE-1s, First-to-File products and 505(b) (2) filings. GPL's delivery systems include liquid vials, lyophilized vials, pre-filled syringes, ampoules, bags and drops. The company is expanding development and manufacturing capabilities in complex injectables such as peptides, long-acting injectables, suspensions and hormonal products as well as new delivery systems such as pens and cartridges.

GPL is currently following the B2B segment and has up the sleeve B2C market as well. The company has seven manufacturing facilities in India, comprising four finished formulations facilities with a total of 22 production lines and three API facilities. As of June 30, 2020, it had manufacturing capacity for finished formulations of approximately 755 million units per annum.

As of June 30, 2020, it had a sales force of over 200 employees and an extensive countrywide distribution network to ensure coverage in approximately 2,000 corporate hospitals, nursing homes and
Government facilities. On the same date, GPL had a workforce of 3766 excluding contract labourers.

As of June 30, 2020, the group had 267 ANDA filings in the United States, of which 215 were approved and 52 were pending approval. The 267 ANDA filings comprise 189 ANDA filings for sterile injectables, 50 for oncology and 26 for ophthalmics related products. Out of these 267 ANDA filings, 101 represent ANDAs owned by it, of which 71 ANDA filings are approved and 30 are pending approval. As of the same date, the group had a total of 1,427 product registrations, comprising 371 product registrations in the United States, Europe, Canada and Australia, 54 in India and 1002 in the Rest of the world.

ISSUE DETAILS/CAPITAL HISTORY:
To finance its needs of working capital (Rs. 769.50 cr.), capital Expenditure (Rs. 168.00 cr.), general corpus fund (SHALL NOT EXCEED 25% OF THE NET ISSUE PROCEEDS)  GPL is coming out with a maiden IPO of combo offer of fresh equity issue (Rs. 1250.00 cr.) and offer for sale (Rs. xx cr.). It consists fresh equity issue of approx 8333335 shares of Re. 1 each (at the upper price band) and offer for sale of 34863635 shares. Thus the overall issue will be for approx. 43196970 equity shares. The issue opens for subscription on November 09, 2020, and will close on November 11, 2020. The company has fixed the price band of Rs. 1490 - Rs. 1500 per share. Minimum application is to be made for 10 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. GPL mulls mobilizing Rs. 6436.35 cr. - Rs. 6479.55 cr. (Based on lower and upper price bands) through this IPO. The issue constitutes 26.46% of the post issue paid-up capital of the company.

Having issued/converted initial equity at par, the company raised further equity in the price range of Rs. 2.50 to Rs. 48.69 between January 1996 and December 2007. The company also bought back shares in the price range of Rs. 139.81 - Rs. 344.81 between July 2014 and October 2017. It has also issued bonus shares in the ratio of 1 for 1 in February 1994, 1 for 2 in October 1994. (Based on FV of Re. 1 per share).

The average cost of acquisition of shares by the promoters/ other selling stakeholders is Rs. NIL, Rs. 30.12 and 605.12 per share. Post issue, GPL's current paid-up equity capital of Rs. 15.50 cr. will stand enhanced to Rs. 16.33 cr. With this issue, the company is looking for a market cap of Rs. 24492.42 cr.

The issue is jointly lead managed by Kotak Mahindra Capital Co. Ltd., Citigroup Global Markets India Pvt. Ltd., Haitong Securities India Pvt. Ltd. and Nomura Financial Advisory & Securities (India) Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue.

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, GPL has posted total income/net profits of Rs. 1671.68 cr. / Rs. 321.05 cr. (FY18), Rs. 2129.77 cr. / Rs. 451.86 cr. (FY19) and Rs. 2772.41 cr. / Rs. 772.86 cr. (FY20). For Q1 of FY21, it has posted a net profit of Rs. 313.90 cr. on a total income of Rs. 916.29 cr. Currently, around 67% revenue comes from exports to the US, and as known about US-China trade war imbroglio, added tension following Corona pandemic, it is difficult to assume the sustainability of this export business.  

For the last three fiscals, GPL has posted an average EPS of Rs. 38.11 and an average RoNW of 18.08%. The issue is priced at a P/BV of 5.86 based on its NAV of Rs. 255.79 as on June 30, 2020, and at a P/BV of 4.70 based on post issue NAV of Rs. 319.29. (Based on upper price band).

GPL has posted CAGR of 27.38% in revenue, EBITDA of 36.90%, restated profits of 55.15% from fiscal 2018 to 2020. Its debt-equity ratio was 0.001 as on June 30, 2020.

For the last three fiscals, GPL has not declared any dividend payouts. (Refer page 185 of RHP).

If we attribute the latest earnings on a fully diluted equity post issue, then asking price is at a P/E of around 19.5. Based on FY20 performance, the asking price is at a P/E of 31.7. Thus prima facie issue is fully priced. The prime concern is the sustainability of Q1 performance in the present context of opposing China connected goods/technology/tie-ups/investments.

BRLM's TRACK RECORD:
The four Book Running Lead Managers associated with this issue have handled 15 public issues in the past three years, out of which 5 issues closed below the issue price on listing date.  

COMPARISION WITH LISTED PEERS:
As per offer documents, GPL has no listed peers to compare with.


Conclusion / Investment Strategy

No doubt that currently, the pharma sector is attracting investors following COVID-19 pandemic and the search of remedies for it globally. This company has posted good performance for the last three fiscals and spectacular numbers for Q1 of FY21, but will it sustain going forward is a major concern in the present context of negative sentiment for China connections globally. Based on P/BV and P/E parameters, the issue appears fully priced. Considering all these, though it sounds lucrative bet for the long term, risk savvy, cash surplus investors may consider investment at their own risk in this China connected IPO.

Review By Dilip Davda on Nov 4, 2020

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. Any reader taking decisions based on any information published here does so entirely at its own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

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

Gland Pharma IPO FAQs

  1. 1. Why Gland Pharma IPO?

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

  2. 3. Gland Pharma IPO what should investors do?

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

  3. 4. Is Gland Pharma IPO good?

    Our recommendation for Gland Pharma IPO is to subscribe for long term.

  4. 5. Is Gland Pharma IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Gland Pharma IPO.

  5. 6. When will Gland Pharma IPO allotment status?

    The Gland Pharma IPO allotment status will be available on or around Nov 17, 2020. The allotted shares will be credited in demat account by Nov 19, 2020. Visit Gland Pharma IPO allotment status to check.

  6. 7. When will Gland Pharma IPO list?

    The Gland Pharma IPO will list on Friday, November 20, 2020, at BSE, NSE.

1 Comments

arunARUN
1. arunARUN  Nov 5, 2020 21:40
No data given to show that it is fully price.








Search Chittorgarh.com:

Download Our Mobile App

Android App iOS App