Par Drugs NSE SME IPO review (May apply)

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Review By Dilip Davda on April 29, 2019

• PDCL is developer and manufacturer of select APIs and fine chemicals.
• Revenue includes around 90% domestic and 10% export sales.
• Few renowned buyers like Pfizer, UPL, Essential Drugs etc.
• The issue appears reasonably priced on the basis of financial parameters.

ABOUT COMPANY:
Par Drugs & Chemicals Ltd. (PDCL) is engaged in the development and manufacture of Active Pharma Ingredients ('APIs') for the domestic market as well as for exports to international markets. APIs, also known as 'bulk drugs' or 'bulk actives' are the principal ingredient used in making finished dosages in the form of capsules, tablets, liquid, or other forms of dosage, with the addition of other APIs or inactive ingredients. The company produces various ranges of Antacid Molecules which are available in the market and are in great demand. It currently owns and operates two manufacturing facilities at Bhavnagar and Ankleshwar in Gujarat. Its Bhavnagar facility has three manufacturing blocks for different products that include APS and Fine Chemicals.

PDCL's product portfolio presently comprises 12 APIs and 6 Fine Chemical which are marketed domestically and exported. It supplies products to approximately 16 countries, including both direct and indirect exports. Key customers include Essential Drugs Company Limited, Taurus chemicals (P) Limited, Pfizer Limited, United Phosphorus Limited (Samba Jammu Unit), Shiv Silica Private Limited. Etc.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital (Rs. 7.00 cr.) and general corpus fund needs (Rs. 0.89 cr.) PDCL is coming out with a maiden IPO of 1672000 equity shares of Rs. 10 each at a fixed price of Rs. 51.00 per share to mobilize Rs.8.53 Cr. It has reserved 30000 shares for eligible employees. Out of balance 1642000 shares 84000 is for the market maker, 778000 for non-retail and 780000 for retail category. The issue opens for subscription on 03.05.19 and will close on 08.05.19. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 27.18% of the post issue paid up capital of the company. PDCL is spending Rs. 0.64 cr. to mobilize Rs. 8.53 cr.

The issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue. Pantomath Stock Brokers Pvt. Ltd. is acting as a market maker for the issue.

Having issued initial equity at par, PDCL converted preference shares and loans into equity at a fixed price of Rs. 66 per share in March 2019. The average cost of acquisition of shares by the promoters is Rs. 19.12 and Rs. 19.93 per share. Post issue PDCL's current paid up equity capital of Rs. 4.48 cr. will stand enhanced to Rs. 6.15 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, PDCL has posted turnover/net profits of Rs. 48.81 cr. / Rs. 1.85 cr. (FY17), Rs. 42.42 cr. / Rs. 1.50 cr. (FY18) and Rs. 46.41 cr. / Rs. 2.42 cr. (FY19). Following one time mega order from one client for FY17, it posted higher the top line with the commensurate jump in the bottom-line. As on 31.03.19, its debt-equity ratio was 0.40 and the inventory turnover ratio was 11.08.

For the last three fiscals, the company has posted an average EPS of Rs. 5.69 and an average RoNW of 9.78%. The issue is priced at a P/BV of 0.78 based on its NV of Rs. 64.99 as on 31.03.19 and at a P/BV of 0.83 on the basis of post issue NAV of Rs. 61.19. If we attribute FY19 earnings on fully diluted equity post issue, then asking price is at a P/E of around 13 against industry composite average of 15.38 (as on 31.03.19). FY19 revenue consists of 89.5% of domestic sales and 10.5% of international sales.

COMPARISION WITH LISTED PEERS:
As per offer documents, PDCL has considered Aarti Drugs, Shilpa Medicare, Vasundhara Rasayans as its listed peers that are currently trading at a P/Es of around 17.42, 25.11 and 60.52 (as on 26.04.19). However, they are strictly not comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 56th mandate from its stable in the last three fiscals. Out of the last 10 listings, all issues opened at premiums ranging from 0.05% to 11.11% on the day of listings.

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