The IPO frenzy continues! Glenmark Life Sciences has launched its three-day IPO today— July 27. It is a subsidiary of Glenmark Pharma, one of the leading Indian pharmaceutical companies. In this article, we take a closer look into the company and its IPO.
Company Profile – Glenmark Life Sciences Ltd
Glenmark Life Sciences Ltd (GLSL) is a leading manufacturer of Active Pharmaceutical Ingredients (APIs). Basically, APIs are the biologically active component of drugs (tablets, capsules, and injectables) that produces the intended effects. GLSL develops, manufactures, and supplies high-quality APIs for cardiovascular disease (CVS), central nervous system disease (CNS), and pain management. They also manufacture APIs for diabetes, gastrointestinal disorders, and anti-infectives (drugs for treating infections).
Glenmark Pharmaceuticals Ltd established its API business in 2001. As part of a reorganisation strategy, the company decided to convert its API segment into a new and separate entity in 2019. This led to the creation of Glenmark Life Sciences. The API unit was sold to GLSL at a slump-sale value of Rs 1,100 crore. Thus, GLSL operates as an independent, professionally-run global API firm with a strong focus on research & development (R&D).
Currently, the company has ~120 APIs in its portfolio. Their products are extensively sold in India and exported to countries across Europe, North America, Latin America, and Asia. Over the years, GLSL has established strong relationships with some of the leading generic pharmaceutical companies in the world. Moreover, they provide contract development and manufacturing operations (CDMO) services to specialty pharma companies.
GLSL operates four multi-purpose manufacturing facilities located at Ankleshwar and Dahej in Gujarat and Mohol and Kurkumbh in Maharashtra. As of March 31, 2021, the aggregate annual installed capacity of the units stood at 726.6 kilolitres (KL). They are planning to set up a greenfield facility in Solapur, Maharashtra, which will double its capacity by 2024.
About the IPO
Glenmark Life Sciences aims to raise Rs 1,513.6 crore through its initial public offering (IPO). The public issue opens on July 27 and closes on July 29. The price band for the IPO has been fixed at Rs 695-720 per share.
The fresh issue of shares (of the face value of Rs 2 each) aggregates to Rs 1,060 crore. The IPO also consists of an offer for sale (OFS) by Glenmark Pharma (the promoter), which aggregates up to Rs 453.6 crore. Individual investors can bid for a minimum of 20 equity shares (1 lot) and in multiples of 20 shares thereafter. You will need a minimum of Rs 13,900 to apply for this IPO. A retail investor can bid for a maximum of 260 equity shares (or 13 lots).
Glenmark Life Sciences will utilise the net proceeds from the IPO for three main purposes:
- For making payment of outstanding purchase consideration of Rs 800 crore to the promoter, for the acquisition of the API business.
- To meet capital expenditure (capex) requirements of ~Rs 155 crore. They have announced plans to enhance the existing production capacities of its Ankleshwar and Dahej facilities.
- The remaining amount will be used for general corporate purposes.
The total promoter holding in the company will decrease from 100% to 82.84% post the IPO.
GLSL has posted consistent growth in revenues and profits over the past three financial years. From FY19-21, the total income has grown at a compounded annual rate (CAGR) of 15.84%, while profits have grown at 17.35%. The company has posted an average Earnings Per Share (EPS) of Rs 30.09 during this period. The Return on Net Worth (RoNW) stands at 46.7%, which is high compared to its peers. RoNW shows how well the company uses shareholders’ capital (equity) to generate profits.
- The company’s operations are subject to strict inspections/audits by its customers and regulatory agencies. The failure to meet quality standards or non-compliance with regulations may lead to loss of business. This could negatively impact its reputation and financial results.
- The revenue derived from Glenmark Life Sciences’ top 5 customers account for ~55.8% of the total sales income (as of FY21). The loss of any of these customers or a reduction in their purchases will negatively affect financial results.
- Nearly 90% of GLSL’s total revenue comes from its API business. If the key products across its limited number of therapeutic categories fail to perform as expected, the company’s financial performance would be adversely affected.
- Unplanned slowdowns or shutdowns of the GLSL’s manufacturing operations (due to socio-political disruptions, natural calamities) may lead to delays in supplies or new product launches.
- Any delay, interruption, or reduction in the supply of raw materials would harm the company’s operations.
- There are outstanding legal and regulatory proceedings involving GLSL, its promoter, and directors.
- The company has significant working capital requirements with respect to manufacturing operations and development of new products. If they fail to maintain cash flows or obtain sufficient credit, there may be an adverse effect on the firm’s overall performance.
IPO Details in a Nutshell
The book-running lead managers to the public issue are Kotak Mahindra Capital, BofA Securities India, Goldman Sachs (India) Securities, DAM Capital Advisors, BOB Capital Markets, and SBI Capital Markets. Glenmark Life Sciences had filed the Red Herring Prospectus (RHP) for its IPO earlier this month. You can read it here.
Ahead of the IPO, the company was able to raise Rs 454 crore from prominent anchor investors on July 26. This includes HSBC Global Investment Funds, Oaktree Emerging Markets Equity Fund LP, Kuber India Fund, Societe Generale-ODI, etc.
The Indian API market has registered a steady growth of 9.1% since FY19. As per reports, it is expected to grow at a CAGR of 9.6% from 2021-26, outpacing the global market growth for APIs. Earlier this year, our government had approved a production linked incentive (PLI) scheme worth Rs 6,940 crore to promote domestic manufacturing of essential drug intermediates and APIs. Glenmark Life Sciences could benefit immensely from all of this— provided that they launch new and improved products.
The company has announced strategic plans to expand generic API production and grow its oncology production pipeline. [Oncology is the branch of medicine that deals with the study and treatment of cancer]. They will continue to invest in R&D and focus on enhancing their production capabilities. Large pharma firms such as Glenmark, Teva Pharmaceutical Industries, Torrent Pharma, and Aurobindo Pharma are highly dependent on GLSL. Thus, one could invest in the company based on its future growth prospects.
Once its shares get listed, GLSL will be directly competing with firms such as Divis Labs, Laurus Labs, Shilpa Medicare, Aarti Drugs, and Solara Active Pharma.
Before applying for the IPO, we will wait to see if the portion reserved for institutional investors gets oversubscribed. Looking at the recent trend, most IPOs are providing a select few with amazing listing gains. As always, consider the risks associated with this company and come to your own conclusion.
What are your opinions on this IPO? Will you be applying for it? Let us know in the comments section of the marketfeed app.