Is Laurus Lab IPO a good deal for investors?

Laurus Lab – a leading research and development driven pharma company, have entered primary market through initial public offering (IPO) by selling nearly 2.19 crore equity shares, starting from December 06 – December 08, 2016.

The company plans to raise Rs 300 crore from this IPO, and it is a 100% book building, offered at price band ranging between Rs 426 to Rs 428 per piece.

Companies like Kotak Mahindra Capital, Citigroup, Jefferies, SBI Capital Markets are acting as book running lead managers of this IPO.

The pharma-company will not receive any proceeds from Offer for Sale (OFS), it shall be received by the Selling Shareholders. 

So should you invest in this IPO?

Akash Jain, Research Analyst at Ajcon Global said, “At the upper price band, the IPO is valued at 30x at H1FY17 annualised Post issue EPS which is at a premium to its peers.”

He believes, that the premium is justified due to the following factors like a) leadership in APIs in select, high growth therapeutic areas; b) strong R&D capabilities and process chemistry skills; c) industry leading, modern and regulatory compliant manufacturing capacities; d) long-standing relationships with marquee clients; e) consistent & robust growth across topline and bottomline; f) good OPM in API segment at above 20% as compared to peers and decent ROE of 15.6 percent for an API player, g) private equity backed Company.
Somewhat similar factors were explained by Sharekhan for investing under Laurus Lab IPO. 

"Above factors increases our confidence on R&D capabilities and process chemistry skills, which is why we recommend high risk investors to “SUBSCRIBE” the issue. However, client concentration risk and high receivables days may cap listing gains," added Jain.

While Dalal Street Journal said, “The company looks attractive with EPS of 20.86 and upper price band P/E of 20.51x which is lower than listed peers like Divis Lab and Aurobindo Pharma. Considering strong portfolio and financial performance of company, we suggest you to subscribe this IPO with long term vision.”

On the other hand Dilip Davda, Sebi registered research analyst at Chittorgarh Company said, “Laurus Lab 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."

This would be the 21st IPO to enter the primary market in the current financial year (FY17).