Gland Pharma IPO opens today I Here is in depth analysis of the issue

Zee Business Managing Editor Anil Singhvi says even though Gland Pharma has witnessed solid Growth and the valuations of the company is reasonable there is uncertainty due to Chinese promoters. Singhvi further advised only high risk long term investors may apply.

Gland Pharma Limited (Gland) is coming out with an IPO comprising a fresh issue of equity shares amounting to Rs 1,250 cr and an offer for sale (OFS) of 3.48 cr equity shares with a face value of Rs 1 per share. The price band for the said issue is Rs. 1,490-1,500.

Issue highlights:  

The size of the Issue is Rs 6445 cr –  Rs 6480 cr, number  of shares to be sold are 43,252,897 – 43,196,968 shares and the Face value of the share is 1. Gland Pharma is a Fresh Issue of Equity shares aggregating up to Rs 1250 Cr and Offer for sale of up to 3.48 cr Equity Shares. The price band is in the range of Rs 1490 – Rs 1500 and the bid Lot is 10 Shares and in multiple thereof. Post Issue the implied market cap of the company will be Rs 24337 cr – 24492 cr. Kotak Mahindra Capital, Citigroup Global, Haitong Securities and Nomura Financial are the Bankers to the issue. Link Intime India Pvt. Ltd is the registrar of the issue. Issue opens on Monday, 9 th Nov’2020 and Issue closes on Wednesday, 11 th Nov’2020.

Valuation:

Gland is one of the fastest growing generic injectables-focused companies. Gland has extensive and vertically-integrated injectables manufacturing capabilities with a consistent regulatory compliance track record. The company follows a diversified B2B-led model across markets globally, complemented by a targeted B2C model in India. The US accounts for 67% of the total sales as of FY2020, followed by a 17.7% share of Indian markets. Gland has an extensive portfolio of complex products which are well supported by internal R&D, awaiting to be commercialised across markets. Gland has an experienced management team and is promoted by Shanghai Fosun Pharma. The B2B business constitutes around 96% of FY2020 sales. This coupled with a focus on the injectables space and strong compliance track record are key plus points for Gland. Gland’s financial performance over FY2018 to FY2020 is impressive. Revenues have clocked a sturdy 27.4% CAGR over FY2018-FY2020. EBITDA margin has also improved to 36.3% in FY2020 as against 33% in FY 2018, consequently the EBITDA has staged a 33.6% CAGR over the same timeframe. PAT has grown by a sturdy 55.2% CAGR over FY2018-FY2020. The RoE also has improved from 13.3% in FY2018 to 21.2% in FY2020. Looking at the strong domain expertise, a sturdy and consistent earnings track record and healthy return ratios, the future looks good.

Investment Rationale:

Global pharma market to clock a healthy growth over 2019-2024: The global formulations market grew at a CAGR of 5.8% from 2014 to reach $1,096 bn in 2019, as per the IQVIA. The market is estimated to clock a CAGR of 4.4% to reach $ 1359 bn by 2024. Among the markets globally, North America is expected to contribute 47% of the overall market by value in 2024 and grow at a CAGR of approximately 3.9% from 2019 to 2024. India and China are expected to contribute approximately 2% and 9%, respectively, of the market, by value, with India expected to grow at a faster rate of approximately 9.3% and China at a CAGR of approximately 5.2% from 2019 to 2024.

Further oral solids, which is the largest delivery format in the market by value, was estimated to be $490 bn in 2019, growing at a CAGR of approximately 3.5% from 2014 to 2019. However, the market share by value of oral solids declined from 50% in 2014 to 45% in 2019. Injectables are the second largest delivery format in the global pharmaceutical market. IQVIA estimated that the global injectables market clocked a CAGR of ~10.1% from 2014 to reach U.S. $432 bn in 2019. Market share by value of injectables increased from 32% in 2014 to approximately 39% in 2019.
Extensive and vertically integrated manufacturing capabilities with a consistent regulatory compliance track record:

Gland Pharma has seven manufacturing facilities which includes two sterile injectables facilities, one dedicated Penems facility, one oncology facility and three API facilities. The manufacturing process across plants is designed to facilitate production flexibility and deliver high and consistent product quality. This allows the company to quickly adapt to changes in product specifications, market demand and production requirements. In addition, diversification of product approvals across multiple manufacturing units for key products mitigates regulatory risk with respect to any particular unit and provides increased certainty of supply. All manufacturing facilities have established a consistent record of regulatory compliance with the USFDA highlighting focus on quality assurance and quality control. Gland has had no warning letters from the USFDA since the inception of each facility. Certain facilities are also compliant with MHRA (UK), ANVISA (Brazil), AGES (Austria), TGA (Australia) and BGV Hamburg (Germany). Gland has three API plants that manufacture critical APIs as well. The company’s 24 ANDAs covering key products are supported by in-house APIs. Vertical integration allows us to achieve greater control over our manufacturing processes to meet required standards, increase operating efficiencies, accelerate product development, strengthen product quality control and improve supply chain efficiencies.

Key Risks:

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The pharma industry is heavily regulated and business activities require various approvals, licenses, registrations and permissions. If there is any change to such regulations or failure or delay in obtaining necessary permits or approvals, or if such permits or approvals are revoked or not renewed for any reason, the business, financial condition, cash flows and results of operations may be adversely affected. If API production is interrupted or the company fails to produce or procure high-quality API in the quantities required and in a cost-effective manner, sales could be delayed or interrupted. The company may be required to conduct clinical trials for some of the products in the future. Clinical drug development involves a lengthy and expensive process with uncertain outcomes, and may be unable to achieve successful results in our clinical trials.

Competition:

The markets in which Gland Pharma sells its generic injectable products are highly competitive. According to the IQVIA Report, injectable manufacturers face entry barriers such as high capital investments, operational costs, manufacturing complexities, stricter compliance requirement (because of the sterile nature of products) and high-quality standards resulting in limited competition in the market. Though the company faces and will face competition from pharmaceutical companies that adopt the B2B model and focus on the generic injectables market.