Glenmark Life Sciences IPO opens tomorrow, know the grey market premium and brokerage’s view

Glenmark Life Sciences Rs 1,513.60 crore initial public offering (IPO) opens tomorrow (July 27) for subscription. The price band for the issue has been fixed at Rs 695-720 a share and the three-day issue concludes on July 29.

The Rs 1,513.60-crore public offer comprises fresh issuance of equity shares of Rs 1,060 crore, and an offer for sale (OFS) of 63,00,000 shares totaling Rs 453.60 crore by Glenmark Pharmaceuticals. The active pharmaceutical ingredients manufacturer will utilise its net proceeds for payment of outstanding purchase consideration to the promoter for the spin-off of the API business from the promoter into the company pursuant to the Business Purchase Agreement dated October 9, 2018 (Rs 800 crore), and funding capital expenditure requirements (Rs 152.76 crore) and meet general corporate purposes.

An investor can bid for a minimum of 20 equity shares and in multiples, thereafter, translating to a minimum bidding amount of Rs 14,400 at the higher end of the price band. A retail investor can at max apply for 13 lots or 260 shares for Rs 1,87,200.

Grey market chatter

Ahead of the IPO, shares of Glenmark Life Sciences were trading at Rs 855 per share marking a premium of Rs 135 or 18.75% on the upper price band of Rs 720.

“The Indian API industry is witnessing upper growth trajectory due to supportive government policies, low production cost base, China +1 strategy. Also, the stricter control on Chinese API companies should be fruitful for Indian companies,” told Abhay Doshi, Founder, Unlisted Arena.

Glenmark Life Sciences has a strong customer base as it works with 16 out of 20 largest generic companies, globally. On the financial front, at the upper price of Rs 720, the issue is priced at 22x to its earnings. Comparing to its peers, the issue looks moderately priced. However, the expansions plans in API and CDMO segment should captivate the market share going ahead, added Doshi.

Should you subscribe?

Most brokerages have ‘subscribe’ rating on the IPO, here is why

ICICI Securities | Rating: Subscribe

Since 2015, the company’s facilities have been subject to 38 inspections and audits by regulators including the USFDA and others. It has not received any warning letters/import alerts from regulatory authorities.

Glenmark Life Sciences has a good performance execution and a clean regulatory track record. The company is also a leading developer and manufacturer of select high-value, non-commoditised APIs in chronic therapies and works with 16 of the 20 largest generic companies globally. The growth momentum also has a strong undercurrent of global API industry growth.

Geojit | Rating: Subscribe

Glenmark Life Sciences currently operates 4 manufacturing facilities with an aggregate annual total installed capacity of 726.6KL (Kilo-Litres) as of March 31st, 2021 with average capacity utilization of 81%. Expected to increase API manufacturing capabilities by expanding current facilities by 200 KL by FY22-23 to further expand generic API production and grow the oncology product pipeline.

China Plus One strategy by global formulation makers to de-risk their procurement strategies led to a spike in demand for APIs is good for Glenmark Life Sciences.  At the upper price band of Rs.720, the issue is available at a P/E of 25x (diluted) which appears fairly priced.

Marwadi Shares and Finance | Rating: Subscribe

Considering the FY21 adjusted EPS of Rs 28.69 on post-issue basis, the upper price band implies a P/E of 25.09 with a market cap of Rs 8,822 crore, while its peers namely Divi’s Laboratories, Laurus Labs, and Shilpa Medicare are trading at a P/E of 64, 36.1 and 36.5 respectively. The company is a leader in select high-value, non-commoditised APIs in chronic therapeutic areas with quality-focused and compliant manufacturing/ R&D infrastructure and is available at reasonable valuation as compared to its peers.

Anand Rathi Shares and Stock Brokers | Rating: Subscribe

Given the company’s leadership in select high-value non-commercialised APIs in chronic therapeutic areas, cost leadership, strong management, strong balance sheet, growing business, high return on net worth of 46.71% in the fiscal ended March 31, 2021 and reasonable valuations, Anand Rathi Shares and Stock Brokers gives “Subscribe” rating to the IPO.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)