The IPO is being sold in the Rs 695-720 price band. The higher end of the price band implies an asking P/E of 25.09 and a market cap of Rs 8,822 crore, based on adjusted FY21 EPS of Rs 28.69, on a post-issue basis.
This is quite attractive compared with listed peers such as Divi’s Laboratories, Laurus Labs, and Shilpa Medicare, which are trading at 36-64 times. Analysts are positive on the company’s prospects, given that China Plus One strategy by global formulation makers — to de-risk their procurement strategies — has led to a spike in demand for API players.
Anand Rathi said Glenmark Life has leadership in select high-value non-commercialized APIs in chronic therapeutic areas. It said the has cost leadership, a strong balance sheet, a growing business, and a high return on net worth (RoNW) of 46.71 per per cent. Add to that are reasonable valuations, which the brokerage said made it suggest a ‘subscribe’ on the issue.
Geojit Financial Services called the IPO fairly priced and suggested a ‘Subscribe’ for a long-term basis, considering Glenmark’s strong focus on research and development (R&D), its expansion plans, the growth opportunity ahead in CDMO (contract development and manufacturing operations) services and expanding of complex API portfolio.
Glenmark Life has seen 34 per cent annual growth in profit after tax over FY19-21 on a 46 per cent annual growth in revenues. Average Ebitda margin for the period stood at 30 per cent.
“Based on the forecasted FY24E earnings, the demanded valuation comes out to be 11.4 times, which seems to be attractive for a company generating a RoE of around 20 per cent. Thus, considering the business growth outlook and almost stable operating margins, we assign a “subscribe” rating for the issue,” said Choice Broking.
Finance cost, meanwhile, for the API maker has also increased exponentially over FY19-21, mainly linked to the higher interest expenses towards the purchase of the API business of the promoter.
Glenmark Life wishes to utilise the proceeds from the sale of a fresh issue for payment of outstanding purchase consideration to the promoter for the spin-off of the API business (Rs 800 crore), funding capital expenditure requirements (Rs 153 crore) and general corporate purposes.
The API maker earns 60-65 per cent of its revenues from regulated markets. The company’s facilities have been subject to 38 inspections and audits by regulators including the USFDA since 2015. It has not received any warning letters/import alerts from regulatory authorities so afr. Its facilities have also been subject to 432 inspections by customers during this period.
Astha Jain of Hem Securities said the company’s quality-focused compliant manufacturing and R&D infrastructure, strong focus on sustainability in operations along with cost leadership across products is demonstrating the strong fundamentals of the company.
“We recommend ‘Subscribe’ on the issue both for listing gains & long term perspective,” She said.
Siddhant Khandekar of
likes Glenmark Life’s execution and clean regulatory track records. He believes that the company’s growth momentum also has a strong undercurrent of global API industry growth. This analyst also has a subscribe rating to the issue.
