IPO Note - Glenmark Life sciences Ltd By Nirmal Bang
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BACKGROUND
Glenmark Life sciences Ltd (GLL) is a leading developer and manufacturer of select high value, non-commoditized active pharmaceutical ingredients (“APIs”) in chronic therapeutic areas, including cardiovascular disease (“CVS”), central nervous system disease (“CNS”), pain management and diabetes. The API portfolio comprises specialized and profitable products, including niche and technically complex molecules. It also provides contract development and manufacturing operations (“CDMO”) services to a range of multinational and specialty pharmaceutical companies. As of March 31, 2021, the company had a portfolio of 120 molecules globally and sold APIs in India and exported to multiple countries in Europe, North America, Latin America, Japan and the rest of the world. It currently operates four multi-purpose manufacturing facilities. GLL is increasing its production capacities at Ankleshwar and Dahej. It is also developing a greenfield facility, expected to be operational by Q4FY23.
Objects of the Issue
The issue of Rs 1514 cr consists of Rs 454 cr offer for sale and Rs 1060 cr fresh issue to repay the debt to parent company and to fund the capex.
Investment Rationale
* Leadership in Select High Value, Non-Commoditized APIs
* Expansion of Geographical Reach
* Growing CDMO business
* Healthy Financials
Valuation and Recommendation
The global API market was estimated to be around US$181.3 billion in 2020 and is expected to grow at a CAGR of 6.2% to reach to about US$259.3 billion by 2026. The Indian API market has shown steady growth of 9.1% since FY19 and is expected to further grow at CAGR of 9.6% from 2021-26 outpacing the global market growth.
The company has grown at a CAGR of 16% over FY18-21. Due to favorable product mix and overall control on costs., EBITDA grew at higher CAGR of 21% over same period. EBITDA margins improved from 27.6% in FY18 to 31.4% in FY21. The management believes that there is no one-off in these margins, and with increasing share of CDMO business (has higher margins), margins are likely to remain healthy in future as well. At upper band of Rs 720, the PE comes to 25.1x FY21 earnings, which looks attractive. We recommend “Subscribe”.
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