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KEY CHANGES An R&D driven API player : TARGET …

Glenmark Life Sciences Limited (GLSL), a wholly-owned subsidiary of Glenmark Pharmaceuticals Limited, 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. As of March 31st , 2021, they had a portfolio of 120 molecules and are adding on average 8-10 new molecules annually. They are also providing contract development and manufacturing operations (CDMO) services to pharmaceutical companies.

* The global API market was estimated to be around US$181.3 billion in FY 20 and is expected to grow at a CAGR of 6.2% by FY26.

* GLSL’s key customers include Glenmark, Teva Pharmaceutical Industries, Torrent Pharmaceuticals, Aurobindo Pharma, Krka etc.

* As of May 31st, 2021, GLSL owned or co-owned 39 granted patents and had 41 pending patent applications in several countries and six pending provisional applications in India.

* GLSL currently operates 4 manufacturing facilities with an aggregate annual total installed capacity of 726.6KL (Kilo-Litres) as of March 31st, 2021 with an 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.

* A new manufacturing facility expected to become operational by FY23 with an aggregate capacity of 800 KL will provide a platform for the growth of CDMO business (currently 8% to revenue) and also add capacity for the generic API business.

* For FY19-21 revenue grew at ~46% CAGR while PAT growth stood at ~34% CAGR during the same period with an average EBITDA Margin of 30% .

* 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 companies like GLSL.

* The company has Debt to equity of 1.3x with a debt of Rs.916cr which includes Rs.800cr payable to Glenmark Pharmaceuticals Ltd, post IPO debt will be negligible.

* At the upper price band of Rs.720, GLSL is available at a P/E of 25x (diluted) which appears fairly priced. We assign a “Subscribe” rating for the issue on a long-term basis considering its strong focus on R&D, expansion plans (1726.6KL when completed), growth opportunity in CDMO services and expanding complex API portfolio.

Purpose of IPO

The Offer comprises of the Fresh Issue and the Offer for Sale. The proceeds from the offer for sale will go to the selling shareholders, while the amount received from the sale of fresh issue will be utilized for Payment of outstanding purchase consideration to the Promoter for the spin-off of the API business(Rs.800cr),Funding capital expenditure requirements(Rs.153cr) and General corporate purposes.

Key Risks

* Five largest customers accounted for ~55% of the total revenue from operations, and the Promoter is the largest customer(~40%).

* GLSL generates a significant portion of the total revenue from the API business from the sale of products in a limited number of therapeutic categories.

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