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Salient features of the IPO:

* Glenmark Life Sciences Ltd. (GLS), the subsidiary of pharma major Glenmark Pharmaceuticals Ltd., is planning to raise up to Rs. 1,500cr through an IPO, which opens on 27th Jul. and closes on 29th Jul. 2021. The price band is Rs. 695 - 720 per share.

* The issue is a combination of fresh and OFS. The company will not receive any proceeds from the OFS portion. Of the net proceeds from the fresh issue, Rs. 800cr will be utilized for the payment of outstanding purchase consideration to the promoter for the spin-off of their API business into the company, another Rs. 152.8cr will be used to fund the capital expenditure requirements.

Key competitive strengths:

* Leadership in select high value, non-commoditized APIs in chronic therapeutic areas

* Strong relationships with leading global generic companies 

* Quality-focused compliant manufacturing and R&D infrastructure

* Strong focus on sustainability in operations

* Cost leadership across products through careful monitoring and continuous effort

* Experienced management team with proven track record

Risk and concerns:

* Unfavorable government policies

* Difficulties in new client addition

* Unfavorable forex movements

* Unfavorable movements in key raw material prices

* Competition

Peer comparison and valuation:

At higher price band of Rs. 720, GLS is demanding a P/E valuation of 25.1x (to its restated FY21 EPS of Rs. 28.7), which is at discount to the peer average of 37.5x.

Below are a few key observations of the issue:

* The global active pharmaceutical ingredient (API) market was estimated to be around USD 181.3bn in FY20 and is expected to grow at 6.2% CAGR to reach to about USD 259.3bn by FY26. India with an estimated market share of 6% has reported a growth rate of 9% CAGR during FY16-20. India has contributed significantly to the global generics market by fulfilling 20% of the global demand in generics in terms of volume, thereby making itself the largest provider of generic medicines globally. Currently, India has highest number of USFDAapproved plants outside of the United States as well as 44% of global abbreviated new drug applications. India’s API market is further expected to expand by 9.6% CAGR over FY21-26.

* GLS is a leading developer and manufacturer of high value, noncommoditized APIs and its portfolio comprises of 120 products (10 products in laboratory development; four products in laboratory validation and 106 products being commercialized) ranging across various therapy areas like cardiovascular, central nervous system disease, diabetes, anti-infectives and others. The company also provides contract development & manufacturing operations (CDMO) services to a range of multinational and specialty pharmaceutical companies. As on FY21, APIs and CDMO contributed around 91% and 8% to the revenue, respectively.

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