IPO Analysis: Concord Biotech Limited

IPO Rating: Apply for long term

About the issue:

Incorporated in 1984, Concord Biotech Limited is an India-based R&D-driven biopharma company. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Re 1 per equity share. The price band of the issue has been fixed at Rs 705 to Rs 741 per equity share. The issue size is Rs 1,551 crore at a higher price band.

The IPO opening date is August 4, 2023, and it will be closing on August 8, 2023. The issue is likely to be listed on the exchange on August 18, 2023. The IPO market lot size is 20 shares and in multiple thereof. A retail-individual investor can apply up to a maximum of 13 lots (260 shares or Rs 192,660) at the upper price band.

Objects of the Issue

The objectives of the offer are to:

1. Achieve the benefits of listing the Equity Shares on the Stock Exchanges.
2. Carry out the Offer for Sale of up to 20,925,652 Equity Shares by the Selling Shareholder.

Promoter holding

The pre-issue shareholding is 44.08 per cent, post the IPO the promoter stake will be 44.08 per cent.

About the company:

Concord Biotech Ltd (CBL) is an India-based biopharma company that is one of the leading global developers and manufacturers of select fermentation-based APIs across immunosuppressant and oncology in terms of volume in 2022, supplying to over 70 countries, including regulated markets such as the United States, Europe, and Japan, as well as India. In 2022, it held a market share of more than 20 per cent by volume for identified fermentation-based API products such as mupirocin, sirolimus, tacrolimus, mycophenolate sodium, and cyclosporine.

It had a total installed fermentation capacity of 1,250 cubic metres as of March 31, 2023. The company launched a formulation business in India as well as emerging markets such as Nepal, Mexico, Indonesia, Thailand, Ecuador, Kenya, Singapore, and Paraguay in 2016, and has since expanded to the United States. CBL manufactures (i) bio-pharmaceutical APIs via fermentation and semi-synthetic processes in the immunosuppressive, oncology, and anti-infective therapeutic areas; and (ii) formulations in the immunosuppressive, nephrology, and anti-infective therapeutic areas for critical care.

It had a total installed fermentation capacity of 1,250 cubic metres as of March 31, 2023. The company launched a formulation business in India as well as emerging markets such as Nepal, Mexico, Indonesia, Thailand, Ecuador, Kenya, Singapore, and Paraguay in 2016, and has since expanded to the United States. CBL manufactures (i) bio-pharmaceutical APIs via fermentation and semi-synthetic processes in the immunosuppressive, oncology, and anti-infective therapeutic areas; and (ii) formulations in the immunosuppressive, nephrology, and anti-infective therapeutic areas for critical care.

CBL is one of the few companies in the world that has established and scaled up fermentation-based API manufacturing capabilities successfully and sustainably (Source: F&S Report). Working with microbial strains and cultures, controlling multiple processes, and performing various purification steps make fermentation difficult.

It had six fermentation-based immunosuppressant APIs as of March 31, 2023, including tacrolimus, mycophenolate mofetil, mycophenolate sodium, cyclosporine, sirolimus, and pimecrolimus. CBL intends to expand its immunosuppressive API portfolio, which will continue to be a key contributor to its API business in the near future.

The company had 23 API products as of March 31, 2023. As of June 30, 2023, it had filed 128 Drug Master Files (DMFs) for APIs in various countries, including 20, 65, and four in the United States, Europe, and Japan, respectively. DMFs are documents filed by pharmaceutical manufacturers in relation to specific drug products, such as APIs, that contain proprietary information about those drugs.

CFL had three manufacturing facilities in the Indian state of Gujarat as of March 31, 2023, including API manufacturing facilities in Dholka and Limbasi, as well as a formulation manufacturing facility in Valthera, which were commercialised in 2000, 2021, and 2016, respectively. As of March 31, 2023, the formulation manufacturing facility in Valthera had an annual installed production capacity of 801.64 million units, with an average dosage capability of 0.45 million tablets, 0.36 million capsules, and 646.46 bottles of dry syrup per shift, which is defined as eight hours of production.

It had over 200 customers in over 70 countries as of March 31, 2023, for APIs and formulations. It has entered into long-term supply agreements with some of its customers.

Financial

On the financial performance front, for the last three fiscals, CFL has (on a consolidated basis) posted a revenue/net profit of Rs 630.75 crore / Rs 234.89 crore (FY21), Rs 736.35 crore / Rs 174.93 crore (FY22), and Rs 888.48 crore / Rs 240.08 crore (FY23).

Valuation and Outlook

The issue is priced at a P/BV of 6.01 based on its NAV of Rs. 123.31 as of March 31, 2023, as well as on a post-IPO basis (at the upper cap). If we annualize FY23 earnings and attribute it to the post-IPO paid-up capital of the company, the issue is priced at a P/E of around 32.29x. As a result, the issue appears fully priced.

According to the offer document the company has mentioned Divi's Laboratories, Suven Pharma, Laurus Labs, and Shilpa Medicare as its listed peers. They are currently trading at a TTM P/E of 54.6x, 30.2x, 38.5x.

The company has paid a dividend of 60 per cent (FY21), 741.50 per cent (FY22), 512 per cent (FY23) and an interim dividend of 683 per cent for FY24 so far. It will continue to follow a prudent dividend policy post-listing of shares, based on its financial performance and future prospects.

The company is an Indian biopharma company with many niche products. The issue seems to be fully priced, however, looking at business, investors with long-term horizon can subscribe to it.