IPO Analysis: Innova Captab Limited

IPO Rating: Apply for the long-term

About the Issue 

The company operates as an integrated pharmaceutical entity in India, covering various facets of the pharmaceutical value chain, encompassing research and development, manufacturing, drug distribution, marketing, and exports. It is gearing up to launch its Initial Public Offering (IPO) for equity shares, each having a face value of Rs 10. The IPO price range is set between Rs 426 and Rs 448 per equity share, resulting in a total issue size of Rs 570 crore at the upper price band. 

The IPO is scheduled to commence on December 21, 2023, and will conclude on December 26, 2023. The market lot size for the IPO is 33 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 429 shares or a total investment of Rs 1,92,192 assuming the upper price band.  

Objects of the Issue 

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes: 

1. Repayment or prepayment in part or full, of certain outstanding loans of the company 
2. Investment in the subsidiary, UML, for repayment or prepayment in part or full of outstanding loans availed by UML 
3. Funding the working capital requirements 
4. General corporate purposes  

Promoter holding

Manoj Kumar Lohariwala and Vinay Kumar Lohariwala are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 66.85 per cent in the company.  

Company profile 

The company operates as an integrated pharmaceutical entity in India, covering various facets of the pharmaceutical value chain, encompassing research and development, manufacturing, drug distribution, marketing, and exports. Its business segments consist of a contract development and manufacturing organization (CDMO) offering manufacturing services to Indian pharmaceutical companies, a domestic branded generics business, and an international branded generics business. 

The company operates an international branded generic product business, with a specific focus on exporting to emerging and semi-regulated international markets. There are plans for expansion in the international branded generics business, particularly targeting regulated markets such as the United Kingdom and Canada. The company's key customers encompass prominent names such as Cipla Limited, Glenmark Pharmaceuticals Limited, Wockhardt Limited, Emcure Pharmaceuticals Limited, Lupin Limited, Eris Healthcare Private Limited, Ajanta Pharma Limited, and Mankind Pharma Limited. 

During Fiscal 2023 and the three months ending June 30, 2023, the company produced an extensive portfolio of generics, comprising over 600 products. These products were marketed under the company's brands in the Indian market, utilizing a well-established network of around 5,000 distributors and stockists, reaching over 1,50,000 retail pharmacies. The company possesses two manufacturing facilities located in Baddi, Himachal Pradesh. According to CRISIL Research, it secured the third position among its peers in India in terms of finished tablet and capsule manufacturing capacity. 

Financials  

In the fiscal year 2022, the company, as evaluated in the CRISIL Report among Indian formulation CDMO players, achieved notable rankings, securing the third-highest position in operating revenue, the second-highest in operating profit margin, the third-highest in net profit margin, and the second-highest in return on capital employed. The company maintained robust top-line and bottom-line growth throughout FY23 and Q1FY24. The company boasts a return on equity (RoE) and return on capital employed (RoCE) of 23 per cent and 22 per cent, respectively, for the fiscal year 2023, underscoring its robust performance. 

Valuation and outlook 

The issue is priced with a P/BV ratio of 7.31 times, calculated using its Net Asset Value (NAV) of Rs 61.31 as of June 30, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the post-IPO fully diluted paid-up equity capital, the resulting PE ratio stands at 31.  

As per its official documents, the company has referenced several listed peers, including Torrent Pharmaceuticals Limited, Laurus Labs Limited, Ajanta Pharma Limited, JB Chemicals & Pharmaceuticals Limited, NATCO Pharma Limited, Eris Lifesciences Limited, Indoco Remedies Limited, Suven Pharmaceuticals Limited and Windlas Biotech Limited. 

In terms of valuation and returns when compared to its listed peers, Innova Captab Limited demonstrates a significant outperformance. Considering the company's strong position in the pharmaceutical value chain, significant domestic and global clientele, substantial exports, and a robust financial position, we recommend investors to subscribe to the issue with a long-term perspective.