Evaluating Akums Drugs & Pharmaceuticals Ltd IPO opportunity; Should you invest?

In this analysis, we take a closer look at Akums Drugs & Pharmaceuticals Ltd and present you with the exclusive IPO details.

About the issue  

Akums Drugs & Pharmaceuticals Ltd is set to launch its initial public offering (IPO) for equity shares, each with a face value of Rs 2. The IPO price range is set between Rs 646 and Rs 679 per equity share, resulting in a total issue size of Rs 1,856.74 crore at the upper price band.  

The IPO is scheduled to commence on July 30, 2024 and conclude on August 01, 2024. The market lot size for the IPO is 22 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 286 shares or a total investment of Rs 1,94,194 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/ prepayment of indebtedness of the company and its subsidiaries

2. Funding incremental working capital requirements of the company

3. Pursuing inorganic growth initiatives through acquisitions

4. General corporate purposes

Promoter holding  

Sanjeev Jain, Sandeep Jain, and Akums Master Trust are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 82.48 per cent in the company.

Company profile  

Established in 2004, Akums Drugs & Pharmaceuticals Ltd is a leading pharmaceutical contract development and manufacturing organisation (CDMO). It offers a comprehensive range of pharmaceutical products and services both in India and internationally. The company’s core business is centred on providing end-to-end product development and manufacturing solutions to its clients.

In addition, the company is engaged in formulation research and development, preparation and filing of regulatory dossiers in both Indian and global markets, testing services, and the manufacturing and sale of branded pharmaceutical formulations and active pharmaceutical ingredients (APIs). As a CDMO, the company produces an extensive range of dosage forms, including tablets, capsules, liquid orals, vials, ampoules, blow-filled seals, topical preparations, eye drops, dry powder injections, and gummies, among others.

Since its inception, the company Ltd has manufactured more than 4,000 commercialized formulations across over 60 dosage forms. For its CDMO business, the company operates 10 manufacturing units with a cumulative formulation manufacturing capacity of 49.23 billion units annually as of March 31, 2024. Additionally, it expects its new injectable facility to become operational in FY25.

As of March 31, 2024, key clients for company’s CDMO business include Alembic Pharmaceuticals, Alkem Laboratories, Cipla, Dabur India, Dr Reddy’s Laboratories, Mankind Pharma, MedPlus Health Services, Natco Pharma, and Sun Pharmaceutical Industries, among others.

Financials  

During the FY24, Akums Drugs & Pharmaceuticals Ltd held a market share of 30 per cent of the Indian domestic CDMO market by value, an increase from 26.7 per cent during the FY21. Despite the increase in revenue, concerns about profitability persist due to several significant costs, with 'Fair value changes to financial instruments' being a major factor. Understanding this element is crucial for a comprehensive financial analysis.

Rights Waiver and Financial Impact Explained

The Investor has waived its rights that required the Holding Company to buy back equity shares as per the shareholder's agreement, and the subsequent waiver cum amendment agreement. As a result, the Holding Company is no longer obligated to repurchase the investor's equity shares if it, or its Promoters, cannot facilitate an exit for the investor as initially stipulated.

The management clarified that the put-call liabilities for recent contract adjustments were necessary under GAAP measures due to the lack of additional funding. Excluding these accounting provisions, the company posted a net profit of Rs 243.30 crore in FY22, Rs 53.85 crore in FY23, and Rs 358.56 crore in FY24. This completely changes the financial picture of the company.

Valuation and outlook  

*Based on the restated financial data and excluding the impact of the put option, the issue is priced at a P/E ratio of 30, based on FY24 financial data. The issue is priced with a P/BV ratio of 13.69 times, calculated using its Net Asset Value (NAV) of Rs 49.59 as of March 31, 2024.

Taking into account both valuations and returns, the company has outperformed its listed peers. Hence, we recommend investors subscribe to the issue with a long-term perspective.