Evaluating Emcure Pharmaceuticals Ltd IPO opportunity; Should you invest?

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

About the Issue:  

Emcure Pharmaceuticals Ltd is set to launch its initial public offering (IPO) for equity shares, each with a face value of Rs 10. The IPO price range is set between Rs 960 and Rs 1,008 per equity share, resulting in a total issue size of Rs 1,952.03 crore at the upper price band.  

The IPO is scheduled to commence on July 03, 2024, and will conclude on July 05, 2024. The market lot size for the IPO is 14 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 14 lots, equivalent to 196 shares or a total investment of Rs 1,97,568 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 and/ or prepayment of all or a portion of certain outstanding borrowings availed by the company

2. General corporate purposes

Promoter holding  

Satish Ramanlal Mehta, Sunil Rajanikant Mehta, Namita Vikas Thapar and Samit Satish Mehta are the promoters of the company. The promoters and promoter group currently hold a pre-issue shareholding stake of 83 per cent in the company.

Company profile  

Emcure Pharmaceuticals Ltd is an Indian pharmaceutical company involved in the development, manufacturing, and global marketing of a wide range of pharmaceutical products across several major therapeutic areas.

The company's competitive advantage in the domestic market stems from its differentiated product portfolio, which has enabled it to establish a presence in most major therapeutic areas, including gynaecology, cardiovascular, vitamins, minerals and nutrients, HIV antivirals, blood-related products, and oncology.

Across the gynaecology, vitamins, minerals and nutrients, HIV antivirals, blood-related, and oncology/antineoplastics therapeutic areas, Emcure Pharmaceuticals Ltd ranked among the 10 largest pharmaceutical companies in India in terms of domestic sales for MAT Financial Year 2024. This strong positioning has allowed the company to reach a wide range of target markets in over 70 countries, with a particularly strong presence in India, Europe, and Canada.

The company has 13 manufacturing facilities across India, with in-house capabilities for most of its specialty products, including complex injectables, iron products, photo-chemistry products, chiral molecules, and biotherapeutics.

As of March 31, 2024, the company had been granted 220 patents and had 30 pending patent applications in several countries. Additionally, it had submitted 102 drug master files for APIs with the U.S. Food and Drug Administration (USFDA).

Financials  

Although the company has successfully increased its revenue with consistent growth, it is struggling to boost its bottom line. According to the management, this difficulty is due to higher interest and depreciation provisions. The company completed its planned expansion using borrowed funds, and all four new facilities are now operational. With the reduction of debt and a focus on greater domestic market penetration, which yields higher margins, the company expects its bottom line to improve going forward.

Valuation and outlook  

The issue is priced with a P/BV ratio of 6.18 times, calculated using its Net Asset Value (NAV) of Rs 163.22 as of March 31, 2024. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 37.

Considering both valuation and returns, Emcure Pharmaceuticals Ltd stood strong with a PE ratio less than the industry average of 40x and returns that justify the valuation.

Given the vast potential of the pharmaceutical industry, the transformative impact of AI and other emerging technologies, the company's strong market presence, diversified product portfolio, and considerable financial growth, we recommend investors to subscribe to the issue with a long-term perspective.