Alkem Laboratories IPO opens: What experts are saying

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Updated: December 9, 2015 9:08:14 AM

Alkem Laboratories has fixed a price band of Rs 1,020-1,050 and aims to raise up to Rs 1,350 crore through the IPO.

Alkem Laboratories IPOAlkem Laboratories IPO: More than 37.66 lakh shares were allotted to anchor investors at a price of Rs 1,050 apiece. This would be worth Rs 395.47 crore, according to a regulatory filing made by the company. (Photo: Reuters)

The initial public offering of Alkem Laboratories was subscribed 35 per cent on the first day of the issue on Tuesday.

Earlier, Alkem Laboratories raised Rs 395 crore from anchor investors, including Abu Dhabi Investment Fund, by allotting shares at a price of Rs 1,050.

For the IPO, the company has fixed a price band of Rs 1,020-1,050. Through the initial share sale, which opens on Tuesday and will close on December 10, Alkem aims to raise up to Rs 1,350 crore.

Alkem, which has a portfolio of 705 brands in the domestic market as on September 30, plans to expand its footprint internationally.

More than 37.66 lakh shares were allotted to anchor investors at a price of Rs 1,050 apiece. This would be worth Rs 395.47 crore, according to a regulatory filing made by the company.

The global coordinators and book running lead managers (GCBRLMs) to the issue are Nomura Financial Advisory and Securities (India), Axis Capital Ltd, JP Morgan India Pvt Ltd and Edelweiss Financial Services.

Alkem Laboratories is among the largest companies in the Indian formulation market, having a market share of 3.6 per cent. The company is the fifth largest pharmaceutical company in India by domestic sales. At present, domestic markets constitute around 75 per cent of its sales; while in terms of exports, the company is at a relatively nascent stage vis-a-vis its peers. In exports (predominately US), the company is expanding through both the inorganic and the organic route. Alkem has 16 manufacturing units, 14 in India and 2 in the US; of which, 5 are USFDA, TGA and UK-MHRA approved.

Market experts have mixed views on Alkem Laboratories IPO. Here are key takeaways from 5 brokerage houses on the IPO:

Hem Securities: Company with its market leadership in various therapeutic areas has extensive sales, marketing and distribution network in India. Also, it is fast growing and has established international operations. Looking after bright future prospects of company investors should ‘Subscribe’ the issue for short as well as long term investment horizon. International revenues of Alkem grew at 45.7 per cent CAGR to Rs 957 crore in FY11-15 mainly due to strong growth in US sales (accounts for 65-70 per cent of international revenues). The company has filed 69 ANDAs (including 30 Para IV/FTF filings and one NDA) of which it has received 21 final approvals and three tentative approvals. The company markets its products in the US through its subsidiary Ascend. Ascend currently sells 18 products out of which 13 are own products and five are in-licensed. The company has successfully litigated four Paragraph IV challenges in the past and is currently active in four litigations. It has also filed 14 DMFs in the US.

Apart from the US, the company has also filed 22 dossiers in Australia, 16 in Europe and 1,166 dossiers in other export markets. Competition and pricing issues in domestic markets and litigation/compliance issues in international markets are some of the key concerns for Alkem. At the IPO price band of Rs 1,020-1,050, the stock is available at 26-27x on FY15 EPS of Rs 38.7. Investors can ‘Subscribe’ to the issue.

Angel Broking: The company is comparable only to mid-cap companies like IPCA Laboratories (IPCA) in terms of size and profitability. While the company is growing at a robust pace of more than 20 per cent, its low profitability is a cause of concern. Also, a major part of the profitability is being accrued from other income and aided by low taxation. On an average, the company’s other income accounts for around 30-35% of PBT, while tax as percentage of PBT has been at 5 per cent levels over the years. Thus, on a like–to-like basis IPCA has a more superior business quality. Alkem should trade at a discount to companies like IPCA Labs. Adjusting for other income, the PE of Alkem stands at 17.3x-17.8x its FY2016E earnings and 3.3x-3.4x its FY2016E P/BV (at the lower and upper end of the price band respectively). Valuations leaves little scope for further appreciation in the stock price in the near term. Hence, we recommend an “Avoid” on the issue.

SMC: At an upper price band of Rs 1,050, the stock is trading at P/E of 14.31x on EPS of Rs 73.36 (annualized 6 month EPS of Rs 36.68) and at a lower price band of Rs 1,020 P/E multiple is 13.90. As the company is not making fresh issue of capital, net worth of the company would have no impact and at an upper price band of Rs 1050, book value and P/B ratio is of Rs 292.42 and 3.59. The fundamentals of the company look sound. With its increasing clientele, expanding capacities, valuation of the company looks good for subscribing the issue for long term.

Sharekhan: The company has shown a significant improvement in its growth trajectory and margin profile in the first half of FY2016 which makes it appear relatively attractive if the company is able to maintain the growth momentum and sustain higher margins.

(With agency inputs)

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