Eris Lifesciences Ltd IPO has been subscribed 3.28 times at the close of bidding on the final day of the offer period. Of their respective quota of reserved shares, institutional investors bid 4.68 times their quota and retail investors subscribed 3.48 times their quota. However, non-institutional investors bid only 0.45 times their quota while employees bid only 0.86 times their quota.
The IPO is worth up to Rs 1,741.1 crore, with a price band of Rs 600-603 per share. There will be no fresh issue of equity shares as 2.887 crore existing shares will be sold via an offer for sale (OFS). The IPO had opened for subscription on Friday, 16 June, and is open until Tuesday, 20 June. Axis Capital, Citigroup Global Markets India and Credit Suisse Securities (India) are the book running lead managers to the issue.
The issue has already raised Rs 779.43 crore by selling shares to anchor investors, including Abu Dhabi Investment Authority, Goldman Sachs India Ltd, Morgan Stanley India Investment Fund Inc., SBI Magnum Balanced Fund, SBI Magnum Midcap Fund, Birla Sun Life Balanced, FIL Investments (Mauritius) Ltd, Merrill Lynch Markets Singapore Pte Ltd and IDFC Premier Equity Fund.
The company has reported a compounded annual growth rate (CAGR) of 16.5% in revenues over the last five years and its EBITDA (earnings before interest, tax, depreciation and amortization) margin was 37% in FY 17. Its margins have been consistently expanding due to which its profit CAGR is at 42.6% over the last five years. Its return on equity (ROE) and return on capital employed (ROCE) were at 45% and 49%, respectively, in FY 17. The company’s strong financials with zero-debt status makes it attractive for investment.
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Angel Broking recommends ‘subscribing’ to the issue as at FY2017 earnings per share (EPS) of Rs 17.6, the issue is priced at price-to-earnings (PE) multiple of 34.25 times, which is at par with its multi-national peers but higher than domestic peers like Alkem Laboratories, which seems fair due to Eris’s faster growth, superior returns, debt-free status and speciality play.
The brokerage house also said that the drug manufacturer’s business focusses on domestic market which is a differentiated strategy and insulates it from the risk of foreign regulators as well as higher expenses in terms of research and development (R&D).
“While most pharma companies are currently facing issues on several fronts, this business model looks attractive with no United States Food and Drug Administration (USFDA) concerns and pricing pressure. We believe that Eris is likely to continue growing faster than its competitors owing to its marketing capability, higher operating leverage and growing market share of its mother brands,” said Shrikant Akolkar, senior research analyst, Angel Broking, in a research report.