Gland Pharma’s grey market premium bounces back strongly ahead of stock market debut

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November 18, 2020 1:16 PM

The largest pharmaceutical initial public offering (IPO) that Indian markets have seen saw a tepid subscription with only Qualified Institutional Buyers (QIB) oversubscribing their portion.

Wall Street, Nasdaq, S&P 500, Dow Jones Industrial Average, U.S. listed sharesAll three indexes rose for the week, in which the S&P 500 reached a new closing high and the blue-chip Dow ended above 30,000 for the first time ever.

Gland Pharma shares have recouped and are again commanding a strong premium in the grey market, days ahead of its trading debut. The largest pharmaceutical initial public offering (IPO) that Indian markets have seen saw a tepid subscription with only Qualified Institutional Buyers (QIB) oversubscribing their portion of the issue while Non-Institutional Investors and Retail Investors distanced themselves from the IPO. Shares of Gland Pharma are expected to be credited to demat accounts tomorrow while trading commences on Friday.

Grey market premium bounces back

After having slipped to merely Rs 10-18 per share, the grey market premium of Gland Pharma has made a sharp U-turn. “Gland Pharma is now once again commanding a premium of Rs 110-120 per share in the grey market,” Narottam Dharawat, founder, Dharawat Securities told Financial Express Online. The price band for the issue was set at Rs 1,490-1,500 per share. Last week the grey market movement of Gland Pharma was lacklustre with the stock trading at a premium of merely Rs 18-20 per share.

What’s pushing the premium

The strong resurgence of the stock is aided by the strong market movement which has taken the benchmark indices to record highs, according to Narottam Dharawat. Gland Pharma also supports strong financials and a leading position in the pharmaceutical industry which has seen a strong growth this fiscal year and is likely to mirror the same going forward. “At the higher price band of Rs 1,500 per share, Gland Pharma’s share is valued at a TTM P/E multiple of 31.7x, which is in-line with pharma industry P/E of 32.3x,” said brokerage and research firm Choice Broking.

Financially, Gland Pharma has reported healthy growth in annual profits. At the end of financial year 2020, Gland Pharma’s net profit stood at Rs 772.8 crore with an operating revenue of Rs 2,633 crore. Majority of Gland’s revenue comes from exports. The pharma firm follows a vertical integration pattern which has helped it grow market share in key markets such as the United States, Europe, Canada and Australia, and the United States. 

More institutional buying on cards?

The surge in grey market premium also comes amid expectations of heavy institutional buying. With the outlook for the pharmaceutical industry being strong, Narottam Dharawat said that institutional investors are expected to lap-up more shares of Gland Pharma on listing. With low subscription of retail investors, the selling pressure is expected to be less. Sandip Ginodia, CEO, Abhishek Securities said that the grey market now paints a good enough picture of where the listing of Gland Pharma will be. “This is now the correct picture of the listing. It is likely to be in the region of Rs 100 premium,” he added.

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