Gland Pharma’s IPO opens for subscription today; should you subscribe to India’s biggest pharma IPO?

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November 9, 2020 9:32 AM

Investors can subscribe to the issue in the price band of Rs 1,490-1,500 per unit in a bid lot of 10 equity shares.

Backed by China’s Fosun Pharma, the company is a manufacturer of generic injectables with market share in over 60 countries, including the US, Europe, Canada, Australia, India and the rest of the world.

Gland Pharma’s initial public offering (IPO) opens for subscription today. The Rs 6,480 crore IPO will be the biggest public issue by a pharmaceutical company in India. Backed by China’s Fosun Pharma, the company is a manufacturer of generic injectables with market share in over 60 countries, including the US, Europe, Canada, Australia, India and the rest of the world. Gland Pharma’s IPO, consists of a fresh issue aggregating Rs 1,250 crore and an offer for sale (OFS) by existing shareholders and promoter of up to 3.49 crore equity shares. Investors can subscribe to the issue in the price band of Rs 1,490-1,500 per unit in a bid lot of 10 equity shares.

“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 in a note while advising investor to subscribe to the issue but with caution. The brokerage feels that the demanded valuations are stretched. Through the OFS, 19.3 million shares will be sold by the promoter Fosun Pharma, while 10.04 million shares will be sold by Gland Celsus Bio Chemicals, 3.5 million shares by Empower Discretionary Trust and 1.8million equity shares by Nilay Trust. Post issue the promoter shareholding will fall to 58.36% while public shareholding will increase to 41.64%.

Last Friday, the company allocated 1.29 crore equity shares at the upper price band of Rs 1500 per equity share to 70 anchor investors to raise Rs 1943.86 crore. Analysts at Sharekhan believe that Gland Pharma has the potential to clock healthy growth in the near future. “The global formulations market grew at a CAGR of ~ 5.8% from 2014 to reach $1,096 billion in 2019, as per the IQVIA. The market is estimated to clock a CAGR of 4.4% to reach $1,359 billion by 2024,” they said. 

Gland Pharma follows a vertical integration pattern and has displayed its potential throughout the world with a vide market and a B2B business model. This model helps Gland Pharma to grow market share in key markets such as the United States, Europe, Canada and Australia, particularly the United States, while reducing the marketing investments they need to make.

Strong product pipeline aids Gland Pharma’s future growth prospects. “The offer is Priced at P/E of ~18.52x on annualized EPS of the quarter ended June 2020. Gland Pharma is one of the biggest pharma IPOs. The company has a focus on complex injectables which has high entry barriers and strategic partnerships to penetrate new markets like China which can prove to be a lucrative opportunity for the company,” said GEPL Capital while recommending to subscribe the offer. 

Geopolitical tensions, unfavourable regulatory changes, revenue and geography concentration risk, and higher competition are some of the risks that are aligned with Gland Pharma. In the B2B model that Gland Pharma follows, it is expected that the competition will rise in the coming years. Gland Pharma has made significant investments towards its manufacturing infrastructure to support the product portfolio needs and reach. Currently, Gland Pharma has 7 manufacturing facilities in India, comprising 4 finished formulations facilities with a total of 22 production lines and 3 API facilities.

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