Glenmark Life Sciences IPO caught amid pharma sell-off, grey market premium weak; should you subscribe?

By: and |
Updated: July 28, 2021 12:25 PM

Investors can bid for Glenmark Life Sciences IPO at the fixed price band of Rs 695 - 720 per share in a bid lot of 20 shares.

Chemplast Sanmar IPORetail investors were the first category of investors to have fully subscribed to their portion of the issue.

Glenmark Life Sciences’ Rs 1,514-crore IPO, which opened for subscription on Tuesday, got 5.37 times applications so far on the second day of bidding, amid the ongoing selloff in pharma stocks. Disappointing start to the earnings of pharma companies sent Nifty Pharma index to a level last seen in May 2021. The continued sell-off has pushed the pharma index below 14,000 level. Analysts say that the current pharma stocks sell-off is a short-term correction.

A subsidiary of Glenmark Pharmaceuticals, Glenmark Life Sciences is the fifth IPO to enter Dalal Street so far this month. The stock is likely to list on the bourses next month. Investors can bid for Glenmark Life Sciences IPO at the fixed price band of Rs 695-720 per share in the lot size of 20 shares. This translates to a minimum investment of Rs 14,400 on the higher end of the price band. Upon successful completion of the IPO, Glenmark Life Science could join peers such as Divis Laboratories, Laurus Labs, Shilpa Medicare, and Solara Active Pharma Sciences.

Grey market premium weak

The grey market premium for Glenmark Life Sciences shares has tumbled. The stock was trading at a premium of Rs 136-138 per share in the grey market on Wednesday, according to people who deal in unlisted markets. Prior to the opening of the IPO, the grey market premium was around Rs 300; however, the premium kept on falling gradually.

“One must not depend on grey premium as a sole indicator and concentrate more on the financials of the company,” Abhay Doshi, Cofounder of UnlistedArena, a firm dealing in unlisted & pre-IPO shares, told Financial Express Online. He said that the Indian API industry is witnessing an upper growth trajectory due to supportive government policies, low production cost base, and China +1 strategy. Also, stricter control on Chinese API companies should be fruitful for Indian companies.

On the financial front, at the upper price of Rs 720, the issue is priced at 22x to its earnings. “Compared to its peers, the issue looks moderately priced. However, the expansion plans in API and CDMO segment should capture the market share going ahead,” Doshi added.

Should you subscribe to Glenmark Life Sciences IPO?

Glenmark Life Sciences is a leading manufacturer of selected specialized APIs for chronic therapeutic areas like CVS, CNS, diabetes, and pain management. It exports products in Europe, Latin America, North America, Japan, and the rest of the world. It has a strong relationship with leading global generic companies. “With a proven track record of strong financial performance and high-quality product manufacturing with R&D infrastructure. It can be a good bet for the longer term as well as the short term also,” Vishal Wagh, Head of Research, Bonanza Portfolio Ltd, told Financial Express Online.

Listing gains?

Wagh expects listing gains to the tune of 15-25 per cent “The current sell-off in pharma is a short-term correction cum profit booking. Though it is sentimentally negative for the new IPO, it will not change its fate,” he added.

Glenmark Life Sciences IPO is currently valued at 4.6x EV/sales, 15x EV/ EBITDA & 25x Price/ Earnings, and following the lucrative strategy to become bigger in complex APIs, is rather reasonably valued, Aditya Kondawar, Founder, COO, JST Investments, told Financial Express Online. Kondawar said that the IPO is worth thinking about for a long-term investment perspective.

Subscription may slow down in Glenmark Life Sciences IPO

Kondawar added that there may be a lesser subscription number by NIIs and QIBs in the Glenmark Life Sciences IPO amid current selling in pharma stocks, as the market is shaky and the listing may be affected. Even HNI financing will be done with a lot of caution, he added.

Glenmark Life Sciences has a good performance execution and clean regulatory track record, according to ICICI Direct. “The growth momentum has a strong undercurrent of global API industry growth. We recommend ‘Subscribe’ to the issue,” they added. Those at Geojit Financial Services have assigned subscribe rating on a long-term basis considering its strong focus on R&D, expansion plans (1726.6KL when completed), growth opportunity in CDMO services and expanding complex API portfolio.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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