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Windlas Biotech IPO fully subscribed: Grey market premium soars; should you invest as shares offered at 65x PE

Windlas Biotech’s Rs 401.53-crore IPO has been fully subscribed on the first day of the bidding, receiving a robust response from retail investors

Windlas Biotech is amongst the top five players in the domestic pharmaceutical formulations contract development and manufacturing organization

Windlas Biotech’s Rs 401.53-crore IPO has been fully subscribed on the first day of the bidding, receiving a robust response from retail investors. So far on day one, the issue has received 1.28 times subscription. It has received bids for 78.58 lakh equity shares against the issue size of 61.36 lakh equity shares. In the grey market on Wednesday, Windlas Biotech shares were trading at Rs 590 apiece, a premium of Rs 130 or 28 per cent, over the IPO price of Rs 460 per share.

The portion set reserved for retail investors was subscribed 2.5 times and that of non-institutional investors witnessed 9 per cent, while qualified institutional investors are yet to put in bids. The price/earnings ratio based on diluted EPS for FY 2021 for the company at the upper end of the price band is 52.87. The P/E of the Nifty50 index as of March 31, 2021, is 33.20x. The weighted average return on net worth for the last three fiscals is 13.27 per cent.

Should you subscribe to the Windlas Biotech IPO?

Windlas Biotech is amongst the top five players in the domestic pharmaceutical formulations contract development and manufacturing organization (CDMO) industry in India in terms of revenue. Analysts say that Windlas Biotech has reported steady growth in topline, even though the bottom line has shown a declining trend. The company is one of the top players in the domestic pharmaceutical formulations CDMOs (Contract Development and Manufacturing). Windlas has a very long-term and strong relationship with leading Indian pharmaceutical companies such as Pfizer and Cadila healthcare, SEBI registered investment Advisor INDmoney said in a report.

While the company does not have any direct listed peers, it competes with unlisted peers such as Theon Pharma, Synokem Pharma, and Innova Captab. Among these, Windlas Biotech has lower margins and return ratios as compared to Synokem and Theon Pharmaceuticals. “At the higher end of the price band, Windlas Biotech is priced at a P/E ratio of 64 times FY21 EPS (on a fully diluted on post-issue basis). While the P/E looks stretched, businesses are being priced at expensive valuations in this IPO season, and Windlas Biotech is no exception. Given the company’s leadership position, strong growth in topline, and good growth runway, we remain positive on the long-term prospects of this issue,” INDmoney said in a report.

Windlas Biotech is a contract manufacturer for formulation companies (204 in total) for Indian markets and a small domestic OTC biz. 3279 products, 4 plants with 700cr tablets/capsules capacity. “No moat as there are over 400 organized and 15,000 unorganized players in the same space: 2 per cent market share. At valuations of 2.3x P/S, 19x P/EBITDA and 65x PE, this is valued much higher than most Indian branded formulations are; leaving little to nothing on the table for the investors,” Aditya Kondawar, Founder, COO, JST Investments, told Financial Express Online.

(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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