Glenmark Life Sciences (GLS; Glenmark Pharma’s 100% auxiliary for API or dynamic drugs fixings) filed a draft red herring prospectus (DRHP) on 16 April 2021 with SEBI for an IPO, including a new issue of up to Rs 11.6 bn and a proposal available to be purchased of up to 7.31m offers (likely complete continues of c$210 m). The IPO will be liable to economic situations, imperative endorsements and different contemplations, per the organization. The greater part of IPO continues will be utilized for installment of remarkable buy thought to the advertisers for the side project of the API business, and capex financing.
GLS announced deals of Rs 10.2 bn in FY20 (9.6% of GNP’s all out incomes, FY17-20 CAGR of 8.2%), however 9MFY21 deals at Rs 8.8 bn have become 14.9% yoy, essentially on solid client interest. A fruitful IPO by GLS would help GNP in esteem opening for the API business where the interest viewpoint stays strong. Notwithstanding, numerous questions stay for the API business given the new solid execution was driven by COVID-19-drove more popularity and client loading generally, in our view.
In addition, Chinese producers have kept up their predominance in the worldwide API market and any potential market shift to different areas may happen continuously. While market development openings remain, organization explicit (for example GLS) advantages would be controlled by scale, item portfolio, cost seriousness, client connections, GMP consistence records, and so forth Valuation-wise, we note that comparative estimated API organizations – like Solara Active, Aarti Drugs, and so forth – are esteemed at 18-20x FY22e agreement PE.
Hold with unaltered TP of Rs 550: The potential IPO continues from GLS could help GNP under water decrease (with net obligation of Rs 36.4 bn and net obligation/Ebitda of 1.75x, GNP stays quite possibly the most utilized names in our inclusion and it has seen moderate improvement owing debtors decrease). It is right now exchanging at 15.3x/13.6x FY22e/23e our EPS gauges, versus a three-year normal PE of 16.1x.
While we see adequate headroom for a potential valuation re-rating, we think it should be supported by improved execution on US deals and obligation decrease to improve financial backer conclusion and the executives’ execution record. We hold our reasonable worth TP of Rs 550 and Hold rating for GNP as we search for apparent improvement in execution.
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