Slideshow

Cheap Web Hosting Sites

Social Icons

'

Tuesday, August 16, 2011

Brooks Laboratories Limited IPO Analysis Report

Brooks Laboratories Limited IPO Review
Issue Highlights
Issue Period: 16/8/2011 to 18/8/2011
Issue type: 100% Book building
Price Band: Rs. 90 to Rs. 100
Face value: Rs. 10
Lot size: 60 equity shares
Maximum Retail subscription: 33 Lots (Rs. 1,98,000)
Issue size: Rs. 63,00,00,000
The objects of the Issue

1. To set up the manufacturing unit at JB SEZ Pvt. Ltd, Panoli, Gujarat for manufacturing of various
Pharmaceuticals formulations.
2. To meet Long Term Working Capital requirement
3. To meet General Corporate Purpose
4. To meet Issue Expenses and Listing of Shares on Stock Exchanges
 
Industry Overview
India ranks among global top 4 pharmaceutical products manufacturing nations and accounts for 8%-10 % of world’s production by volume (and 1.5% to 2% by value). India exports pharmaceutical products to over 200 countries including regulated markets like USA, UK, Europe and Japan as well as unregulated markets like Africa and Middle East.

Indian pharmaceutical market presently is just 2% of the global pharmaceutical market and immense opportunities are there for Indian pharmaceutical companies. Worldwide pharmaceutical companies are increasing allocation for CRAMS (Contract research and manufacturing services) which gives cost benefits by manufacturing outsourcing while research outsourcing helps them concentrate on core products and the development of new drugs; and this is beneficial for Indian CRAMS companies.

Company Overview
Brooks laboratory is pharmaceutical CRAMS (contract research and manufacturing services) company which was incorporated in the year 2002, as a set up facility to manufacture tablets, injections and dry syrups. Major clients of the company are Zydus Cadila, Aristo Pharmaceuticals Pvt. Ltd, FDC Ltd, Nectar Lifesciences Ltd, Sanat Products Ltd, Hetero Healthcare Ltd, Medley Pharmaceuticals, Wockhardt Ltd, Parental Drugs, Chanderbhagat Pharma and Alembic Ltd etc.

Strengths
·         Company is a research driven company and enjoys well-established in house research facility
·         Company has got diversified customer base with 158 domestic customers including established names
·         Current product portfolio comprises 26 Dry Powder Injections, 31 Liquid Injections, 5 Tablets and 2 Dry Syrups which are marketed domestically.
·         Manufacturing facility at Baddi (HP) is WHO_GMP and ISO 9001-2008 certified.
Threats
·         The company has not entered in any supply agreement for the procurement of raw materials like API (Active pharmaceutical ingredients); non availability and volatility in price of the same might affect the profitability of the company.
·         The business involves very high working capital generated by internal accrual and debt; any shortfall in internal accrual or company’s inability to raise debt, could impact the operations badly
·         Companies failure to successfully adopt IFRS effective from April 2011 could affect the share price significantly
·         Company operates on small scale and thus avails lesser benefits of economies of scale
Competition

Company
P/E
NPM
ROE
ROCE
Debt/Equity
Brooks Lab
23.52
13.11%
36.35%
23.46%
.45
Amrutanjan HC ltd
20.34
12.43 %
12.12%
17.37%
NA
Bafna Pharma
17.1
3.3%
6.28%
8.76%
.73
Divi’s lab
22.38
32.48%
23.82%
25.83%
.01
Dishman Pharma
15.36
9.21%
6.27%
7.29%
.88
Jubilant life Sciences
11.63
12.54%
13%
7.6%
1.4


Notes:
·         Peer data of Amrutanjan and Bafna pharma is for FY10 as per money control site as on 12/8/2011
·         Other peer’s data is for FY 11 as per money control site as on 12/8/2011


Financial Analysis

Parameters
FY11
FY10 ì
EPS
4.25 Rs.
5.25 Rs.
Book Value
11.69 Rs.
13.72 Rs.
P/E
23.52
19.04
P/B (price to book)
8.55
7.28
ROE (Return on equity)
36.35 %
38.26%
ROCE (Return on capital)
23.46 %
17.49 %
NPM (Net Profit Margin)
13.11%
11.52%
Interest cover
5.53
4.6
Current Ratio
2.57
1.77
M-cap/Sales
3.08
2.19
M-cap/Reserve
17.08
11.11
Debt/Equity Ratio
.45
.87
CAGR
50.92%
NA
PEG
.46
NA


Notes:
·         FY 11 calculations  at post-issue equity
·         All calculations at upper price band of Rs. 100

Inference
Brooks lab operates on very small level, sales for FY 11 was only 52.5 crore and top line was around 7 crore only. Future prospects of the company depends on the success of its new proposed manufacturing unit at Paneli in Gujarat; and this is the major reason for which this issue has hit the market.
Competition in CRAMS is very tough especially for small companies like Brooks lab. Despite all this, valuations of this company are set at higher level in comparison with established players.
Retail investor should avoid this IPO especially in current bear phase of the market.
As the issue size is small, price rigging i.e. artificially raising of the price by operators is highly probable, but not guaranteed. In past too, investors got fantastic returns on fundamentally weak stocks but some investors who remained trapped and could not exit have lost significant chunk of their investment.
To cut the long story short, I advise value investors to avoid this Issue as capital protection is the primary goal of the investor and for the lure of gambling returns one should not risk the his capital.
Disclaimer: Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of the report.

0 Comments:

Post a Comment

ShareThis

Related Posts Plugin for WordPress, Blogger...