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Wednesday, December 9, 2015

Alkem Laboratories Ltd. IPO Review


Issue Highlights

Issue Period
8/12/15-10/12/15
Price Band (Rs.)
1020-1050
Issue Size(shares)
1,28,53,442
Issue Size (Rs. crore)
1311-1350
Issue Type
100% Book built
Face Value (Rs.)
2
Listing
BSE,NSE
Industry
Pharmaceuticals
Registrar
Link Intime India Pvt. Ltd.
Minimum Bid Quantity (shares)
14
Maximum Retail Subscription
Rs. 1,91,100 (13 lots)
BRLM
Nomura, Axis Capital, JP Morgan, Edelweiss


Issue Details

Offer for Sale: 1,28,53,442 equity shares
 Fresh Issue: Nil
 Equity Shares Outstanding Prior to the Issue: 11,95,65,000
 Equity Shares Outstanding After the Issue: 11,95,65,000
#derived figure

Objects of the Issue

The issue being an offer for sale, company shall not receive any proceeds of the offer

Company Profile

Alkem Laboratories is the 5th largest Indian pharmaceutical company in terms of domestic sales, The company is engaged in the development, manufacturing and sales of pharmaceutical and neutraceuitical products.
The company was established in 1973 and it produces branded generics, generic drugs, APIs and neutraceuitical products. Besides India, Alkem markets its product to 55 countries internationally with US being the top customer country. 
The 75 % of the revenue comes from the domestic sales and the rest is contributed by the exports.
Alkem Lab has seen its revenue growing at a CAGR of 22 % for a period of last 5 years. The company secures 81 % of its total revenue from 4 therapeutic areas, viz. anti-infectives, gastro-intestinal, analgesics and nutrients. Alkem enjoys the leadership position in the anti-infective therapeutic area with a market share of 11.2 %.

Risks & Threats
  • ·         The pharmaceutical industry is subject to extensive regulations especially from the USFDA and penalties arising from non-compliance could be severe (As only 25 % of the revenue comes from the exports, this threat turns out as a feeble one)
  • ·          Its top twenty brands account for around 55 % of the total sales and a significant portion of the revenue come from the states of West Bengal, Bihar and Uttar Pradesh; concentrated sales  sometimes  could  be dangerous in case one or more things going against the company
  • ·          Contingent liabilities total up to a sum of Rs. 263 crore and could be detrimental in case one or more liabilities materialize up

 Financial Profile #

Parameter
FY 15
PEG (Profit, trailing 4 years)
2.3
Net Profit Margin (%)
11.62
Return on Capital Employed (%)
18.1
Return on Equity (%)
16.5
Total Liability to Net worth
.7
Price to Book Value
4.2
Operating Cash to Net Profit
.7
TIE (Times Interest Earned)
7.3
AR collection Period (Days)
41.2
EV/EBITDA
21
M-Cap to Sales
3.2
Current Ratio
1.2
Profit CAGR (%)
11.7

# using upper end of the price-band

Comparison with the Peers #


PEG
NPM (%)
ROCE (%)
ROE (%)
Alkem labs
2.3
11.62
18.1
16.5
IPCA lab
NA
8.3
12.8
11.5
Torrent Pharma
.47
16.13
22.32
30.15
Alembic Pharma
1.23
13.76
32.12
31.98

# Moneycontrol data (Consolidated)

Inference

The valuations are pretty stretched and the same is evident from the peer analysis with better choices available. The most positive thing about the company is the 75 % of the total revenue arising from India and thus  making it less prone to USFDA’s lashings besides the company being a market leader in the anti-infectives therapeutic area. Despite these pluses, stretched valuations might  restrict the chances of significant price appreciation in the near future especially considering the present condition of the overall market.



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