Glenmark Life Sciences IPO: Glenmark Life IPO Date, News, Price & Review

Glenmark Life Sciences IPO opens for subscription on 27th July. The company is looking to raise 1,513.6 crore through the public issue. Here are the details:

About the Glenmark Life Sciences IPO:

Glenmark Life Sciences IPO Date: 27 July – 29 July 2021

Glenmark IPO Price band: Rs 695 - 720 per share

Issue Size: Rs 1,513.6 cr (Fresh equity shares worth Rs 1,060 crore and offer for sale by promoters and shareholders worth Rs 453.6 crore.)

Post issue implied market cap: Rs 8,552 – 8,822 Cr

Reservation: QIB 50%, Retail - 35%, NII 15%.

Employee Reservation: NA

Bid lot: 20 shares, and in multiples of 20 shares

Use of Funds:

1. Payment of outstanding purchase consideration to the Promoter for the spin-off of the API business from the Promoter into the company pursuant to the Business Purchase Agreement: Rs 800 cr
2. Capex: Rs 152.7 cr

About Glenmark Life Sciences 

• Glenmark Life Sciences, incorporated in June 2011, is a leading manufacturer of Active Pharmaceutical Ingredients (APIs). It is a wholly owned subsidiary of Glenmark Pharmaceuticals.
• Glenmark Life has a strong market share in select specialized APIs such as Telmisartan (anti-hypertensive), Perindopril (anti-hypertensive), Atovaquone (anti-parasitic), Teneligliptin (diabetes), Adapalene (dermatology), and Zonisamide (CNS).
• Glenmark sells their APIs in India and also exports to locations like Europe, Latin America, North America, Japan, and the rest of the world.
• They had filed 403 Drug Master Files (“DMFs”) and Certificates of Suitability to the monographs of the European Pharmacopoeia (“CEPs”) as of 31st May 2021 across various major markets.
• It has 4 manufacturing facilities at Mohol and Kurkumbh in Maharashtra State and Ankleshwar and Dahej in Gujarat with an aggregate annual installed capacity of 725.8 KL as of December 31, 2020.

Company Business

The business of the company is divided into two main parts -

API Business - It comprises development, manufacture, and sales of select high value non-commoditized APIs in chronic therapeutic areas including CVS, CNS, diabetes, and pain management. They also manufacture and sell APIs for anti-infective, gastrointestinal disorders, and other therapeutic areas.

CDMO Business - The CDMO business comprises of applying for and procuring permission to market products in regulated markets. It also works in contract manufacturing of APIs for utilization by pharmaceutical companies to make formulations. An important sub-segment of the CDMO business is Specialty API. Under this, they provide research and technological support to manufacturing specialty APIs and offer customized support to pharmaceutical companies from making regulatory filings.

Glenmark Life Sciences Financials:

• Glenmark's revenue from operations grew at a CAGR of 45.8% and Net profit grew at a CAGR of 34% from FY19 to FY21. The revenues have increased from Rs 886 cr in FY19 to Rs 1,885 cr in FY21. 
• The API business and CDMO business contributed 90% and 8% to the revenues from operation respectively in FY21.
• Glenmark has taken a hit on its net profit margins over the past 3 fiscals. Net Profit margin has been in the range of 19-21% over the last three years. 
• The Return of Net Worth (RoNW) has halved in FY21 compared to FY19 (from 99% to 47%). Glenmark Lifesciences had issued bonus shares in the ratio of 10 for 1 in April 2021. 
• Return of capital employed (ROCE) has  almost doubled in the same time period. The company has the highest RoNW margins across peers. 
• Debt to equity ratio is 1.27x as on 31st March 2021.
• The EPS has continuously increased from FY19 to FY21. In FY19, it was 24.64, it moved to 29.04 in FY20, and in FY21 it was 32.16.
• The average capacity utilization at their 4 plants was down from 83% in FY20 to 81.8% in FY21.
• The company has not paid any dividend over the last three years.  Glenmark Life will adopt a prudent dividend policy post listing based on its financial performance and future prospects.

Peer Comparison

The API market is highly fragmented with approximately 1,500 API manufacturing plants. As of 2017, the top 14-16 API players comprised just 16-17% of the total market share. The key competitors in the API market include Laurus Labs, Divis Labs, Shilpa Medicare, Aarti Drugs and Solara Active Pharma Sciences.

• Glenmark is a midsize company compared to its peers in terms of revenue. The company falls significantly behind its competitors like Divis Lab and Lauras Labs.
• The industry average EPS is 31.1 and Glenmark Life Sciences has EPS of 32.61, slightly above the industry average.
• It has the highest RoNW among its peers at 47%.

USP

Customer retention: 16 of the 20 largest generic companies globally are their customers as of March 31, 2021. The company maintains high customer loyalty with a high rate of repeat customers. For the last three financial years, approximately 69% of their customers were repeat customers.

Leadership in CVS Therapeutic Areas: The company has gradually built scale and reach in their API offerings through economies of scale in their manufacturing operations and expanding to new markets. 

Quality Manufacturing: Glenmark has implemented current Good Manufacturing Practices (cGMP) at all of its manufacturing facilities. These practices are monitored by a comprehensive Quality Management System across all areas of business processes.

Experienced management: The company has an experienced and professional management team. The team has successfully built and integrated their businesses with various operating activities. They also have strong corporate governance systems to guide, monitor, and support their operations with oversight by an experienced Board.

Growth Potential

Strong R&D: Glenmark Life Sciences has R&D laboratories that focus on new product development and complex molecules, process improvement, and cost improvement programs. The company aims to develop 8 to 10 molecules each year.

CDMO Business: Glenmark Life Sciences got into this business just 3.5 years ago and now it accounts for 8% of its revenues in FY21. The companies Glenmark offers contract manufacturing to have very similar requirements to its own portfolio of products. Hence its makes it low cost. Glenmark also offers customized API services which has higher margins than API business.

Backward integration to improve margins: The company also has a vision to invest in backward integration of key starting materials to become more self-reliant and less dependent on their vendors for raw materials.

Expanding the Production Capacities: Glenmark Life Sciences had to pay Rs 1162 cr to its parent Glenmark Pharmaceuticals, of which they have paid Rs 362 cr through internal accruals. Using IPO proceeds to pay back Glenmark Pharma the remaining Rs 800 cr will save them the interest on it and free up their cash flows to invest in the business and expand production capacity. The company plans to double its production capacity by FY24.

Risks

Dependence on few big customers: The business of the company is dependent on the sale of its products to its key customers. Any loss of its key customers can deteriorate its financial prospects and condition.

Dependence on a single line of products: The API business of the company generates maximum revenue which has a limited number of therapeutic categories. CVS Therapeutics generates 45% of the revenue and the top 10 products account for 66% of the revenue. If these businesses do not perform as expected, it can have an impact on the company's financial condition.

Highly regulated industry: The business is largely driven by the quality process the company has in place. If there are quality control problems, it may lead to regulatory action which can damage company reputation and also have an adverse effect on company operations and financial condition.

Glenmark Life Sciences IPO review

Glenmark Life Sciences has reported a robust growth in topline over the last three years, given a strong growth in demand for select high-value APIs. The company’s bottom-line has also expanded at a very healthy run-rate over 34% over this period. The company has also maintained a very good EBITDA and Net margin over this period. As part of expansion plans, Glenmark plans to increase the API manufacturing capabilities enhancing the existing production capacities at Ankleshwar facility by FY22 and Dahej facility by FY22-FY23 to an aggregate annual total installed capacity of 200 KL.

At the higher end of the price band, Glenmark Life Sciences is reasonably priced at a P/E ratio of 25.09 times FY21 EPS (on a fully diluted on post-issue basis). This is lower as compared to peers such as Divi’s lab (64 times), Laurus Labs (37 times) and Shilpa Medicare (33 times).  Glenmark Life has also reported higher return ratios than these companies. 

Given factors such as strong growth in topline, healthy bottom-line expansion, robust margins, industry-leading return ratios, leadership position in APIs, and reasonable valuations, we remain positive on the prospects of this issue.