Hyderabad-based Gland Pharma Limited is coming up with the largest IPO in the pharmaceuticals space. The issue size of the IPO is Rs.6,500 cr which is a combination of a fresh issue of Rs.1,250 cr and an Offer for sale of Rs.5,230 cr. The IPO is all set to open on 9th November and will be closing on 11th November.
Fosun Pharma is the holding company with a 74% stake which is expected to reduce to 58.3% post IPO. A number of other shareholders such as Gland Celsus, Empower Trust and Nilay Trust are also expected to reduce their stake via this IPO. Gland Pharma is one of the fastest growing generic injectables-focused company by revenue in the United States from 2014-2019. The B2B business model of the company makes it unique and enabled it to deliver strong revenue and Pat growth of 27.4% and 55.2% from 2018-2020. Operationally too, Gland Pharma is extremely efficient as it draws a margin of 39% on an average. The Company believes in using its internal cashflows to expand its business and for its working capital needs. Even after a decent capex each year, it has a sufficient cash balance. The Company has a distribution network spread over 60 countries including the US, Europe, China, Australia, India and RoW. Hence, as the business model and strategies followed by Gland Pharma are extremely sound, it is a good IPO to subscribe to at this point. Investors can also hold the stock from a longer term perspective as the valuations at a P/E of 30x are extremely favourable with no competitors in India.
Gland Pharma has a robust business model wherein it partners with leading pharmaceutical companies with strong and independent sales and distribution networks for its products. Majority of its business is B2B but it also follows a B2C model when it comes to India where its products are primarily marketed and sold to institutions such as hospitals, long-term care facilities and clinics through stockists and distributors. Currently, Gland has seven manufacturing facilities in India comprising of four finished formulations facilities with a capacity of approximately 755 million units per annum and three USFDA approved API facilities. Moreover, it has 267 ANDA filings in the US of which 215 were already approved and 52 are in the pipeline of approval. Its key customers include Athenex Pharmaceutical Division, Sagent Pharmaceuticals, Inc. and Apotex Inc.
Gland Pharma has done a tremendous job in terms of growth in its Top and Bottom-Line. The Company has delivered constant returns to its shareholders – ROE at an average of 18.1% and ROCE at 16.8% in the period 2018-20. The debt free nature of its business enables it to cushion through tough times and infact the company is looking for inorganic growth opportunities to strengthen its vertical integration.
• US Pricing pressure or Delay in USFDA approvals
• High customer concentration risks with 40% of Gland’s revenues coming from its Top five clients
• New entrants in pure formulations space can lead to Competition Risks
• Future Acquisitions might pose as Synergy Risks going forward
Overall, Gland Pharma with its strong B2B model, high gross margins and better revenue visibility seems to be an attractive bet. Additionally, because of the ongoing pandemic pharma has been in focus since the past few months and it seems that the pharma cycle has turned for the better. Gland Pharma could be a strong contender in the pure formulations space.
Therefore, investors can subscribe to this IPO and hold the stock from a longer-term perspective.