Concord Biotech Limited IPO

About the company:

Concord is a Bio-pharma company and is engaged in manufacturing APIs through fermentation & semi-synthetic process and formulations for drugs mainly for immunosuppressants, oncology, anti-infective & nephrology.
The company holds a market share of ~20%, based on volumes as of 2022 (as per F&S Report). It has 2 APIs, 1 formulation manufacturing facility, and 1 ongoing construction of injectables facility in Gujarat. A strong R&D team of 148 members.

Score Card:
- 23 APIs across immunosuppressants, oncology, and anti-infectives
- 77 approvals for formulations
- 128 DMFs in the USA and similarly many others in other countries

They deal in more than 70 countries serving more than 200 customers.

Objectives of the Issue:

It’s a pure OFS issue; The funds raised through this issue will not be reflected in the books of accounts of the company.

Helix Investment Holdings Pte Ltd will liquidate its entire 20% holdings.

Risks:

1. Concentrated list of suppliers: As of 31st March 2023, the top 3 suppliers constitute ~50% of total purchases of raw materials, and ~81% from the top 10 suppliers. 32% of total procurement is done in China. Any interruption in the supply chain would adversely affect the operations and business.

2. Concentrated list of customers: Revenue from the top 5 customers is ~33% and the top ten customers are ~44%. Any demand reduction from their major customers would severely affect the financials.

3. Pricing Pressure: From customers & pricing regulations by various authorities from different countries like the USA would likely erode their revenues and there are chances of losing market share.

4. Too many regulatory compliances: Unable to comply any one would adversely affect operations, cash flows and ultimately affect business.

Strengths & Opportunities:

1. Leadership in immunosuppressant APIs along with a wide range of complex fermentation-based APIs across therapeutic areas.
2. It is not so easy to venture into this segment for any new player due to leaner competition & high barriers to entry.
3. Have been able to maintain a high-profit margin because of the niche and complex product portfolio.
4. Funding for future investments can be done through internal accruals and a very limited external financing would be required.
5. Revenue from operations is well diversified within geographies; India 51%, America 17%, & rest of the world 32%.

Financial Snapshot (Rs. In Crores):

The company’s capital work in progress rose from ~ Rs. 18 Crs in FY21 to ~Rs 173 Crs in FY23. Investments in Financial assets stand at ~ Rs. 137 Crs as of FY23. Long-term borrowings reduced significantly from Rs. 56 crs in FY21 to just 6 crs in FY23.

Conclusion:

Global Pharma spending clocked a CAGR of 5.4% in FY22. India’s domestic healthcare market is expected to grow at a CAGR of 8%-10% from 2023 to 2026.

Growth in Pharma spending is aided by the launching of low-cost generics & biosimilars for making drugs more accessible to a larger population, new innovations which would cater to unmet health needs, and improved accessibility to healthcare services. With the combination of the China +1 strategy & Government’s PLI schemes, setting up bulk drug parks would help Indian players to compete on a global level.

Here, an institutional investor is exiting but none of the promoters are liquidating their stakes, the organization’s debt can be paid off using existing cash flows, reserves, or investments. The commencement of the currently ongoing construction of the Injectables plant would help the topline in the near future. The management’s intention now is to not incur any further expansions in the near future and focus more on optimizing the utilization rate this would help them in unit cost economics and further improve their margins. Based on the company’s performance, and management outlook, the earnings valuation of 32x seems to be fairly priced.

So, we suggest our investors “subscribe” to this IPO for long term.