Mumbai: Laurus Labs Ltd’s initial public offering (IPO) to raise as much as Rs1,300 crore is the third initial share sale after the government decided to withdraw high-value currency notes, making investors nervous.
The IPO of Sheela Foam Ltd opened for subscription on Tuesday and drew bids of a mere 0.01%.
Vaccine maker GreenSignal Bio Pharma Ltd withdrew its IPO on 22 November after failing to get sufficient bids from institutional investors following the government’s sudden decision on 8 November to ban Rs500 and Rs1,000 notes and Donald Trump’s surprise victory in the US elections.
Laurus Labs’s IPO, which comprises new shares and an offer for sale by Aptuit (Asia) Pvt. Ltd, Bluewater Investment Ltd, FIL Capital Management (Mauritius) Ltd and Fidelity India Principals, will open for subscription on 6 December and close 8 December.
The price band for the issue has been set at Rs426-428 per share. At the lower end of the price band, the company is valued 20.42 times its earnings in 2015-16, and 20.52 times at the upper end.
Laurus Labs’s price-to-earnings ratio is slightly lower than its publicly traded peers, such as Divis Laboratories Ltd (valued at 29.16 times its earnings) and Aurobindo Pharma Ltd (valued at 22.89 times its earnings).
“Laurus’s pricing is definitely not cheap by any measure. However, Indian pharma companies usually gel well with investors. So the issue will sail through,” said a banker not associated with the Hyderabad-based drug maker’s IPO.
“There is a lot of liquidity with mutual funds, and that money needs to be parked somewhere. FIIs (foreign institutional investors) may not be out there due to a stronger dollar, but the domestic investors are making up for that demand gap,” the banker added.
Despite choppy market conditions, the IPO could ride on the fact that the company has a strong profile and investors have shown keen interest, said a banker involved with the issue.
The advisers to the share sale are Kotak Mahindra Capital Co. Ltd, Citigroup Global Markets India Pvt. Ltd, Jefferies India Pvt. Ltd and SBI Capital Markets Ltd.
The company plans to use the proceeds from the IPO for pre-payment of term loans and general corporate purposes, according to the share sale documents.
Laurus Labs makes active pharmaceutical ingredients (APIs) for high-growth therapeutic areas such as anti-retrovirals and Hepatitis C.
The company had revenue of Rs1,791.4 crore in 2015-16 as against Rs1,360.7 crore in the year-ago period. Net profit rose to Rs132.7 crore in FY16 from Rs68.4 crore in the previous fiscal, while the operating margin was 21.2% in FY16 compared with 17.2% in FY15.
While 90% of the company’s revenue currently comes from the API business, it is enhancing capabilities in formulations by capacity addition and through partnerships, founder and chief executive officer Satyanarayana Chava said at a press conference.
Laurus plans to increase its formulations capacity to 5 billion tablets per annum from 1 billion tablets currently. It has partnered with Dr.Reddy’s Laboratories Ltd for development and marketing anti-retroviral formulations on profit- and cost-sharing basis, and with Citron Pharma Llc for nine formulations for the US market.
The drug maker has three manufacturing units in Visakhapatnam, of which two are approved by the US Food and Drug Administration (US FDA) and the third is currently undergoing the US regulator’s inspection.