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Home >Markets >Mark To Market >After  slow  IPO,  Gland  Pharma  finds more takers in secondary markets

After  slow  IPO,  Gland  Pharma  finds more takers in secondary markets

Gland’s portfolio comprises of complex products as injectables, which are relatively difficult to manufacture and hence see less competition (Mint)Premium
Gland’s portfolio comprises of complex products as injectables, which are relatively difficult to manufacture and hence see less competition (Mint)

  • Gland Pharma stock is now up 37% over its offer price of 1,500 during the IPO to 2,053
  • The company had impressed with its 18-25% revenue growth in key markets like US, India over FY18-20

Fortune favours the brave. Gland Pharma Ltd’s initial public offering (IPO) did not have enough takers in the non-institutional category. The retail portion, too, was subscribed only 0.24 times. And only half of the shares set aside for high net-worth investors found takers. But whoever stuck their neck out are already sitting on decent gains.

The Gland Pharma stock is now at 2,053, up 37% over its offer price of 1,500 during the IPO. For an issue that offered full allotment for every application in the non-institutional category, it has been among the best-performing IPOs for investors.

One of the reasons demand was tepid during the IPO was the fact that the company is majority-owned by a Chinese firm. But this was only a small factor, analysts said, adding that investors were mostly shying away because of the rich valuations.

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But with a 37% jump, valuations have got even richer. What gives?

Note that the above two factors had not stopped institutional bidders from lapping up the issue during the IPO. The company had impressed with its 18-25% revenue growth in key markets such as the US and India over FY18-20, and its prospects going forward looked decent. It has a strong exposure to the US market, deriving more than 60% of its revenues from there. Considering that it follows a B2B business model (supplies and sales through partnerships with other pharma majors), analysts said the firm has a marquee set of investors.

In the US, Gland files new product applications and owns IP rights for various filings. After approval, the product can be offered to multiple partners through non-exclusive partnerships, and this drives economies of scale. The company also gets a share of profits from the sale of products through partners. Since it gets a share of profit from partners, the company can command better valuations compared to plain contract manufacturers, said analysts. Its backward integration for key products also benefits margins. The company’s operating margins stood at 39.5% in FY20.

Gland’s portfolio comprises complex products such as injectables, which are relatively difficult to manufacture and, hence, see less competition. Almost 41% of the products that had been approved and launched prior to FY19 had less than five competitors in the US market. The growth opportunity in the generic injectables segment, which is expected to see $68 billion worth of drugs go off-patent during 2021-25, also remains strong.

Further, its manufacturing facilities have not faced any regulatory issues since inception, which is a key positive, according to analysts.

However, the sustenance of the financial performance in the coming quarters will be key to maintaining these valuations. Ambit Capital analysts estimate its earnings to grow 24% annually over FY20-23 and, based on their estimates, the stock trades at 28 times FY22 earnings.

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