Valiant Laboratories IPO: Should you subscribe? All you need to know

The initial public offering (IPO) of Valiant Laboratories opened for subscription on September 27 and will close on October 3. Through the issue, the company aims to raise Rs 152 crore. The price band for the issue has been set in the range of Rs 133-140.

Issue size: The offer is completely a fresh equity issue of Rs 1.08 crore shares.

Objective: The company intends to utilise the net proceeds from the issue towards the investment in its wholly owned subsidiary, Valiant Advanced Sciences (VASPL), for part-financing its capital expenditure needs, in relation to setting up a manufacturing facility for specialty chemicals in Bharuch, Gujarat; working capital requirements and general corporate purposes.

Subscription status: The issue received a muted response from investors. At 12:25 pm on its first day of bidding, the IPO was subscribed to just 17 percent against its offer. It has received bids for 12.89 lakh shares against 76.23 lakh shares on offer. The category for retail investors was bid the most, but only 33 percent, followed by that of non-institutional investors (NII), which was booked only 3 percent. However, the qualified institutional buyers (QIBs) portion has not received any bids till now.

GMP: Its shares are commanding a premium of 0 apiece in the grey market today, indicating a flat listing, the same as the IPO price.

However, it is important to note that grey market premiums are just an indicator of how the company's shares are stacked up in the unlisted market and are subject to change rapidly.

Lot size: Investors can bid for a minimum of 105 shares in one lot and in multiples thereof. Hence, one lot will cost the investors Rs 14,700.

Reservation: About 50 percent of shares of the offer have been reserved for the qualified institutional bidders (QIBs), while the non-institutional investors (NIIs) will have 15 percent of the reservation. Retail investors will get the remaining 35 percent of shares reserved for them.

Anchor investors: Ahead of the IPO, Valiant Laboratories mobilised Rs 45.74 crore from four anchor investors by allocating 32,66,970 equity shares at an issue price of Rs 140 per equity share. The Triumph Fund, Saint Capital Fund, Astorne Capital VCC - Arven and Negen Undiscovered Value Fund constitute the anchor book.

About the firm: Incorporated in 1980, Valiant Laboratories is an active pharmaceutical ingredient (API) manufacturing company in India, which majorly focuses on manufacturing Paracetamol. The company is a part of the Aarti Group of industries. Currently, it operates from its only manufacturing unit in Palghar, Maharashtra, however, it is planning to establish a new project in Gujarat through its subsidiary.

Peers: According to the red herring prospectus (RHP), listed peers of Valiant Laboratories are Granules India Ltd (with a P/E of 15.06), Jagsonpal Pharmaceuticals Ltd (with a P/E of 41.54), Alkyl Amines Chemicals Ltd (with a P/E of 55.59), Laxmi Organic Industries Ltd (with 66.07).

Financials: The company's revenues climbed 16 percent to Rs 339 crore in FY23, while net profit was marginally higher at Rs 28.9 crore, as against Rs 27.4 crore in the same period a year ago. Meanwhile, the company has a track record of sustained revenue growth, growing at a CAGR of 35.3 percent during FY21-23.

Book-running managers: Unistone Capital is the sole book-running lead manager to the issue, while Link Intime India is the registrar.

Important dates: Valiant has set a T+3 timeline for the listing of its shares. The finalisation of share allotment is expected to be completed by October 5. The equity shares are proposed to be listed on both BSE and NSE on October 9.

Brokerage Views

Brokerage firms have a mixed view on the issue. Some are positive on the back of strong operational efficiency, high ROCE, healthy balance sheet, and robust growth opportunities in the coming years. Others suggest avoiding the issue since it is a single-product manufacturing company and is dependent on a limited number of suppliers as well as customers. High competition in the pharma space and volatility in current market conditions may also keep investors on edge. Let's see what various brokerages have to say about the issue.

BP Equities: Subscribe

With strong operational efficiency, Valiant Laboratories has demonstrated high ROCE, positive operating cash flows, strong balance sheet, pursued growth opportunities and better managed unanticipated cash flow variations, which will drive the company's performance going ahead. On the upper price band, the issue is valued at a P/E of 15.7x based on FY2023 earnings, which is fairly valued compared to its peers. We, therefore, recommend an SUBSCRIBE rating for the issue.

Key Risks

- Valiant Lab is a single-product manufacturing company and any changes to the paracetamol API industry or the product demand will adversely affect revenues, financials and profitability.

- The company operates out of a single manufacturing facility which is located at Palghar, Maharashtra and therefore, any breakdown of services or any other natural disaster in and around Palghar, Maharashtra, or any disruption in production at, or shutdown of, manufacturing unit could have a material adverse effect on business and financial condition.

- The company has a limited number of suppliers for raw materials who are highly concentrated in the western region of India. Dependence on few suppliers for raw materials may require it to procure them from other suppliers at higher cost and cause operational interruptions and affect delivery capacity leading to loss of production and under-utilisation of capacity.

Swastika Investmart: Avoid

The company's financial performance is improving, and it has the benefit of experienced promoters. But it is a single-product manufacturing company. Also, Valiant is dependent on a limited number of suppliers as well as customers. Also, there is intense competition in this industry along with high regulations. The issue is coming at a P/E (price-earnings) valuation of 15.7, which seems fair, but considering other risks and current market volatility, we will avoid this IPO.

Ventura Securities: Not Rated

The company, along with its subsidiary, Valiant Advanced Sciences Private Limited, plans to establish a new facility in Gujarat, India, specialising in specialty chemicals like ketene and diketene derivatives. This expansion will enhance operational efficiency and competitiveness, as some of these chemicals are used in paracetamol production.

The management team, collectively possessing significant industry experience, has a track record of successfully integrating various business activities. They have been instrumental in achieving organic growth, establishing brand recognition and loyalty, and identifying new business opportunities for the company.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.