scorecardresearchConcord Biotech: After a strong debut, Antique Broking sees 35% upside
Concord Biotech has seen a 34% jump in the stock price since its IPO.

Concord Biotech: After a strong debut, Antique Broking sees 35% upside in this newly-listed stock – key reasons

Updated: 26 Sep 2023, 09:00 AM IST
TL;DR.

Concord Biotech has seen a 34% jump in the stock price since its IPO, prompting Antique Broking to initiate coverage with a ‘buy’ rating and a target price of 1,340. The company is a market leader in fermentation-based APIs and has a niche portfolio with deep backward integration.

Recently listed biopharma company Concord Biotech has been a positive investment for its investors. The stock has jumped 34 percent to over 992 from its IPO price of 741 in less than 2 months. Meanwhile, since listing last month, it has advanced over 10 percent.

The stock made a strong debut on August 18, 2023, listing at 900, a premium of 21.5 percent to its issue price. The stock continued rising post listing to hit its record high of 1,067.50 on September 6, 2023, rallying over 44 percent from its issue price. However, since then, the stock has shed over 7 percent on profit booking.

On the back of its strong stock performance post listing, brokerage house Antique Broking has initiated coverage on the stock with a ‘buy’ call and a target price of 1,340, indicating an upside of 35 percent. It has become the first brokerage firm to do so.

"On a three-year CAGR basis, the company has recorded robust revenue growth of 19 percent, with an EBITDA margin profile of 40 percent. Going forward, we expect Concord to improve the market share of its top 5 products on the back of genericization, coupled with new launches in the Anti-Infective and Oncology segments. We also expect Concord's revenue to grow by 21 percent on a three-year CAGR basis, with EBITDA margin improving to 45 percent and EPS to grow at 27 percent CAGR, by FY26. We initiate coverage on the stock with a BUY rating and a target price of INR 1,340, valuing the company at 30x PE on 1HFY26 EPS," said the brokerage.

Concord Biotech
Concord Biotech

About the firm

Concord Biotech (Concord) is an India-based bio-pharma company that manufactures APIs via fermentation route. The company has a rich basket of products in the immunosuppressant and Anti-Infective segments. At present, Concord has 23 products in the market having deep backward integration which are supplied to over 70 countries, including regulated markets such as the USA, Europe, and Japan. The company commands over 20 percent market share by volume across fermentation-based key API products, viz. Tacrolimus, Cyclosporine, Mycophenolate Sodium, Mupirocin, and Mupirocin Calcium.

The API business constitutes over 90 percent of revenue, with the remainder of the business coming from formulations. Over the past few years, the formulations business has scaled up driven by the forward integration of its APIs and the opening of newer markets.

About the IPO

The 1,551-crore Concord Biotech issue was open for subscription between August 4 and August 8. Rakesh Jhunjhunwala's RARE Enterprises-backed firm had set a price range of 705-741 for the issue. The biotechnology company IPO was the second IPO of August after SBFC Finance, which opened a day earlier.

The public issue received a solid response from the investors and was overall subscribed to 24.87 times in the 3 days of bidding. The portion for qualified institutional bidders was subscribed to 67.67 times, while those for non-institutional investors, retail investors and employees were booked 16.99 times, 3.78 times, and 24.48 times, respectively.

The IPO was entirely an offer-for-sale (OFS) of up to 2.09 crore equity shares or 20 percent of paid-up equity by Helix Investment Holdings. The IPO will give an exit to Helix and the company will not receive any proceeds from the issue.

Ahead of its IPO, the firm raised 464.95 crore from anchor investors by allocating them 62,74,695 shares at 741 apiece. Kotak Mahindra Capital Company, Citigroup Global Markets India, and Jefferies India were the merchant bankers for the offer, while Link Intime India was the registrar to the issue.

Most brokerages had recommended subscribing to the issue on the back of fair valuations, a strong business model, global presence, and healthy financial performance.

Investment Rationale

Market leader in fermentation-based APIs: As per the brokerage, Concord supplies various APIs in the Immunosuppressant, Anti-Infective, and Oncology segments. The company is a leader with over 30 percent market share in these products. Its key focus area remains its low-volume, high-value niche products which can be developed primarily using the fermentation route. As fermentation is a challenging process it involves working with microbial strains and culture, controlling multiple process parameters, and performing various purification steps. The low-volume nature of API products coupled with the highly technical process of manufacturing and client stickiness presents large entry barriers, noted the brokerage. Given this niche, the brokerage doesn't foresee incremental competition for Concord's product in the next 3-5 years.

Niche portfolio with deep backward integration: The brokerage further noted that Concord believes in selecting molecules that have limited competition with an established market. Besides, the selected molecules have a complex manufacturing process that requires fermentation-based high technical expertise. The key focus area for the firm remains immunosuppressant APIs, where the company is a global leader and has one of the widest range of small molecule portfolios of fermentation-based APIs globally. Concord's large molecules are expected to see a further increase in the number of generics in the market, this in turn is likely to result in volume growth of the API market, representing a significant growth opportunity for the company, it explained.

Risks and Concerns

Compliance risk: The company's units are subject to various regulatory and customer audits. Hence, periodic compliance of these units is critical to sustaining the business.

High dependence on key clients: The top 10 clients account for 45 percent of its revenue, any business impact on the customer's end could impact the firm's revenue.

High dependence on select products and therapy: Similar to client concentration, the company has a high dependence on immunosuppressant therapy and products such as Tacrolimus, Mupirocin Calcium, Mycophenolate Mofetil, and Cyclosporine. Any disruption is likely to impact the firm.

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.

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First Published: 26 Sep 2023, 09:00 AM IST