The ₹1,551-crore initial public offering (IPO) of Concord Biotech opened for subscription on Friday, August 4 and will close on Tuesday, August 8. Rakesh Jhunjhunwala's RARE Enterprises-backed has set a price range of ₹705-741 for the issue. The biotechnology company IPO will be the 2nd IPO of August after SBFC Finance, which opened yesterday.
IPO Size: The issue is 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.
Objective: The main objective of the issue is to carry out this offer for sale of 2.09 crore equity shares by Helix. The company will not receive any proceeds from the issue.
Subscription Status: The IPO saw a decent response and was subscribed 27 percent till 1:35 pm on Day 1. Its retail portion was subscribed 38 percent, while non-institutional investors (NII) quota was subscribed 36 percent, however, qualified institutional buyers (QIBs) part did not receive any subscription so far. The employee portion was subscribed 3.8 times.
GMP: The company's shares in the grey market are trading at a healthy premium of ₹150, indicating a strong response to the issue. However, it has fallen from ₹180 on August 2, ₹260 on August 1 and ₹325 on July 31.
However, one must note that grey market premium is only an indicator of how the company's shares are performing in the unlisted market and can change quickly.
Anchor Investors: Ahead of its IPO, Concord Biotech raised ₹464.95 crore from anchor investors by allocating them 62,74,695 shares at ₹741 apiece, said a BSE circular. Anchor investors included the government of Singapore, Abu Dhabi Investment Authority, Government Pension Fund Global, Polar Capital Funds, HSBC Mutual Fund, WF Asian Reconnaissance Fund and Amundi Funds among others.
Lot Size: The minimum bid can be made for 20 equity shares and in multiples of 20 shares thereafter. The retail investors will have to make a minimum investment of ₹14,820 for a single lot.
Reservation: Not more than 50 percent of the net issue shall be offered to the qualified institutional bidders (QIBs), while non-institutional investors will get 15 percent of the offer. The remaining 35 percent of the equity shares shall be offered to retail investors. The company has also reserved 10,000 equity shares for the employees, who will get a discount of ₹70 per share.
About the firm: Incorporated in 1984, Concord Biotech is a homegrown research and development (R&D) driven biopharma company. The company is ranked among the leading global developers and manufacturers of select fermentation-based APIs across immunosuppressants and oncology with a market share of over 20 percent by volume in 2022.
The company has a global presence and supplies its products to more than 70 countries including the USA, India, Europe, and Japan. The company manufactures active pharmaceutical ingredients (API) through fermentation & semi-synthetic process and finished formulations. It started with a single product and has grown to become a wide-spectrum solution provider.
As of FY23, CBL had 23 APIs (89 percent of revenue), which it aims to increase further, especially in anti-infective/oncology segments. Its API customers include Intas Pharmaceuticals and Glenmark Pharma, while it had had an average of eight years of relationships with the 10 largest customers by revenue in FY23.
Financials: For the year ended on March 31, 2023, Concord Biotech reported a 37.2 percent rise in its net profit to ₹240.08 versus ₹175 crore in the year-ago period driven by strong growth in topline and operating performance. Its revenue also jumped 20 percent to ₹888.48 crore as against ₹736.35 crore in the same period last year.
On the operating front, the company's EBITDA (earnings before interest, tax, depreciation, and amortisation) grew by 25.6 percent to ₹343.3 crore with a margin expansion of 190 bps at 40.2 percent for FY23. Its RoE (return on equity) also jumped to 26.55 percent in FY23 from 16.64 percent in FY22, while the RoCE (return on capital employed) advanced to 28.54 percent in FY23 from 20.55 percent in FY22.
The company has also recorded an 18 percent CAGR in revenue over FY21-23 with a robust EBITDA margin of 40 percent.
Allotment and Listing Dates: The allotment status of the IPO is likely to be finalisation on August 11. The company will transfer equity shares to demat accounts of eligible investors by August 17 while unsuccessful investors will get refunds in their bank accounts by August 14.
Concord will make its debut on the BSE and NSE on August 18.
Book-running managers: Kotak Mahindra Capital Company, Citigroup Global Markets India, and Jefferies India are the merchant bankers to the offer, while Link Intime India is acting as the registrar to the issue.
What brokerages say
Most brokerages have a subscribe rating on the issue and have suggested subscribing to the issue on the back of fair valuations, strong business model, global presence and healthy financial performance. Let's see what brokerages have to say about the issue.
Motilal Oswal: Subscribe
We like CBL given its complex product portfolio, presence in niche space, strong client relationship and high entry barriers. The issue is valued at 32x P/E in line with the peer group’s avg: 32x. We believe CBL could benefit from the industry tailwinds given its PLI approval in place. Hence we recommend Subscribe.
Reliance Sec: Subscribe
On FY23 financials, the IPO is valued at 32.3x P/E, 22.5x EV/EBITDA and 9.1x EV/Sales, on the upper price band. Concord has an established presence in the therapeutic areas and is well-poised to benefit from the industry growth tailwinds. The immunosuppressant API portfolio is expected to remain one of the key contributors to the API business in the near future. Moreover, the R&D team is working on developing new formulations for which they expect to apply for ANDA approvals from the US FDA. In view of a strong global footprint, diversified product portfolio, robust in-house R&D capabilities and experienced management team, we recommend a SUBSCRIBE to the issue.
Swastika Investmart: Subscribe for listing gains
Concord Biotech is a leading fermentation-based API company with a strong track record. The company has a diversified global customer base, strong R&D capabilities, and scaled manufacturing facilities. However, its international operations expose it to complex management, legal, tax, and economic risks.
The industry has been facing margin pressure in recent quarters. It is also worth noting that this IPO is purely an OFS, meaning that the company will not receive any proceeds from the offering. While the valuations may not appear overly attractive, this IPO could still deliver a moderate return. We suggest investors may apply to the issue for listing gain.
Choice Broking: Subscribe
At the higher price band, Concord Biotech's valuations are at a discount to the peer average. Growth in the global market of fermentation-based APIs is expected to be driven by immunology, oncology and anti-infective therapeutic areas. It is focusing on these therapeutic areas with its wide range of niche & complex APIs. Moreover, considering its manufacturing capabilities and geographic presence CBL is well-placed to benefit from the expansion in the market. We have a subscribe rating for the issue.
Anand Rathi: Subscribe for Long term
Concord Biotech has established a presence across the complex fermentation value chain with Global leadership in immunosuppressant APIs along with a wide spectrum of complex fermentation-based APIs across multiple therapeutic areas and Scaled manufacturing facilities with a consistent regulatory compliance track record and supported by strong R&D capabilities with Diversified global customer base with long-standing relationships with key customers. At the upper price band company is valuing at a P/E of 25x with a market cap of ₹6201 crore post-issue of equity shares and a return on net worth of 20.06 percent. We believe that the company is fairly priced and recommend a “Subscribe- Long term” rating to the IPO.
LKP Securities: Subscribe
Concord Biotech is a leading player in fermentation-based complex APIs with presence across major markets commanding a market share of over 20 percent by volume in 2022. With the increasing prevalence of chronic diseases, growth in generic drugs & export formulations segment and increasing adoption of innovator drugs coupled with China + One strategy for expanding India’s export potential will continue to drive the API market. The IPO is fully Offer for Sale and with the highest price band of Rs.741, Concord is commanding a PE of 32.3x. SUBSCRIBE
