Glenmark Life Sciences was formed in the year 2011 as a wholly-owned subsidiary of Glenmark Pharma; a listed and established pharmaceutical company in India. The Indian pharma industry can be broadly divided into 3 key segments as under:
- Active Pharma Ingredients (APIs), which are the specialized inputs that go into the manufacture of major drugs and formulations.
- Contract Research and Management Services (CRAMS), which is the contract based outsourcing service provided to specially pharma companies.
- Generics, which consists of manufacture of generic version of formulations after they go off-patent globally. This is still the largest segment.
Glenmark Life Sciences operates in the API space and its peer group in India consists of leading names like Divi’s Labs, Laurus Labs, Aarti Drugs, Granules and Solara etc. API companies have come under the focus of Private Equity funds that infused $1.5 billion in Indian API companies in the last 1 year.
Data Source: IPO Filings
API industry profile and how the IPO funds will be utilized?
Currently, Glenmark Life accounts for a little over a third of the value of Glenmark Pharma and hence this could also result in a re-rerating of the parent company stock. Here is what you need to know about the API industry profile.
- While the API industry was always attractive, the scenario shifted drastically after China tightened environmental norms for its bulk drug and chemical companies. India became a preferred port of call for global pharma companies looking to diversify their reliance on China. This opened up a massive opportunity for Indian API manufacturers.
- Glenmark Life manufactures APIs for cardio vascular diseases, central nervous system diseases, pain management, diabetes and gastrointestinal disorders. The other segment of Glenmark Life is Contract Development and Manufacturing Operations (CDMO).
- Glenmark Life has a total of 4 manufacturing facilities across India with a combined capacity of 726 KL. Glenmark Life has a strong global franchise with predominant exports to the Americas, Europe and Japan. Here Glenmark Life leverages its long standing relations with top generic players across the globe.
7 reasons why you must consider the Glenmark Life Sciences IPO
While your final call on the Glenmark Life Sciences IPO must be based on consultation with your financial advisor / broker; here are 7 reasons which make Glenmark Life Sciences IPO a compelling proposition.
- Glenmark presents a strong growth story in terms of the top line and offers a macro play on the API sector and its potential in India. Glenmark sales more than doubled from Rs.887 crore in FY19 to Rs.1,886 crore in FY21.
- A key trigger for profitability in the pharma business is the trend in asset turnover ratio. If you look at the trend of the last 3 years, the asset turnover ratio has improved from 0.60 in FY19 to 0.94 in FY21, indicating efficiency in resource utilization.
- Let us not turn to the profit generated by the company. Glenmark Life saw net profits growing by a whopping 80% in last 2 years from Rs.196 crore in FY19 to Rs.352 crore in FY21. This was largely driven by higher sales and cost controls.
- Over the last 3 years, the Glenmark Life reported net margins of 22.1%, 20.2% and 18.87%. If you look at the return on assets, the ROA was 13.3%, 18.1% and 17.6% between FY19 and FY21. Return ratios have been robust and stable.
- One indication of the attractiveness of the API business is the interest shown by PE funds like KKR, Chrysalis, Advent and Carlyle. In the last 1 year, they infused $1.5 billion into Indian API players and plan to hike this infusion to $4 billion in the current year.
- Valuations are fairly attractive. The upper IPO band values Glenmark Life at 25X P/E on FY21 EPS. Growth in profits and revenues on CAGR basis has been more than that. It is also attractive compared to peer group valuations.
- At the end of the day, the story is a macro story. APIs represent the story of how the Indian pharma industry is gradually coming to specialize, differentiate and deliver in the next 5 years. Glenmark Life Sciences is certainly positioned in a sweet spot and a potentially high growth space.
The only risk you must keep in mind is that competition can be intense so execution is the key. But as a macro play, Glenmark Life Sciences is a great IPO to consider.