Laurus Labs IPO subscribed 28 per cent on Day 1; 10 things you must know

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NEW DELHI: The initial public offering of Laurus Labs got off to good start as the issue was subscribed by 28 per cent on the first day on Tuesday.

The issue received bids for 62,09,420 sharesas against 2,19,11,308 on offer, data available with the stock exchanges till 5 pm showed. On Monday, the company had raised over Rs 395 crore by allotting shares to anchor investors.

The Qualified Institutional Buyers (QIBs) quota was subscribed by 71 per cent as they put in bids for 43,74,825 shares compared with 61,74,544 on offer.

Retail segment saw muted response as only 10 per cent of the quota reserved for individual investors got subscribed.

The API firm is seeking to raise around Rs 1,332 crore in a price band of Rs 426-428 per share. The public offer will close on December 8. Kotak Mahindra Capital Company, Jefferies India Private, Citigroup Global Markets India and SBI Capital Markets are the book running lead managers to the offer.

Below are the 10 things you should know before subscribing to the IPO:

About the company: Laurus Labs is a Hyderabad-based firm engaged in manufacturing of Active Pharma Ingredients (API). It generates 80 per cent of its revenues from exports while the rest comes from the domestic market. Its client base includes companies likeNatco, Mylan, Cipla. API is its largest segment which contributes 92 per cent of the revenues while rest 8 per cent comes from its synthesis and ingredients business.

Promoters and shareholders: Among the promoters, Dr Satyanarayana Chava, Dr Raju Srihari Kalidindi and Ravi Kumar VV have extensive experience in the pharmaceutical industry. Some existing shareholders such as Aptuit, Bluewater, FIL Capital Management and Fidelity India Principals are selling their holdings in the company through this IPO. Aptuit is selling its entire shareholding while other shareholders are selling their partial stake.

Objective of the issue: The company will not receive any proceeds from the offer for sale. The net proceeds are planned to be utilised for pre-payment of debt and for general corporate purposes.

Bid lot: An investor can bid for a minimum of 35 equity shares of the company and in multiples of it thereafter. All eligible employees will get a discount of Rs 40 per share.

Strengths: The company has entered a contract with Natco for manufacture and sale of hepatitis-C APIs, comprising Sofosbuvir, Ledipasvir, Daclatasvir and Velpatasvir. Laurus Labs has a portfolio of products in the oncology therapeutic area, a market which is expected to grow steadily at 7-8 per cent between 2015 and 2020 to reach a value of $152 billion in 2020.

Concerns: Any manufacturing or quality control problems may, subject to regulatory action, have an adverse effect on business, results of operations, financial condition and cash flows. In addition to this, over dependence on top five products and customers could have an adverse impact on business if there is reduction in demand or termination of contract, coupled with inability to successfully implement business plan and growth strategy.

Financials: The company reported an annual growth of 41 per cent (CAGR) and 60.6 per cent in revenue and net profit, respectively, between FY12 and FY16. For the year ended March 31, 2016, the company reported total revenue of Rs 1,788 crore against Rs 452 crore reported for 2011-12. Net profit increased to Rs 143.60 crore from Rs 21.60 crore during this period.

Valuation: According to Religare Broking, at the upper end of the offer price band of Rs 428, Laurus Labs is available at 29.6 times the diluted standalone earnings for 2015-16.

Should you invest: Sharekhan believes the issue is priced at 26.8 times its FY2016 earnings per share (EPS), which is at a premium to its peers and could be justified given the relatively higher growth track record. The premium would sustain only if the company continues to expand at relatively higher growth rates and is able to establish itself in the nascent formulations business.

Brokerage firm Angel Broking in a research note said, “Considering the company’s high client concentration, low pricing power, asset heavy model and high valuations, we rate this IPO as neutral.”