Laurus Labs IPO subscribed 28% on Day 1

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Mumbai/New Delhi: The initial public offering (IPO) of Laurus Labs Ltd was subscribed 28% on Tuesday, the first of the three-day offering, receiving bids for 6.2 million equity shares against an issue size of 21.9 million.

The pharmaceutical company’s IPO will close on 8 December.

The company has set an IPO price band of Rs426-428 per share and seeks to raise as much as Rs1,332 crore through the IPO.

According to data collated by the stock exchanges, the institutional investor category was subscribed around 71%, while the non-institutional category comprising high-net-worth individuals was subscribed 16%.

Retail investors, whose investments cannot exceed Rs2 lakh per individual, subscribed 10% of the issue at the end of day one.

Ahead of the opening of the IPO, the company also raised approximately Rs395 crore by selling shares to a group of 25 anchor investors.

The shares were allotted to the anchor investors at Rs428 per share, the top end of the IPO price band.

“The company’s business and prospects are good, but on the face of it, pricing looks expensive,” said Arun Kejriwal, director of Kejriwal Research & Investments Pvt. Ltd. “But then, looking at the anchor investments, it seems to be a good bet for people with a long-term horizon.”

IDBI Capital Markets Ltd recommended a ‘subscribe’ rating for the issue, but did flag the concern that the valuations were rich.

ALSO READ: Ahead of IPO, Laurus Labs sells shares for Rs395 crores to 25 anchor investors

In a note on 3 December, Angel Broking Pvt. Ltd rated the IPO as “neutral” citing high client concentration, low pricing power, asset heavy model and high valuation.

Valuation seems to be the key concern for analysts across the board, even as they applauded its business performance and prospects.

“It is slightly overpriced at 20 times FY18 P/E, on a comparable analysis, where peers are trading at 17-18 times P/E,” said Dhananjay Sinha, head of research at Emkay Global Financial Services Ltd.

“It’s a fast growing bulk drug manufacturer in high-value segments such as oncology. It also has plans to enter formulations. It also has a track record of high growth in revenues and profits,” said Gaurav Dua, head of research at Sharekhan Ltd.“However, valuations at the offer price largely account for these positives,” added Dua.

At the lower end of the price band, the company is valued at 20.42 times its earnings in 2015-16, and 20.52 times at the upper end. Laurus Labs’s price-to-earnings ratio is slightly lower than its publicly traded peers, such as Divis Laboratories Ltd (valued at 29.16 times its earnings) and Aurobindo Pharma Ltd (valued at 22.89 times its earnings).

The IPO comprises an issue of new shares and an offer for sale by Aptuit (Asia) Pvt. Ltd, Bluewater Investment Ltd, FIL Capital Management (Mauritius) Ltd and Fidelity India Principals.

Advisers to the share sale are Kotak Mahindra Capital Co. Ltd, Citigroup Global Markets India Pvt. Ltd, Jefferies India Pvt. Ltd and SBI Capital Markets Ltd. The company plans to use the proceeds from the IPO for pre-payment of term loans and general corporate purposes, according to the share sale documents.

Laurus Labs makes active pharmaceutical ingredients for high-growth therapeutic areas such as antiretrovirals and Hepatitis C.

The company posted revenue of Rs1,791.4 crore in 2015-16 as against Rs1,360.7 crore in the year-ago period.

Its net profit rose to Rs132.7 crore in FY16 from Rs68.4 crore in the previous fiscal, while operating margin was 21.2% in FY16 compared with 17.2% in FY15.

The drug maker has three manufacturing units in Visakhapatnam, of which two are approved by the US Food and Drug Administration and the third is currently undergoing the US regulator’s inspection.