Brooks Laboratories has entered the capital market on 16^th August 2011 to raise Rs. 63 crore via a public issue of 63-70 lakh equity shares of Rs.10 each, in the price band of Rs. 90 to Rs. 100 per share. The issue, comprising a dilution of about 40% of the company's post issue paid-up capital, closes on 18^th August.

A contract research and manufacturing (CMO) pharma company, Brooks Laboratories has a manufacturing facility in Baddi, Himachal Pradesh with annual installed capacity of 3 crore injections, 12 crore tablets, and 1.2 crore dry syrups. Its current product portfolio comprises of 26 dry powder injections, 31 liquid injections, 5 tablets and 2 dry syrups, all marketed domestically. Although company claims to cater to over 150 customers, sales are highly concentrated as top 10 customers accounted for 71% of FY11 revenues.

The company now plans to set up a new manufacturing unit at Panoli, Gujarat for manufacturing formulations with an investment of Rs 52 crore. Also, Rs 5 crore from IPO proceeds will be utilized towards long-term working capital needs. While the investment amount is very substantial, considering company's FY11 sales were Rs. 53 crore, there is also concern on the timely execution of the greenfield project, as land acquisition in Gujarat has already been delayed by 18 months, giving no guarantee for completion on the revised schedule as well.

During FY11, company achieved sales of Rs. 53 crore and earned PBT of Rs. 7.3 crore. While the PAT was Rs.7 crore, EPS for the year stood at Rs. 6.9, on equity of Rs. 9.89 crore. The company's profit margins are relatively high since it enjoys tax benefits on income tax and excise duty due to manufacturing presence in Baddi. The income tax benefit, however, will be lower from FY 12 onwards, impacting the profitability.

With networth of Rs. 19 crore and debt of Rs. 9 crore, as of 31^st March 2011, company is expecting a market cap of Rs. 162 crore on listing (at Rs. 100 per share), which is 3 times of sales. The PE multiple at the lower and upper end of price band of Rs. 90 and 100 works out to 13 times and 14 times respectively, which is very aggressive given the small scale of operations and annual revenues of barely Rs. 50 crore for the company. Pharma peers of similar size currently trade in PE multiples of an average of 5 times, on the stock exchanges.

The issue is very expensive and also not exciting at all, hence can be given a miss.