IPO Size: Rs. 1,551 cr

• Entirely Offer For Sale (OFS) by PE investor Helix, completely exiting its 20% holding, making 18% IRR on 7 year old investment.

Price band: Rs. 705-741 per share

M cap: Rs. 7,752 cr, implying 20% dilution

IPO Date: Fri 4^th Aug to Tue 8^th Aug 2023, Listing: Fri 18^th Aug 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Bio-Pharma Company

Concord Pharma manufacturers select fermentation-based semi-synthetic APIs, across immune-suppressants, anti-infectives and oncology therapeutic areas, commanding 20%+ market share by volume, across 6 identified products (including mupirocin, sirolimus, tacrolimus, mycophenolate sodium and cyclosporine). Company’s products are used by organ transplant patients, for life. It has a portfolio of 57 brands and manufactures 77 products, including 23 APIs and 53 formulations, at 3 manufacturing facilities in Gujarat, with annual installed fermentation capacity of 1,250 sq mtrs. It received Rs. 25 cr incentives under GoI’s PLI scheme in FY23, which it is eligible for till FY28.

Sizeable Capex Undertaken

Company has increased its API and formulation capacity in the past 2 years, as reflected by Rs. 173 cr capital work-in-progress (CWIP) in the balance sheet, as of 31.3.23. This is a sizeable capex, since net fixed assets stood at Rs. 593 cr, as of 31.3.23. Industry operates on an asset turnover ratio of about 2.5x, implying good growth visibility, as Rs. 430 cr incremental revenue can get added over the next couple of years.

High Margin Business

Concord’s revenue has grown at 18% CAGR for past 3 years, to Rs. 853 cr in FY23. 50% of this is domestic revenue, and balance exports, to both regulated markets (US alone is 17% of revenue) and emerging markets. Due to challenging nature of fermentation process, Concord’s EBITDA margin is as high as 45%, with net margin of 28%. This also explains the reason behind very few fermentation-based API players existing globally.

Concord’s FY23 PAT was at Rs. 240 cr, translating into an EPS of Rs. 23. While the business is working capital intensive business (3.5 months debtors, ~3 months inventory), company is cash rich, with surplus cash of Rs. 150 cr or Rs. 14 per share.  

Attractive Pricing

IPO is being offered at a historic PE multiple of 32x, making it attractive for the niche operations, high margin business, 20% RoE and strong growth visibility on investments already undertaken. While promoter stake is just 44% and another 24% held by children of late Shri Rakesh Jhunjhunwala (since 2008), none of them are participating in the OFS, boosting confidence on company’s future prospects.