Indegene

IPO Size: Rs. 1,842 cr 

• Rs. 1,082 cr Offer For Sale (OFS) by financial investors Carlyle (20% stake to drop to 15%, on 31% IRR in 3 years), Brighton Fund (12% to reduce to 10%), Nadathur Family Office (28% to shrink to 24%) and 3 of 5 founders – not promoters (30% combined stake to fall to 19%)
• Rs. 760 cr fresh issue to (i) repay entire Rs. 391 cr debt – although company has Rs. 950 cr cash (ii) Rs. 103 cr capex (iii) balance 35% for general corporate purpose and unidentified inorganic growth

Price band: Rs. 430-452 per share

Mcap: Rs. 10,814 cr, implying 17% dilution

IPO Date: Mon 6^th May to Wed 8^th May 2024, Listing Mon 13^th May 2024

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

Healthcare Consulting Company

Indegene provides digital services to life sciences industry such as drug development, clinical trials, regulatory submissions, complaints management, sales and marketing etc., through 5,200 employees. 2/3^rd of Rs. 2,500 cr revenue comes top 20 global biopharma companies, and geographically, 66+% revenue is from US. But it is immune from US FDA regulations, as does not own manufacturing facilities.  

Growth through Acquisitions

Over the past 19 years, Indegene has grown inorganically, through 13 acquisitions, accessing new skills, clients and geographies. These acquisitions have scaled up well, with recent Oct 2022 purchase of Cult Health, an omnichannel activator, seeing revenue jump from Rs. 89 cr in FY23 to Rs. 170 cr in 9MFY24. With Indegene’s active clients up from 44 in FY21 to 65 in 9MFY24, it expects inorganic growth to continue, with fresh issue proceeds partly funding some future acquisitions.

Hyper Growth

Since FY20, revenue has grown at ~40% CAGR, with Rs 640 cr revenue clocked in whole of FY20, now being the quarterly run-rate. PAT of Rs. 50 cr has grown to Rs. 242 cr in 9MFY24. Indegene’s EBITDA margin rose to 22% for 9MFY24, from 20% in FY23, while net margin is ~13% with a healthy RoE of 25%, despite 45% of Rs. 1,325 cr networth being cash (Rs. 952 cr).

Strong Industry Outlook

Of Rs. 1,917 cr revenue in 9MFY24, 60% came from enterprise commerce (sales and marketing) solutions, a sub-segment expected to grow at 14.5% CAGR to Rs. 5 lakh cr by 2026 globally. Besides a large industry opportunity of total Rs. 12 lakh cr, growing outsourcing opportunity, talent gaps, trust-issue and margin pressure (for off-patent and new drug discovery), keep outlook healthy. 

Attractively Priced

Annualising 9MFY24 EPS of Rs. 11 translates into a PE multiple of 31x, on FY24E basis, which is very attractive. Comparing Indegene with pharma companies may not be appropriate, but it may be broadly benchmarked with specialized IT companies like Persistent (45x), Tata Elxsi (52x) and Tata Tech (60x).

Why Professionally Managed?

Company is classified as professionally managed, with no identifiable promoter, despite 5 founders holding 30% stake (pre-IPO) and 3 of them also being on the board.

Additionally, post-listing, 49% stake will be owned by 3 financial investors. Of this, the largest, Nadathur, will hold 24%, being an investor since Dec 2004. Selling from these financial investors is only a matter of time, and whenever that happens, there will be severe downward pressure on share price.

Questions remain on long-term control and we perceive this negatively for the long-term, as was the case with some new-age listed startups like Zomato, PB Fintech, Paytm, CarTrade.

Complete Analysis available exclusively to Members
Click here to Register or Login Now

Complete Analysis available exclusively to Members
Click here to Register or Login Now