About the company:
Nureca Limited is coming out with an IPO consisting of a Fresh Issue of Rs.100 Cr. The IPO is set to open on 15th of February and will close on 17th of February, 2021 and the price band is fixed at Rs.396 – Rs.400 per share for a lot size of 35 shares and in multiples thereof.
Nureca Limited is a fairly young company which was incorporated in Nov 2016. It is a B2C company engaged in the business of home healthcare and wellness products which helps people in monitoring chronic ailments and other diseases to improve their lifestyle. Nureca has a diversified product portfolio consisting of five categories namely Chronic Device Products, Orthopedic Products, Mother and Child Products, Nutritional Supplements, and Lifestyle Products. Nureca sells its products through the online channel which contributes 95 percent to its revenues. Its offline channel partners are popular brands such as Dr.Trust, Dr.Physio, and Trumom. Now, Nureca majorly outsources the manufacturing of its products to certain foreign as well as Indian vendors which allows them to increase their production capacity and expand their geographical reach as required without incurring the additional capital expenditure. But, it faces extremely high competition as it majorly operates in a highly unorganized market. Even though the Home health market is expected to grow at a CAGR of 11 percent till 2025, Nureca doesn’t offer any differentiation from its immediate competitors like Omron, Phillips, Johnson and Johnson, Roche, Bayer, etc. Moreover, it carries high debt on its books which currently meets the high working capital requirements. Because of Covid, it did witness some pent-up demand but as the vaccine has comparatively tamed down the pandemic scare, demand for its products could also start to normalize soon. Which is why it would be safer for an investor to observe the sentiment on this IPO till the last day of the issue period before jumping in since there is another IPO RailTel whose issue period is opening on the 16th of Feb. Given the smaller size of this IPO, the IPO could pick up traction by the listing day however it could be a risky bet. Hence risk-averse investors can take an informed call depending on their liquidity conditions.
Covid-19 Impact on Nureca
When most companies experienced shutdowns during March/April, Nureca’s products such as oximeter, glucometer, nebulizer, and BP monitor were categorized under essential goods and their operations were running at full capacity even during the pandemic. COVID-19 resulted in an unprecedented rise in demand for the company’s products as people were watchful and concerned about their health. However, going forward, this demand could normalize as things start going back to normal.
Financials
Nureca’s revenue from operations grew at a CAGR of 123 percent from 2018 to 2020 at Rs. 99 Cr as of March’20, which then shot up to its highest-ever sales of Rs 122Cr in H1FY21 due to pent up demand for health and wellness products this year. Its net profits grew at a CAGR of 43 percent from FY18-20 and similarly, there was a big jump in profits in H1FY21 which more than doubled its last 3 years’ profits. The company currently has a high debt to equity ratio of 15.5 with net debt of Rs.17 Cr as of H1FY21. Although it has recorded an average ROE of 70 percent, its operating cash flows as of FY20 are negative.
Key Risks
•Over-dependence on vendors for manufacturing purposes
•Highly leveraged (Debt to Equity of 15.5)
•Operates in a highly fragmented and unorganized market
Overall, this IPO is advisable only for investors with higher liquidity since another IPO RailTel is hitting the street on 16th Feb during the same period. An investor should judge the sentiment building in this small sized IPO before subscribing. It would be ideal to wait till the last day of the issue period to judge the response to this IPO before jumping in.
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