Innova Captab Limited IPO

In this article, we will discuss:

• Business Overview
• Objects of the Issue
• Risks
• Strengths
• Financial Snapshot (Rs. In Crores)
• Conclusion

Business Overview:

It is an integrated pharmaceutical company in India with a presence across the pharmaceutical value chain including research and development, manufacturing, drug distribution, and exports.

But operates in these 3 broads mainly:

• Contract Development and Manufacturing Organization (CDMO)
• Manufacturing of Domestic branded generics
• International branded generics business.

The company’s product portfolio includes tablets, capsules, dry powder injections, ointments, and liquid medicines.

Serving more than 130 CDMO customers, manufacturing more than 600 branded generics products, and exporting to 16+ countries as of 30 ^th June 2023.

Pre-IPO Placement of Rs. 80 crs has resulted in a reduced Fresh Issue size to Rs. 320 Crs.

Objects of the Issue:

• Repayment of certain outstanding loans (Rs. 144 crs);
• Repayment of certain outstanding loans availed by the Subsidiary – Univentis Medicare Ltd (Rs. 23.6 crs);
• Funding working capital requirements (Rs. 72 crs);
• General corporate purposes (Bal) .

Risks :

• It operates in a highly competitive market for providing outsourced pharmaceutical CDMO services and products, particularly for formulations and branded generic products.
• Dependence on a limited number of CDMO customers. Any reduction in the number of CDMO customers and adverse developments or inability to onboard new CDMO customers could harm the business operations and financial condition.Top 10 customers contribute to 68.4% of revenue.
• High capex from last 3 fiscal years. The inability to obtain additional financing on commercially acceptable terms would impact future profitability.
• Our dependence on China, China SEZ, and Hong Kong for raw material supplies exposes the entity to geo-political turmoil greatly.
• Inability to collect trade receivables from customers could affect the profits and cash flows. As of 30 ^th June 2023, Trade receivables stood at 130% of the revenues.

Strengths:

• One of the fastest-growing CDMO players in the Indian pharmaceutical formulations market.CDMO business contributed to 73% of the total revenues—customers such as Cipla, Glenmark, Emcure etc.
• Highly efficient operations, including world-class manufacturing facilities and supply chain.
• Rapidly growing domestic and international export of branded generics businesses.
• Strong R&D focus to build an increasingly complex product portfolio to attract and retain customers.

Financial Snapshot (Rs. In Crores):

Revenues for the period Q1FY24 stood at Rs. 233 crs, EBITDA – Rs. 32 crs, EBITDA Margin – 13.9%, PAT with Rs. 17.5 crs and PAT Margin 7.54%.

Conclusion:

The Global Pharmaceutical market is expected to grow steadily at 5% CAGR and the global formulation CDMO market to grow at 7% CAGR from 2022-2027.

Emerging economies in Latin America and Asia-Pacific regions such as Brazil, China, and India, are also witnessing rapid growth in the pharmaceutical market due to which there is a gradual shift of manufacturing and research activities from developed markets to these fast-growing markets.

Its listed peers at similar levels of revenue from operations namely Torrent Pharma, Laurus Labs, and Ajanta Pharma are trading at 53.9x, 59.8x, and 36x, and Innova is expected to trade at ~31.6x and Industry PE of 30.1. Further, RoNW stood at 20.11%, 19.74%,17.36%, and Innova was at 24.58% as of FY2023.

Considering the company's financial performance, valuations, and future outlook, the valuations seem to be fairly priced. However, it would be wise to wait for 2-3 quarters before drawing any conclusions. 

So, we suggest our investors “Subscribe for listing gains” in this IPO.