Concorde IPO: For medium to longer-term investment
The issue opens today (Aug 4) and closes on Tuesday (Aug 8); Sets price band of Rs705-741
image for illustrative purpose
Concorde Biotech Limited is tapping the capital markets with its offer for sale of 2,09,25,652 shares in a price band of Rs705-741. The issue would raise between Rs1,475 crore–1,550 crore at the top end of the price band. The issue would open on Friday, August 4 and close on Tuesday, August 8. The entire offer for sale is from Helix Investment Holdings Pvt Limited, who post this issue would exit from the company. The promoter and promoter group would not be selling a single share through this offer.
The company is a bio-pharma company and a leading global developer and manufacturer of select fermentation-based APIs across immunosuppressants and oncology interms of market share, based on volume in 2022. The company supplies to over 70 countries in regulated markets such as the USA, Europe and Japan. The company had a market share of over 20 per cent by volume in 2022 across identified fermentation-based API products, including mupirocin, sirolimus, tacrolimus, mycophenolate sodium and cyclosporine. The company has a total installed fermentation capacity of 1,250m3. This includes the new 800m3 plant which was commissioned in 2021 and received USFDA approval in June 2023.
The company is a manufacturer of bio-pharmaceutical APIs through fermentation and semi-synthetic processes across the therapeutic areas of immunosuppressants, oncology and anti-infectives. It is also into formulations which are used in thetherapeutic areas of immunosuppressants, nephrology drugs and anti-infective drugs for critical care.
It is in the process of commissioning its new injectables plant as well which should be commissioned by the end of 3rd quarter FY24. All the units of Concorde Biotech are in the state of Gujarat. The company has spent about Rs400 crore for the new API facility. A typical asset turnover ratio when the utilisation is around 75 per cent reaches roughly 3X. This means the new facility could have a turnover of about Rs1,200-1,300 crore in 3 to 4 years’ time from now when the asset is better utilised. Adding the capacity of the existing facility, one could assume that with the present facilities, Concorde Biotech has the capability in terms of infrastructure to generate around Rs2,400 crore of revenues from these facilities in the next 4-5 years.
In terms of operational performance, the operating revenues of the company were at Rs853 crore, up 19.6 per cent from Rs713 crore in the previous year. The EBITDA was at Rs345 crore, up 28.2 per cent from Rs269 crore. EBITDA margin is at 40.5 per cent. The profit after tax was at Rs240 crore, up 37.1 per cent from Rs175 crore. The PAT margin is 28.1 per cent. EPS for the year is Rs22.95 up 37.26 per cent from Rs16.72. The PE band on the above EPS is 30.72-32.29 times.
In terms of peer comparison there is Biocon which is the nearest competitor in terms of API fermentation technology in India. When compared as a company, the peer set as mentioned in the RHP is Divi Laboratories, Suven Pharma, Laurus and Shilpa Medicare. The company fares well when compared to them. Concorde Biotech Limited is an investment opportunity which would provide some listing pop as is witnessed in almost all recent IPOs. However, it’s a business or company for the medium to longer term. With EBITDA margins which are at 40 per cent, infrastructure for the next 4-5 years already built and regulatory approvals in place, the company has to just concentrate on ramping up the capacity utilisation. Once this ramp up happens the performance would continue to move up sharply.
Investment in Concorde Biotech is recommended for the medium to long term with an investment horizon of 2-3 years. For flippers there would be some pop available as well but the juice is in the medium term.
(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)