Accretion Pharma NSE SME IPO review (May apply)

•    The company is engaged in the marketing and manufacturing of pharma products.
•    It is largely operating on a B2B model.
•    Spurt in its bottom lines from FY24 raise eyebrows and concern over its sustainability. 
•    It does contract manufacturing business that has large volume but less margins.
•    Based on its financial data, the issue appears aggressively priced.
•    Well-informed investors may park funds for long term.

ABOUT COMPANY:
Accretion Pharmaceuticals Ltd. (APL) is presently engaged in the business of manufacturing and marketing of Tablets, Capsules, Oral Liquid, External Preparations (Ointment, Cream, Gel, Lotion, Medicated Shampoo, Mouthwash, Dusting Powder), And Oral Powder (Sachet, Dry Syrup) etc.

Apart from manufacturing products for direct sales, the Company also manufactures various pharmaceutical products for different marketers on loan license or contract manufacturing basis. Its business is majorly carried out on principle-to-principle basis with different marketers. As on the date of this Red Herring Prospectus, it caters to multiple corporate clients on loan licence and/or contract manufacturing basis. As of the date of filing this offer document, it had 105 employees on its payroll.

According to the management, the company is in the process of plant audit for its registration with over 20 countries for exports and hopes to get it done in coming months, which will take its tally to over 50 countries. Its sell to domestic market includes deemed export orders which has higher margins. With the onset of new machinery and the rise in export countries, the management is confident for maintaining the trends posted since FY24. All the four promoter/directors are B. Pharma and M. Pharma and are well verse with the business and introduction of more and more new APIs and based on market studies.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2946000 equity shares of Rs. 10 each to mobilize Rs. 29.76 cr. at the upper cap. It has announced a price band of Rs. 96 – Rs. 101 per share. The issue opens for subscription on May 14, 2025, and will close on May 16, 2025. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 2.70 cr. for capex on purchase of new equipment/machineries etc., Rs. 4.66 cr. capex on upgradation of existing manufacturing facility, Rs. 0.99 cr. for repayment/prepayment of certain borrowings, Rs. 14.68 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Jawa Capital Services Pvt. Ltd., and KFin Technologies Ltd., is the registrar to the issue. Gretex Share Broking Ltd., is the Market Maker for the company, and also a syndicate member. Socradamus Capital Pvt. Ltd. has underwritten IPO to the tune of 84.97% and to the tune of 15.03% by Jawa Capital.

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 100 per share in July 2024. It has also issued bonus shares in the ratio of 9 for 10 in July 2024. The average cost of acquisition of shares by the promoters is Rs. 8.70 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 8.17 cr. will stand enhanced to Rs. 11.12 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 112.27 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 22.58 cr. / Rs. 0.08 cr. (FY22), Rs. 29.53 cr. / Rs. 0.10 cr. (FY23), and Rs. 33.94 cr. / Rs. 3.88 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 5.24 cr. on a total income of Rs. 35.75 cr. Boosted top and bottom lines in pre-IPO periods from FY24 onwards not only raise eyebrows, but also concern over its sustainability going forward, as it is operating in a highly competitive and fragmented segment.

For the last three fiscals, the company has reported an average EPS of Rs. 4.97 and an average RoNW of 37.56%. The issue is priced at a P/BV of 5.91 based on its NAV of Rs. 17.09 as of December 31, 2024, but its post-IPO NAV data is missing from offer documents.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 16.08. Based on FY24 earnings, the P/E stands at 28.94. The issue relatively appears aggressively priced. FY25 earnings raises concern over its sustainability in the coming years.  However, the management is confident of maintaining the trends reported for the recent financial performances.

For the reported periods, the company has posted PAT margins of 0.35% (FY22), 0.35% (FY23), 11.51% (FY24), 14.68% (9M-FY25), and RoCE margins of 10.49%, 9.87%, 36.73%, 30.14%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends since incorporation. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Sakar Healthcare, Lincoln Pharma, and Sotac Pharma as their listed peers. They are trading at a P/E of 42.8, 12.6, and 30.4 (as of May 09, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 6th mandate from Jawa Capital in the last two fiscals, including the ongoing one.  From the last 4 listings so far, 2 listed at discount, 1 at par and 1 listed with a premium of 50% on the listing date. Thus, it has a poor track record.