Alkem Laboratories Limited IPO Review (Apply)

Yet another main board IPO in healthcare sector is opening on the same date. Alkem Laboratories Ltd – an Indian Pharma company from north is planning to go with secondary offer for approx Rs. 1300 crore. Issue details are as under:

Alkem Laboratories Ltd (ALL) is a leading Indian pharmaceutical company with global operations, engaged in the development, manufacture and sale of pharmaceutical and neutraceutical products. For fiscal year 2015, ALL was the fifth largest pharmaceutical company in India in terms of domestic sales (Source: IMS SSA MAT March 2015). Further, it had the largest number of brands (five) in the top 50 brands of the Indian pharmaceutical industry for fiscal year 2015 in terms of domestic sales (along with another leading pharmaceutical company) (Source: IMS SSA MAT March 2015) and the second largest number of brands (five) in the top 50 brands of the Indian pharmaceutical industry for the six months ended September 30, 2015 in terms of domestic sales (along with another leading pharmaceutical company) (Source: IMS SSA MAT September 2015)

ALL produces branded generics, generic drugs, active pharmaceutical ingredients ('APIs') and Nutraceuticals, which are market in India and 55 countries internationally, primarily the United States. For fiscal year 2015, ALL's domestic and international operations accounted for 74.7% and 25.3%, respectively, of its net revenues from operations. For six months ended September 30, 2015, its domestic and international operations accounted for 74.9% and 25.1%, respectively, of its net revenues from operations. Our consolidated net revenues from operations grew at a compounded annual growth rates ('CAGR') of 22.3% in the period from fiscal year 2011 to fiscal year 2015.

To unlock the value for its stake holders, the company is coming out with a maiden IPO in the form of offer for sale. It is offering 12853442 equity share of Rs. 2 each via book building route in a price band of Rs. 1020-1050. Minimum application is to be made for 14 shares and in multiples thereon, thereafter. Issue opens for subscription on 08.12.15 and will close on 10.12.15. Anchor bids will open on 07.12.15. It has issued bonus shares in the ratio of 13 for 1 in March 1995, 1 for 1 in October 2006 and 1 for 1 in March 2015.  Being secondary offer, equity post issue will remain at the same level of Rs. 23.91 crore as no fresh funds coming to the company. The company is offering a special discount of Rs. 100 per share to eligible employees for this IPO subscription. This offer constitutes around 10.6% equity dilution of the post offer paid up equity. Average cost of acquisition by the promoters ranges between Rs. 0.03 to Rs. 3.15 per share except for around 1.51 lakh shares of HUF holder at Rs. 30.10. Post allotment, shares will be listed on BSE/NSE. BRLMs to this offer are Nomura Financial Advisory and Securities India Pvt Ltd, Axis Capital Ltd, J. P. Morgan India Pvt Ltd and Edelweiss Financial Services Ltd. Link Intime India Pvt Ltd is the registrar to the issue.

On performance front, it has posted an average EPS of Rs. 36.80 on a consolidated basis for last three fiscals. For the first half of the current fiscal it has posted net profit of Rs. 438.55 crore on a turnover of Rs. 2659 crore against net profit of Rs. 462.56 crore on a turnover of Rs. 3969.74 crore for the entire previous fiscal. Thus it has marked near 95% of the previous full year's net in first six months itself. As on 30.09.15 its Rs. 23.91 crore equity capital has a support of free reserves of Rs. 3375 crore plus. If we annualize the current working and attribute it on the equity, then asking price is at a P/E of 28% and at a P/BV of 4.3 based on its NAV of Rs. 241.80 (as on 30.09.15). It has filed 69 ANDs in US out of which 21 are already approved. Having cash surplus status, the company will continue its acquisition programme at opportune time to keep expanding and growing on domestic as well as global front.