Asston Pharma BSE SME IPO review (May apply)

•    The company is engaged in manufacturing and exporting pharmaceutical formulations and nutraceutical products.
•    It caters to various domestic and global customers with tailor made products.
•    It also engaged third party contract manufacturers for certain critical products.
•    The company posted growth in its top and bottom lines for the reported periods. However, sudden boost in bottom lines from FY25 onwards raise eyebrows and concern over its sustainability.
•    It is operating in a highly competitive and fragmented segment.
•    Well-informed/cash surplus investors may park moderate fund for long term.

ABOUT COMPANY:
Asston Pharmaceuticals Ltd. (APL) is engaged in the manufacturing and export of both pharmaceutical formulations and nutraceutical products in domestic and various African markets. The Company operates under brand “Asston”. Presently, it is involved in the business of manufacturing and marketing of Tablets, Capsules, Oral Liquid, External Preparations (Ointment, Cream, Gel and Lotion) 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 on contract manufacturing basis. Its business is primarily conducted on a principle-to-principle basis with various marketers. As on the date, it caters to multiple corporate clients on loan licence and/or contract manufacturing basis. Currently, the Company has its production facility at Ambernath, Maharashtra, for producing generic medicines in the tablet form and nutraceutical medicines in the tablet form, syrup and sachet form. It has a dedicated and separate floor for pharmaceutical products and nutraceutical products respectively as the norms and standards are different for both of them and are governed by FDA and FSSAI respectively. 

Since the FDA norms for pharmaceutical products are much more stringent, to comply with FDA standards separate guidelines are there to be followed. Facility has total production capacity of up to around 8-9 crore tablets per month. The Company produces an average of 5-6 crore tablets per month, with production capacity varying based on the weight of the medicines. Higher-weight medicines result in lower production quantities and vice versa. The syrup production capacity for nutraceuticals is approximately 37.5 kilolitres per month, while sachet production capacity ranges from 30 to 40 lakh sachets per month, depending on the powder weight per sachet. The facility is certified by relevant authorities and undergoes periodic audits by state and central FDA authorities. It includes a QA/QC unit and a warehouse for storing raw materials and finished goods in designated chambers under controlled conditions. 

The Company engages contract manufacturers to produce generic medicines and antibiotics in various forms, including tablets, sachets, syrups, and capsules. All contract manufacturers are WHO-GMP certified to ensure their facilities and processes comply with applicable standards and industry norms. It also has own set up of regulatory department for formulation development and have tie-ups with 2 NABL accredited laboratories, ensuring adherence to industry standards from production to export. From manufacturing to exports and distributions, it takes responsibility and oversees each phase of the supply chain. Currently, it holds over 150 registered trademarks for pharmaceutical formulations. Its primary products include capsules, syrups, sachets, and injectables (LVP and SVP), which are sold globally, with pharmacies as its main customers. It offers a broad range of products, including generic medicines, pediatrics drugs, New to the Basket (NTTB) treatments, and eye drops. The company ensures the highest quality standards at every stage of manufacturing through stringent checks to meet both domestic and international regulatory requirements. Its products are distributed in various global markets, such as South Africa and the West African region. As of May 31, 2025, it had 46 employees on its payroll, and additional 6 contract workers in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2241000 equity shares of Rs. 10 each to mobilize Rs. 27.56 cr. The issue opens for subscription on July 09, 2025, and will close on July 11, 2025. The company has announced a price band of Rs. 115 – Rs. 123 per share. The minimum number of shares to be applied is for 2000 shares and in multiples of 1000 shares, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.33% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity share issue, the company will utilize Rs. 6.00 cr. for capex on new machinery, Rs. 13.00 cr. for working capital, Rs. 1.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. 

The IPO is solely lead managed by Sobhagya Capital Options Pvt. Ltd., and Maashitla Securities Pvt. Ltd., is the registrar to the issue. JSK Securities and Services Pvt. Ltd. is the market maker as well as a syndicate member.

The company has issued entire initial equity shares at par value, and has issued further equity shares at a fixed price of Rs. 363 in January 2024. It has also issued bonus shares in the ratio of 7 for 1 in October 2024. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 3.62 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 6.27 cr. will stand enhanced to Rs. 8.51 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 104.70 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 7.19 cr. / Rs. 1.06 cr. (FY23), Rs. 15.84 cr. / Rs. 1.36 cr. (FY24), Rs. 25.61 cr. / Rs. 4.33 cr. (FY25). For 2M of FY26 ended on May 31, 2025, it earned a net profit of Rs. 1.32 cr. on a total income of Rs. 6.21 cr. The sudden boost in bottom lines from FY25 onwards (i.e., in pre-IPO years) raise eyebrows and concern over its sustainability as it operates in a highly competitive and fragmented segment.  

For the last three fiscals, the company has reported on a simple average EPS of Rs. 4.55 and an average RoNW of 36.14%. The issue is priced at a P/BV of 6.41 based on its NAV of Rs. 19.20 as of May 31, 2025, but its post-IPO NAV data is missing from the offer document.

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 13.20. Based on FY24 earnings, the P/E stands at 24.21. The issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 16.16% (FY23), 8.73% (FY24), 17.27% (FY25), 21.37% (2M-FY26), and RoCE margins of 56.08%, 34.29%, 51.25%, 79.46%, respectively for the referred periods.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Shelter Pharma, Bafna Pharma, and Trident Lifeline, as their listed peers. They are trading at a P/E of 6.57, 33.4, and 29.6 (as of July 04, 2025). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER’S TRACK RECORD:
This is the 1st mandate from Sobhagya Capital in the ongoing fiscal after a gap of around 10 years since September 2015. Thus, it has no recent track record.