Blue Jet Healthcare IPO review (Apply)

•    BJHL is having niche products with long term relationship with prime customers.
•    The issue is purely a secondary offer and it is looking for listing gains. 
•    Though its top line posted growth, its bottom line marked inconsistency amidst fluctuations in the raw material prices.
•    Based on FY24 annualized earnings, prima-facie the issue appears fully priced. 
•    Post listing, it may fetch first mover fancy among investors across the board.
•    Investors may park funds in this long race horse for medium to long term rewards. 

ABOUT COMPANY:
Blue Jet Healthcare Ltd. (BJHL) is a speciality pharmaceutical and healthcare ingredients and intermediates company, offering niche products targeted toward innovator pharmaceutical companies and multi-national generic pharmaceutical companies. Since its incorporation in 1968, it had established a contract development and manufacturing organization ("CDMO") business model with specialized chemistry capabilities in contrast media intermediates and high-intensity sweeteners, on the back of strategic and early investments in research and development ("R&D") and manufacturing infrastructure. 

The company has competencies and manufacturing capabilities in contrast media intermediates and high-intensity sweeteners, including saccharin and its salts. It manufactures a range of products in-house, including the key starting intermediate and advanced intermediates, which allows it to control production process for consistent quality and cost effectiveness. In the past three Financial Years and the three months ended June 30, 2023, the company invoiced a total of more than 400 customers in 39 countries. It has built a long-term customer base with innovator pharmaceutical companies and multi-national generic pharmaceutical companies, supported by committed multi-year contracts of up to five years. 

BJHL's operations are primarily organized in three product categories: (i) contrast media intermediates, (ii) high-intensity sweeteners, and (iii) pharma intermediates and active pharmaceutical ingredients ("APIs"). Saccharin is primarily used in table-top sweeteners, oral care products such as toothpastes and mouthwashes, beverages (primarily soft-drinks), confectionary products (such as mints, candies, and bakery products), pharmaceutical products, food supplements and animal feeds. (Source: IQVIA Report). The oral care market is reasonably concentrated, with the top five players (Colgate, Proctor & Gamble, Johnson & Johnson, Unilever and Glaxo-Smith Kline) commanding nearly 60% of the market in aggregate. (Source: IQVIA Report). 

As a result of the consistent quality of high-intensity sweeteners, BJHL has become part of the select supplier base of several multi-national companies in the oral care and non-alcoholic beverage markets, such as Colgate Palmolive (India) Limited, Unilever, Prinova US LLC, and MMAG Co. Ltd, and many other international and domestic customers across all end product categories. The company currently operate three manufacturing facilities, which are located in Shahad (Unit I), Ambernath (Unit II) and Mahad (Unit III) in the state of Maharashtra, India, with an annual installed capacity of 200.60 KL, 607.30 KL and 213.00 KL, respectively, as of June 30, 2023. As of the said date, it had 407 employees on its payroll. 

According to the management, their top line has 85% global revenue and 15% domestic, post expansion, this ratio will be largely maintained with a major thrust for exports. Its plans for de-bottlenecking of capacity utilizations is an ongoing process. Raw material prices fluctuations caused ups and down for bottom lines, but the management is confident of maintaining the trends going forward with high margin product mix. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden secondary offer of 24285160 equity shares of Rs. 2 each by way of Offer for Sale(OFS). The company has announced a price band of Rs. 329 - Rs. 346 per share and mulls mobilizing Rs. 840.27 cr. at the upper cap. The issue opens for subscription on October 25, 2023, and will close on October 27, 2023. The minimum application to be made is for 43 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 14.00% of the post-IPO paid-up capital of the company. This being a pure OFS no funds are received by the company.  The object of the OFS is to provide exit to some of its stakeholders and unlock the listing gains.

The company has allocated note more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., ICICI Securities Ltd., and J. P. Morgan India Pvt. Ltd. while Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par, the company issued further equity shares at Rs. 10 (based on FV of Rs. 2 per share) in February 2012. It has also issued bonus shares in the ratio of 5 for 2 in February 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 0.03, and Rs. 1.91 per share. 

As this is a secondary offer, the post-IPO paid-up capital of the company will remain same at Rs. 34.69 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 6001.90 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, BJHL has posted total income/net profit of Rs. 507.81 cr. / Rs. 135.79 cr. (FT21), Rs. 702.88 cr. / Rs. 181.59 cr. (FY22), Rs. 744.94 cr. / Rs. 160.03 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 44.12 cr. on a total income of Rs. 184.60 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 9.44 and an average RoNW of 30.01%. The issue is priced at a P/BV of 8.27 based on its NAV of Rs. 41.83 as of June 30, 2023, as well as on post-IPO basis. 

If we attribute annualized earnings for FY24 on the post-IPO equity capital, then the asking price is at a P/E of 34.02. 

For the reported periods, the company has posted PAT margins of 27.22% (FY21), 26.57% (FY22), 22.20% (FY23), and 24.57% (Q1- FY24), and RoCE of 7.97%, 6.67%, 31.91%, and 49.70% for the corresponding previous periods. This indicates a pressure on its PAT margins for FY21 to FY23, which is attributed to wild fluctuations in its raw material prices. Things have started settling and the company is confident of maintaining the growth as indicated by Q1 of FY24.  

DIVIDEND POLICY:
For FY21 to FY23 it paid a dividend of 0.10% on preference shares but there was no dividend on the equity shares for the reported periods of the offer document. It has approved a formal dividend policy based on its financial performance and future prospects in June 2022. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with this issue have handled 61 IPOs in the last three years out of which 20 IPOs closed below the issue price on the listing day.