Chandra Bhagat Pharma BSE SME IPO review (May apply)

•    CBPL has asset-light business with third party contract manufacturing tie-ups.
•    The company is in the institutional marketing segment and thus has no OTC products.
•    Its top line shows growth, but the bottom line has inconsistency.
•    According to management, new product trials expenses attributed to such performance.
•    At the asking price, IPO is fully priced, discounting all near term prospects.

ABOUT THE COMPANY:
Chandra Bhagat Pharma Ltd. (CBPL), popularly known as CBC Pharma is in the marketing of life-saving medicines like Antibiotics, Antineoplastic, Cardiovascular, Hormones etc. The company markets its products under own brand name. The product portfolio has a major focus in injections - IV (Intravenous) & IM (Intramuscular), dry syrup, tablets and capsules. The company is meeting the requirements of Hospitals, Healthcare Centers, Government departments, NGOs directly or through distributors' channel. It also exports its products in 15 countries. However, its domestic sales contribute 92%-93% of total revenue.

CBPL has established presence in major therapeutic categories for formulations such as Anti-cancer (Oncology), Antibiotics, Anesthesia, Hormones, Orthopedic, Cardiac, Cardiovascular, Anti-fungal, Antiviral, Pediatrics, Cardiology, Nephrology, Neurology etc. It is also engaged in promoting and marketing of Active Pharmaceuticals Ingredients (API's) in India.

CBPL's pharma business operations are supported by various contract manufacturers having facilities which are approved by FDA/WHO and other relevant authorities. It follows Loan Licence Agreement/Contract Manufacturing Agreement with FDA/WHO approved vendors/manufacturers for a period ranging from one to five years. The company follows third party contract manufacturing thus it has an asset-light business model. It is purely in institutional market business and has no OTC (Over the Counter) products.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for working capital needs (Rs. 7.00 cr.), setting up of distribution and warehousing centers (Rs. 1.50 cr.) and general corpus fund needs (Rs.0.95 cr.), CBPL is coming out with a maiden IPO of 2000000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 10.20 cr. The issue opens for subscription on 31.01.20 and will close on 06.02.20. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. This issue is solely lead managed by Beeline Broking Ltd while Link Intime India Pvt. Ltd. is the registrar to the issue. Beeline Broking Ltd. is also the market maker for this issue. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.51% of the post issue paid-up equity capital. The company is spending Rs. 0.75 cr. for this issue process.

Having issued initial equity at par, CBPL issued further equity shares in the price range of Rs. 40 to Rs. 210 between April 2003 and August 2019. It has also issued bonus shares in the ratio of 7 shares for every 1 share held in July 2019. The average cost of acquisition of shares by the promoters is Rs. 7.73 and Rs. 11.35 per share.

Post issue CBPL's current paid-up equity capital of Rs. 5.55 cr. will stand enhanced to Rs. 7.55 cr. The company is mulling market cap of Rs. 38.48 cr. with this issue.

FINANCIAL PERFORMANCE:
For the last three fiscals, CBPL has posted turnover/net profits of Rs. 90.28 cr. / Rs. 0.66 cr. (FY17), Rs. 97.73 cr. / Rs. 1.04 cr. (FY18) and Rs. 106.72 cr. / Rs. 0.63 cr. (FY19). For the first four months ended on 31.07.19 of FY20, it has earned a net profit of Rs. 0.25 cr. on a turnover of Rs. 33.45 cr.

For the last three fiscals, CBPL has posted an average EPS of Rs. 1.94 and an average RoNW of 8.14%. The issue is priced at a P/BV of 2.02 on the basis of its NAV of Rs. 25.22 as on 31.07.19 and at a P/BV of 1.57 based on post issue NAV of Rs. 32.41.

While its top line has shown growth, its gross profit remains static and net profit marked inconsistency. According to management, this has been due to its spending on new product development, approval and clinic trials. It is now ready to launch HepA (Hepatitis A Vaccine) with the help of funds arising from the proposed IPO. It has up the sleeve launch of Inactivated Polio Vaccine (IPV), Pneumococcal Vaccine and Varicella Vaccine in the coming few years. Thus its future prospects appear bright.

If we annualize the latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 51+. Thus the issue is aggressively priced discounting near term positive factors.

COMPARISION WITH LISTED PEERS:
As per offer documents, CBPL has shown Earum Pharma and Vaishali Pharma as its listed peers. They are currently trading at a P/Es of around 16.36 and 49 (as on 29.01.20). However, they are not strictly comparable.

PERFORMANCE OF LEAD MANAGER:
On lead manager front, this is the 4th mandate from its stable in the last two fiscals (including the ongoing fiscal). For the last 3 listings, all opened at a premium ranging from 1.67% to 10.00% on the day of listing.