Infinium Pharma NSE SME IPO review (May apply)

•    IPL is an integrated Pharma and Healthcare segment company with niche products.
•    It has posted consistent growth in its top and bottom lines for the reported periods.
•    However, its FY23 super performance so far raises concern over enjoying such margins going forward.
•    Based on its recent earnings, the issue appears fully priced.
• Well-informed investors may consider investment for the medium to long term. 

ABOUT COMPANY:
Infinium Pharmachem Ltd. (IPL) was incorporated with the objective of manufacturing and supplying various pharma-related chemicals, bulk drugs, pharma intermediates etc. Accordingly, the Company is dealing specifically and mainly in manufacturing and supplying of Iodine Derivatives, Pharma Intermediates and Active Pharmaceutical Ingredients (APIs). The Company was formed with a vision to be a globally integrated and admired Pharmaceutical & Healthcare Company.

IPL undertakes Contract Research and Manufacturing Services (CRAMS) to provide customized and fully confidential solutions to its clients. Today, the Company's manufacturing capabilities and technical expertise have efficiently catered to numerous industries such as Pharmaceutical & Biotech, Specialty & Performance Chemicals, Agrochemicals, Human Health, Animal Health, Cosmetics, Sanitation, Electrical, Electronics and much more. 

The Company currently provides the widest range of Iodine derivatives in the market, with more than 250+ intermediates and 15+ APIs. All its products are developed to meet challenging demands, superior quality, performance and various other commercial requirements across industries. It has developed and maintained long-term healthy relationships with all its clients, including Pharmaceutical, Biotech and Fine Chemical companies and its products reach out to over 250+ clients globally. It has formed a Subsidiary Company in the name of Infinium Green Energy Private Limited on June 06th, 2022. The Company also formed a foreign Subsidiary as a Joint Venture (JV) with Shanghai Witofly Chemical Co. Ltd., in the name of Shanghai Tajilin Industrial Co. Ltd., in the People's Republic of China in the year 2019. As of December 31, 2022, it had 89 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1875000 equity shares of Rs. 10 each at a fixed price of Rs. 135 per share to mobilize Rs.25.26 cr. The issue opens for subscription on March 31, 2023, and will close on April 05, 2023. The minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.95% of the post-issue paid-up capital of the company. IPL is spending Rs. 0.63 cr. for this IPO process and from the net proceeds, it will utilize Rs. 1.13 cr. for marketing and branding, Rs. 3.92 cr. for repayment of certain borrowings, and Rs. 5.05 cr. for expansion of existing unit, Rs. 10.10 cr. for working capital, and Rs. 4.43 cr. for general corporate purposes.

Swastika Investmart Ltd. is the sole lead manager as well as the market maker and Bigshare Services Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 45 and Rs. 110 per share between March 2010 and March 2017. It has also issued bonus shares in the ratio of 1 for 1 in March 2014 and 4 for 1 in June 2022. The average cost of acquisition of shares by the promoters is Rs. 2.71, Rs. 2.89, and Rs. 3.80 per share. 

Post-IPO, IPL's current paid-up equity capital of Rs. 5.08 cr. (5083060 shares) will stand enhanced to Rs. 6.96 cr. (6958060 shares).  Based on the IPO pricing, the company is looking for a market cap of Rs. 93.93 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, IPL has (on a consolidated basis) posted a turnover/net profit of Rs. 39.42 cr. / Rs. 0.87 cr. (FY20), Rs. 71.15 cr. / Rs. 2.73 cr. (FY21), and Rs. 100.05 cr. / Rs. 6.69 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 6.00 cr. on a turnover of Rs. 79.85 cr. Thus it has posted growth in its top and bottom lines for the reported periods. Its PAT margins have improved from 2.82% as of March 31, 2020, to 8.49% as of September 30, 2022. However, the many-fold jump in the bottom line for the first half of FY23 raises eyebrows and concerns over sustainability.

For the last three fiscals, the company has reported an average EPS of Rs. 40.50 and an average RoNW of 39.9%. The issue is priced at a P/BV of 4.55 based on its NAV of Rs. 29.69 as of September 30, 2022, and at a P/BV of 1.87 based on its post-IPO NAV of Rs. 72.24 per share. 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 7.83 whereas on the basis of FY22 earnings the P/E stands at 14.05, thus the IPO appears fully priced.

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

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Samrat Pharmachem Ltd. as their listed peer. It is trading at a P/E of 5.12 (as of March 24, 2023). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Swastika Investmart in the last three fiscals (including the ongoing one). Out of the last 4 listings, 1 opened at discount, 1 at par and the rest at premiums ranging from 4.17% to 36.25% on the listing date.