Medicamen Org NSE SME IPO review (May apply)

•    The company is engaged in pharma products developing, manufacturing, distributing. 
•    Its top line remained static for FY22 and FY23, but posted better performance for FY24.
•    The sudden boost in its bottom lines for FY24 raise eyebrows and concern over its sustainability.
•    Based on FY24 earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for the long term. 

ABOUT COMPANY:
Medicamen Organics Ltd. (MOL) is engaged in developing, manufacturing and distribution of broad range of pharmaceutical dosage including generic dosage in form of Tablets, Capsules, Oral Liquids, Ointments, Gel, Syrups, Suspension and Dry powders for government (including both state and central governments) and private institutions as contract manufacturer / third party manufacturer.

Its primary business model is B2B contract manufacturing models where it partners with pharmaceutical companies who are third-party providers who market and sell the products to various companies engaged in ethical marketing as well as generics in International Market and Domestic Markets and has strong and independent sales and distribution networks for the marketing of MOL products. As of March 31, 2024, it along with its partners a total of 84 products registration under the name of the partners. Under this model, it owns the development rights and marketing rights are owned by the partner. This model is adopted for products across key markets including India.

The company markets product to private pharma companies in domestic as well as international markets through third party distributors or on loan license basis. Further, the Company is also strategically focusing on establishing a direct presence in international market for an instance in fiscal 2023 and 2024, it directly exported product in Burundi. It has a track record of operating B2B model which covers contract manufacturing model. MOL's products are marketed across India as well as African, CIS and south East Asian Countries like Congo, Benin, Cameg, Togo, Senegal, Burkina Faso, Philippines, Myanmar, Mozambique, Togo, Burundi, Kyrgyzstan and Kenya by third-party distributor.

Its manufacturing facilities are capable of producing pharmaceutical formulations and products and has fully equipped quality control department with experienced and qualified staff to facilitate smooth manufacturing process. Its product portfolio consists of 84 products and comprises of wide range of drugs like, Anti-Bacterial, Anti Diarrheal, Anti-Fungal, Anti-Malarial, Anti Diabetic, Proton Pump Inhibitor, Anti Histamine, Anti-Hypertensive drugs, Anti Lipidemic Drug, Anti Parasitic, Multivitamin, Multimineral and Nonsteroidal anti-inflammatory drug (NSAIDS).

As on March 31, 2024 it entered into contract manufacturing with 44 domestic partners and 12 merchant exporters. Its debt-equity ratio of 1.28 as of March 31, 2024, raises concern. As of the said date, it had 112 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3100000 equity shares of Rs. 10 each to mobilize Rs. 10.54 cr. at the upper cap. It has announced a price band of Rs. 32 - Rs. 34 per share. The issue opens for subscription on June 21, 2024, and will close on June 25, 2024. The minimum application to be made is for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.49% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 3.00 cr. for product registration in the international markets, Rs. 2.25 cr. for plant updating for increasing production capacity, and Rs. 4.00 cr. for working capital. 

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd., and KFin Technologies Ltd., is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 11 - Rs. 30, between March 2008 and January 2024. It has also issued bonus shares in the ratio of 1 for 2 in January 2018. The average cost of acquisition of shares by the promoters is Rs. 3.53, and Rs. 8.75 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.60 cr. will stand enhanced to Rs. 11.70 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 39.78 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 21.19 cr. / Rs/ 0.10 cr. (FY22), Rs. 22.96 cr. / Rs. 0.97 cr. (FY23), and Rs. 25.29 cr. / Rs. 2.40 cr. (FY24). The company posted bumper profits with marginal rise in its top lines for the reported periods and that raise eyebrows. 

For the last three fiscals, it has reported an average EPS of Rs. 2.15, and an average RoNW of 11.72%. The issue is priced at a P/BV of 1.93 based on its NAV of Rs. 17.66 as of March 31, 2024, and at a P/BV of 1.55 based on its post-IPO NAV of Rs. 21.99 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 16.51. The issue appears fully priced with its super earnings of FY24.

For the reported periods, the company has posted PAT margins of 0.44% (FY22), 4.38% (FY23), 9.51% (H1-FY24), and RoCE margins of 3.99%, 9.71%, 14.50% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared 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. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Brooks Lab., Cian Healthcare, and Zenotech Lab. as their listed peers. They are trading at a P/E of NA, 246 and 45.4 (as of June 14, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 26th mandate from GYR Capital in the last four fiscals, out of the last 10 listings, all listed with premiums ranging from 36.36% to 366.67% on the listing date.