Onyx Bio NSE SME IPO review (May apply)

•    The company is primarily engaged in the manufacturing of sterile water for injections, dry powder and syrup
•    It posted inconsistency in its top lines with highly fluctuating bottom lines. 
•    Based on FY25 annualized super earnings, the issue appears fully priced. 
•    It is operation in a highly competitive and fragmented segment. 
•    Well-informed investors may park moderate funds for long term. 

ABOUT COMPANY:
Onyx Biotec Ltd. (OBL) started its operation in pharmaceutical industry with sterile water for injections in the year 2010. Since then, Onyx has been associated with the healthcare segment and offering Sterile Pharmaceutical products and has become a prominent supplier of sterile products to major corporations, which includes the top pharma companies at pan India level. 

Onyx is committed to provide high-quality products at affordable price. Presently, the Company Manufactures Sterile Water for Injections, and acts as a pharmaceutical contract manufacturer offering a comprehensive range of Dry Powder Injections and Dry Syrup for India and overseas. Its products are being processed and manufactured in accordance with best FDA practices available globally. OBL's system and product is tested constantly at each level to ensure international standards of quality in-house and FDA Certified Laboratories. Its core business is focused on providing end-to-end product development and manufacturing solutions to clients. Its service also include preparation and filing of regulatory dossiers in the Indian and global markets.

Company's manufacturing facility Unit I is having production capacity of 6,38,889 units of Sterile Water for Injections per day and Unit II is having a capacity of 40,000 units of dry Powder injection per day and 26,667 units of dry syrup per day in a single shift. Its manufacturing units are equipped with Modern Equipment, ensures Quality Control and follows Sustainable Practices. Its manufacturing units have been accredited by global regulatory agency i.e. World Health Organization Good Manufacturing Practice ("WHO-GMP"). As of July 31, 2024, it had 175 employees on its payroll and additional 20 contract workers in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4810000 equity shares of Rs. 10 each to mobilize Rs. 29.34 cr. (at the upper cap). The company has announced a price band of Rs. 58 - Rs. 61 per share. The issue opens for subscription on November 13, 2024, and will close on November 18, 2024. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.53% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 6.08 cr. for upgradation of manufacturing Unit I, Rs. 1.24 cr. for high-speed cartooning packaging line at Unit II, Rs. 12.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. 

The IPO is solely lead managed by Horizon Management Pvt. Ltd., while MAS Services. 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. 11.00 - Rs. 24.00 per share between November 2015, and February 2024. It has also issued bonus shares in the ratio of 1 for 1 in February 2024. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 5.17, and Rs. 5.19 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 13.32 cr. will stand enhanced to Rs. 18.13 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 110.61 cr. In the Issue table on page no. 51 of the offer document, the post-IPO paid-up capital is shown as 18132000, which appears to be typographical error.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 44.98 cr. / Rs. 3.35 cr. (FY22), Rs. 39.62 cr. / Rs. 1.85 cr. (FY23), and Rs. 53.87 cr. / Rs. 3.03 cr. (FY24). For 2M of FY25 ended on May 31, 2024, it earned a net profit of Rs. 1.31 cr. on a total income of Rs. 10.54 cr. While it posted inconsistency in its top lines for the reported periods, it marked wild fluctuations in its bottom lines, that not only raises eyebrows, but also concern over its sustainability going forward. 

For the last three fiscals, the company has reported an average EPS of Rs. 2.26 and an average RoNW of 12.88%. The issue is priced at a P/BV of 3.10 based on its NAV of Rs. 19.66 as of May 31, 2024, and at P/BV of 1.99 based on its post-IPO NAV of Rs. 30.62 (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 14.09, and based on FY24 earnings, the P/E stands at 36.53. The issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 7.47% (FY22), 4.67 % (FY23), 5.64% (FY24), 12.42% (2M-FY25), and RoCE margins of 20.47% (FY22), 10.13% (FY23), 12.19% (FY24), 4.99% (2M-FY25). Its debt-EBITDA ratio of 11.33 as of May 31, 2024 raise concern. 

DIVIDEND POLICY:
The company has not paid 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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Suven Pharma and JB Chemicals, as their listed peers. It is trading at a P/E of 136 and 46.8 (as of November 08, 2024). However, they are not truly comparable on an apple-to-apple basis. The list of listed peers appears to be an eyewash. 

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Horizon Management in the last two fiscals (including the ongoing one).  Out of the last 9 listings, 2 opened at discount, 1 at par and the rest opened with a premiums ranging from 8.47% to 141.23% on the date of listing.