Senores Pharma IPO review (May apply)

•    The company is focusing on pharma business for global markets through its global research and marketing skills.
•    The company marked growth in its top and bottom lines for reported periods.
•    The sudden boost in its top and bottom lines from FY24 onwards raise eyebrows.
•    Based on its recent financial performances, the issue appears aggressively priced.
•    Well-informed investors may park funds for long term.

PREFACE:
Despite humble urge from the regulator for non-clubbing/bunching of more than 2 IPOs a day for opening for subscription, we are set to mark bunching of five mainboard IPOs that are opening on December 19, 2024, and here again very short time was spared for analysts to understand the pros and cons for the IPOs. Well, this is the first IPO from the set of 5 IPOs that are scheduled to mark opening on December 19, 2024, others to follow are TransRail Lighting, DAM Capital, Sanathan Textiles, Concord Enviro. We have one more set of 3 mainboard IPOs lined up for opening on December 20, 2024, and they are Ventive Hospitality, Senores Pharma, and Carraro India. No doubt, this provided an ample choice of selection for investment, it also makes it difficult to manage funding. Let us hope that the regulator is definably turns strict on this matter and brings some amicable solution.

ABOUT COMPANY:
Senores Pharmaceuticals Ltd. (SPL) is a global research driven pharmaceutical company engaged in developing and manufacturing a wide range of pharmaceutical products predominantly for the Regulated Markets of US, Canada and United Kingdom across various therapeutic areas and dosage forms, with a presence in Emerging Markets. Its strength lies in identifying, developing and manufacturing a diverse range of specialty, underpenetrated and complex pharmaceutical products establishing it as a preferred partner to certain customers. 

Through data analytics, research, market assessment and experienced management, SPL strategically identifies commercially underpenetrated molecules to launch products in the Regulated and Emerging Markets. It leverages R&D capabilities to develop and manufacture a portfolio of differentiated complex pharmaceutical products. Its focus on quality and ability to identify specialty and complex molecules has resulted in a pipeline of curated complex products spanning diverse dosage forms and therapeutic domains, demonstrated through its partnerships in the Regulated Markets of US, Canada and United Kingdom with foreign and Indian pharmaceutical companies including Prasco LLC, Lannett Company Inc., Jubilant Cadista Pharmaceuticals Inc., Alkem Laboratories Limited, Sun Pharmaceuticals Industries Limited, Dr. Reddy’s Laboratories Inc. and Cipla USA Inc.

SPL’s business is primarily focused on the Regulated Markets of US, Canada and the United Kingdom. It has a presence in the Emerging Markets across 43 countries. The company also manufactures critical care injectable and APIs. With an emphasis on research and development, it has consistently demonstrated capability to propel products from initial conception to successful commercialization. Its strength lies in taking a product from conceptualization to market launch, ensuring tangible results and delivering solutions to market successfully.

The company has entered into long-term marketing arrangements for a period ranging between 5-7 years with major generic pharmaceutical and marketing companies which operate in the Regulated Markets including Alkem Laboratories Limited, Lannett Company Inc., Prasco LLC, Jubilant Cadista Pharmaceuticals Inc., Sun Pharmaceuticals Industries Limited, Cintex Services LLC and Dr. Reddy’s Laboratories Inc. Its revenue model includes (i) an in-licensing fee on a negotiated basis based on various milestones; (ii) transfer price; and (iii) profit share which is ascertained at the time of finalizing the agreement.

The company also leverages its Atlanta Facility to engage in CDMO/ CMO business in the US, Canada, and United Kingdom. It partners with many of CDMO customers early in the drug development process enabling it to expand relationship as molecules progress through the clinical phase and into commercial manufacturing. This results in sustained relationships with customers and a recurring revenue stream. Through this business model it offers a range of services including bioavailability and development services, providing analytical solutions like method development, validation and stability testing, project management services, manufacturing and regulatory support. This helps it in utilizing manufacturing capacities efficiently and leveraging product development capabilities in a viable manner. 

Its CDMO customers in the Regulated Markets include Mint Pharmaceuticals Inc. (Canada), Solco Healthcare US LLC (US), Ambicare Pharmaceuticals Inc. (Canada), Amici Pharmaceuticals Inc. (US) and Waymade PLC (UK). Additionally, the Atlanta Facility enables it to service US government business which its customers undertake, including the manufacture of controlled substances. It also acts as a pure contract manufacturer for companies like Alkem Laboratories Limited and Jubliant Cadista where it provides manufacturing services to customers for the products already developed by them. As of September 30, 2024, through its Regulated Markets business, it has entered into CDMO/ CMO contracts for more than 40 products with customers based in the US, Canada, United Kingdom, South Africa, UAE, Israel, Denmark, Saudi Arabia and Vietnam. As of September 30, 2024, it had 145 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 14887724 equity shares (worth Rs. 582.11 cr. at the upper cap). The IPO consists of fresh equity shares issue worth Rs. 500 cr. (approx. 12787724 shares at the upper cap), and an Offer for Sale of 2100000 shares (worth Rs. 82.11 cr. at the upper cap). The company has announced a price band of Rs. 372 – Rs. 391 per equity shares of Rs. 10 each. The issue opens for subscription on December 20, 2024, and will close on December 24, 2024. The minimum application to be made is for 38 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 32.33% of the post-IPO paid-up equity capital. From the net proceeds of the fresh equity issue, the company will utilize Rs. 107.00 cr. for investment in subsidiary – Havix, 73.48 cr. for repayment/prepayment of certain borrowings, Rs. 20.22 cr. for repayment/prepayment of certain borrowings of Havix, Rs. 43.26 cr. for working capital, Rs. 59.48 cr. for investment in subsidiaries SPI and Ratnatris, and the rest for inorganic growth and general corporate purposes. 

The company has reserved 75000 equity shares (worth Rs. 2.93 cr. at the upper cap) for its eligible employees and from the rest it has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for retail investors. 

The three Book Running Lead Managers (BRLMs) to this issue are Equirus Capital Pvt. Ltd., Ambit Pvt. Ltd., and Nuvama Wealth Management Ltd., while Link Intime India Pvt. Ltd., is the registrar to the issue. Equirus Capital, Ambit Capital and Nuvama Wealth Management are the syndicate members.

Having issued initial equity shares at par value, the company issued/converted further equity shares in the price range of Rs. 23 – Rs. 320 (based on Rs. 10 FV) between November 2019, and June 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 37.20, Rs. 51.31, Rs. 57.54, and Rs. 60.97 per share. 

Post-IPO, its current paid-up equity capital of Rs. 33.27 cr. will stand enhanced to Rs. 46.05 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1800.70 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 14.63 cr. / Rs. 0.10 cr. (FY22), Rs. 39.02 cr. / Rs. 8.43 cr. (FY23), and Rs. 217.34 cr. / Rs. 32.71 cr. (FY24). For H1 of FY25 ended on September 30 2024, it earned a net profit of Rs. 23.94 cr. on a total income of Rs. 183.35 cr. The sudden boost in its top and bottom lines from FY24 onwards raises eyebrow. 

For the last three fiscals, the company has posted an average EPS of Rs. 10.09 (basic) and an average RoNW of 19.38 %. The issue is priced at a P/BV of 4.46 based on its NAV of Rs. 87.63 as of September 30, 2024, and at a P.BV of 2.28 based on its post-IPO NAV of Rs. 171.87 per share (at the upper cap).

If we attribute FY25 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 37.60, and based on FY24 earnings, the P/E stands at 55.07. The issue appears aggressively priced on the basis of its recent earnings. 

For the reported periods, the company has posted PAT margins of 7.00% (FY22), 23.87% (FY23), 15.25% (FY24), 13.23% (H1-FY25), and the RoCE margins of 5.38%, 18.56%, 11.73%, 7.59% for the referred periods respectively. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has adopted a dividend policy in June 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Ajanta Pharma, Alembic Pharma, Caplin Point, Gland Pharma, and Strides Pharma, as their listed peers. They are trading at a P/E of 41.1, 32.4, 36.9, 42.4, and 32.4 (as of December 18, 2024). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The three BRLMs associated with the offer have handled 41 pubic issues in the past three fiscals, out of which 9 issues closed below the offer price on the listing date.