IPO Analysis

IPO update: Windlas Biotech

A poor debut in the market but the company's revenue and profit have increased. Should you invest in it now?

IPO update: Windlas Biotech

Windlas Biotech came out with its IPO about eight weeks ago. You can find Value Research's analysis of the IPO here. In this follow-up article, we focus on the share price and financial performance of the company post-IPO.

Our analysis of the IPO
Windlas Biotech is a contract development and manufacturing organisation (CDMO) that provides various services like product development, manufacturing of licensed drugs, including complex generics. Complex generics refer to generic medicines that require a high level of manufacturing expertise. The company's CDMO business contributes to 85 per cent of revenue, and the remaining is derived from the sale of generics. Keeping in the growth prospects of the CDMO industry and the company's expertise in manufacturing, we gave it a score of 14 out of 27. Our main concerns were competitiveness, revenue concentration in customers, and lack of pricing power as it caters to large pharma companies.

Our rating of the company was based on the following factors:

  • Out of 10 business metrics, the company did well only on three.
  • Out of six management-related metrics, the company did well on five.
  • Out of eight financial metrics, the company did well on five.
  • Out of three valuation-related metrics, the company did well on one.

Stock performance since listing
The stock had decent reception amongst the investors. The retail portion was subscribed by 24.27 times, the high net worth individuals portion was subscribed by 15.73 times, and the institutional investors' portion was subscribed by 24.4 times.

The stock had a poor debut on the market as it listed at Rs 439, 4.5 per cent discount from its issue price of Rs 460. It went further down on the same day to Rs 406, 12 per cent down from its issue price. The stock's poor performance continues as it is hovering over Rs 361, a discount of 21 per cent from its issue price.

Business performance
The company came out with its results for Q1FY22, and they were impressive compared to the same period a year ago. Revenue increased by 8 per cent YoY, and the profits increased by 155 per cent as the company posted Rs 6.7 crore as profit this quarter, compared to a loss of Rs 12 crores in the same period the previous year. The company's loss in the last year's quarter was due to impairment of goodwill and loss of fair valuation of the equity in the subsidiary. Revenues increased by 4 per cent, and profit increased by 16 per cent on a QoQ basis.

Management said the growth was driven by volume growth in chronics and Covid-19 related therapies. Despite posting positive results, the share prices continued to tumble as they went down 2 per cent on the day of results.

What to do now?
Windlas Biotech made a poor debut in the market, and share prices have been going down ever since. The company has said that the IPO proceeds will be used for expansion and fund working capital, increasing the overall efficiency.

Though the valuations seemed a bit high at the time of listing, as the share price started falling, valuations also started falling. Currently, the company is trading at a P/E of 50, which is lower than the peers' median level of 59.6, and at a P/B of 1.3, which is lower than the peers' average of 8.9.

The CDMO industry is expected to grow at 13-15 per cent in the next five years due to growth in the pharmaceutical industry, growing awareness, and cost-efficiency. One of the company's main concerns is the competition in the industry, as many players already exist in this segment. If investors are confident about its competitiveness and strength in the segment, they can consider investing after doing due diligence.

Disclaimer: This analysis is not intended to serve as a recommendation. Readers must do thorough research before investing in this company. If you are interested in our stock recommendations, please visit www.valueresearchstocks.com.

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