IPO: Innova Captab

Innova Captab, an Indian pharmaceutical company, is coming out with its IPO (initial public offering) on December 21, 2023. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality : Its three-year average return on equity ( ROE ) and return on capital employed (ROCE) are 26.4 and 24.2 per cent, respectively. Moreover, it generated positive cash flow from operations in each of the last three financial years. Growth: Its revenue and net profit grew annually by 50 and 40 per cent, respectively, in the last three financial years, driven by higher demand and a recent acquisition. Valuation : The stock will be priced at a P/E and P/B of 37.7 and 3.7 times, respectively, as compared to its peer's median and average of 36.0 and 6.0 times. Overview: Higher demand from major pharma players opting to outsource manufacturing and expansion into new markets should favour growth. It recently acquired Sharon Bio-Medicine as part of its inorganic growth strategy. However, the highly fragmented, competitive and regulated nature of the pharma industry can provide significant hurdles. About Innova Captab Innova Captab is an Indian pharmaceutical company. It has three revenue verticals: Contract development and manufacturing (CDMO) - 73 per cent of FY23 revenue Domestic branded generics - 18 per cent International branded generics - 9 per cent Under CDMO, it manufactures products across key therapeutic areas like cephalosporins, proton pump inhibitors, anticholinergic, etc. Under domestic branded generics, it markets its own brand through an extensive distribution network. Also, in June 2023, it acquired Sharon Bio-medicine, an intermediates, APIs, and finished dosages manufacturer. Strengths of Innova Captab Strong customer base. Prominent pharmaceutical companies like Cipla, Glenmark Pharma, and Mankind Pharma are its clients. It enters into long-term CDMO agreements (two to five years) with clients, providing revenue visibility and stable cash flows. Weaknesses of Innova Captab Contract manufacturing in India is a highly fragmented and competitive market . The pharma industry is highly regulated. Failing to meet quality standards can impact operations significantly. Risk payment defaults. As of Q1 FY24, its trade receivables as a percentage of total assets stood at 28 per cent. IPO details Total IPO size (Rs cr) 570 Offer for sale (Rs cr) 250 Fresh issue (Rs cr) 320 Price band (Rs) 426 - 448 Subscription dates Dec 21-26, 2023 Purpose of issue Repayment of loans, working capital requirements and general corporate purposes. Post-IPO M-cap (Rs cr) 2564 Net worth (Rs cr) 686 Promoter holding (%) 51.7 Price/earnings ratio (P/E) 37.7 Price/book ratio (P/B) 3.7 Financial history Key financials 2Y growth (% pa) 3M June 2023