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Gland Pharma IPO Review & Analysis in Detail

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Basis Structure of Gland Pharma IPO


Gland Pharma is gearing up to bring its IPO to the markets on November 9. The issue will remain open for subscription till November 11.

This is set to be the largest offering from the Indian pharmaceuticals sector.

Gland Pharma aims to raise about Rs. 6,479 crores from the primary market.

Before this, the largest pharma offering was that of Eris Lifesciences, which came to the market in 2017. That offering was valued at Rs. 1,741 crores.

This IPO is of the book-building nature, which means the shares are offered in a price band.

The other kind of offering is called fixed price offering, and this is characterized by a fixed price for the shares that are on offer.

The Gland Pharma IPO will comprise of a fresh issue as well as an offer for sale.

The fresh issue segment will contain 83.3 lakh shares. This segment contains shares which are being newly issued by Gland Pharma. The company intends to raise Rs. 1,250 crores through this issue. This amount will be utilized in meeting the working capital requirements and for capital expenditure purposes.

The offer for sale segment will contain 3.48 crore shares. This section contains those shares which belong to other shareholders. These shares are not being issued by the company – the existing shareholders are selling part of their stake. The amount raised through the sale of these shares will be credited directly to the shareholders.

Gland Pharma’s expected market capitalisation after the IPO will be in the region of Rs. 24,000 crores.

The table below summarizes the details about the Gland Pharma IPO. Details about the Gland Pharma IPO share price, Gland Pharma IPO date 2020, Gland Pharma IPO listing date and more have been included.

IPO Description

After the IPO, the Gland Pharma shares will be listed on both NSE and BSE.

 

About the Company

 

Gland Pharma was established in Hyderabad in the year 1978.

The company operates in the pharmaceuticals industry and manufactures a number of injectable medical products.

The management team is headed by Srinivas Sadu.

Currently, the company has seven manufacturing facilities all over India and has the capacity to produce about 750 million units. Out of this, Gland Pharma has 3 API facilities and 22 production lines.

 

Customers

 

Gland Pharma operates on a B2B business model. This means the primary customers of the company are other businesses.

As for retail clients, Gland Pharma also offers a B2C model for its customers only in India.

Their customers are spread across 60 countries like the US, Europe, Canada, Australia and others.

Out of this, the majority of the B2B clients that Gland Pharma has are based in the US.

Examples of some of Gland Pharma’s clients include Sagent Pharmaceuticals, Apotex, Athenex Pharmaceuticals, among others.

 

Products & Services

 

The product portfolio of Gland Pharma is varied.

It consists of a number of injectable drugs that find application in oncology, ophthalmic as well as a number of mainstream medicines. Some of the types of medicines that are manufactured include anti-diabetic, anti-infectives, cardiac, gastro-internal, hormones, neurological, respiratory, vitamins and others.

The image below lists out the major products that are produced by Gland Pharma.

Products

 

Promoter Shareholding Pattern

 

Gland Pharma is promoted by Fosun Singapore and Shanghai Fosun Pharma.

The table below lists out the details of the shareholding pattern prior to the Gland Pharma IPO.

Promoter Shareholding Pattern

 

Financial Overview of Gland Pharma IPO

 

The table below summarizes the key financial figures of Gland Pharma from 2017 to 2020. The figures below are in Rs. Crores.

Financial Overview

As we can see above, the total revenue of Gland Pharma has shown a consistent increase over the years. The average CAGR during this period is 16%.

Revenue

It is interesting to note here, that the majority of Gland Pharma’s revenue comes from the US, Europe, Canada and Australia. In 2020, the revenue from these four countries made up 73.46% of the total revenue from operations.

Market Share

Another point to mention here is that although Gland Pharma has both B2B and B2C verticals, the B2B section of the business makes up the majority of the revenue. In 2020, 95.99% of total revenue came from the B2B business and only 4.01% of revenue came from B2C vertical.

As for the net profit earned by the company, that has recorded a CAGR of almost 17% in the period from 2017 to 2020.

Net Profit

It is also important to note that although the company does have some long-term debt, the amount is low, and it has reduced consistently over the years. During this period, the long-term debt has shown a CAGR of (8.94) %.

 

Industry Analysis

 

In 2014, the global pharmaceuticals market was valued at $826 billion. By 2019, it had grown to $1,096 billion. This means the average CAGR during this period is 5.8%.

Further, this industry is expected to grow at a rate of 4.4% and reach $1,359 billion by 2024.

Out of this, North America constitutes 47% of the market share and is expected to grow at 3.9%.

India makes up 1.9% of the market. This is one of the lowest market shares. However, there is also the fact that India has recorded the highest rate of growth. Between 2014 and 2019, it grew at 11.6% and is expected to grow at 9.3% till 2024.

Market Share

India is also the world’s biggest exporter of generic medicines. Currently, the major Indian manufacturers will focus on increasing domestic production to service the growing needs of the population, along with export demand.

The expected growth rate in the pharma industry is based on the increasing level of ailments and diseases among the global population.

There are a number of new diseases which have been spreading rampantly. Examples include the various types of cancer, rheumatoid arthritis and other auto-immune diseases. Most of these diseases are currently treated with the use of injectable medicines.

Gland Pharma operates in the sub-section of the global pharmaceuticals industry, namely, the market for injectable medicines and drugs. In 2019, the injectables market made up about 39% of the global pharmaceuticals market.

Market Share Split-up

Out of this, North America made up about 55% of the market, and India contributed only 1%.

Global Market Share

There are several barriers to entry and exit in the injectables market. These barriers take the form of complex manufacturing processes, high capital investment and stringent regulations.

Owing to these reasons, the competition in this market is relatively low as compared to the overall pharmaceuticals market.

It is important to mention here, the impact of the COVID-19 pandemic on the pharmaceuticals industry. Although there is still no vaccine for the virus, there are several possible effects that can be identified.

Primarily, the GDP growth across the world is expected to slow down, and this will impact the overall demand for products.

More specifically, the breakup of global supply chains, particularly with respect to China, will impact the supply of key raw materials. This is expected to impact the prices of these products in an upward direction.

Apart from that, there is an increased demand for other generic medicines as paranoia and panic with regard to general health ailments and COVID-19 symptoms have swept through the world.

 

Peer Comparison of Gland Pharma IPO

 

The market of injectable pharmaceuticals is characterized by barriers to entry and exit. There are a few key players in this market, and competition is very high among these players.

Gland Pharma’s market share is quite low, both in the US market and in the Indian market. In terms of the revenue generated, Gland Pharma services 0.05% of the US market and 0.37% of the Indian market.

The table below compares the key financial figures of Gland Pharma with that of its competitors. All the figures are from FY2019.

Peer Comparison

If you compare the key financial figures of Gland Pharma with its peers, you will notice that Gland Pharma has performed better than its peers in most of the aspects considered.

In terms of revenue growth, Gland Pharma has outperformed all its pees with a significant margin. Apart from that, in terms of ROA, ROE and operating margin, Gland Pharma has performed quite well and is towards the higher side of the spectrum here.

Considering the fact that this industry is fragmented and populated by companies who are fierce competitors of each other, these figures look very promising indeed.

 

Strengths of Gland Pharma IPO

 

One of the primary strengths of Gland Pharma is the fact that the company operates on both a B2B and a B2C vertical. This has enabled them to expand their business both inside India and in the global markets.

The B2B vertical allows Gland Pharma to form long-term contractual agreements with leading pharmaceutical companies for distribution purposes. This is the primary reason why much of Gland Pharma’s revenues come from the United States.

Over the years, Gland Pharma has developed a vertically integrated chain of production. This means, starting from the research and development (R&D) to manufacturing, from quality control to marketing and distribution, Gland Pharma can do it all themselves. This has reduced their dependence on external parties and provides a competitive edge over most other companies who have to outsource parts of the production process to others.

The sources of revenue, as well as the product portfolio, are diversified. This reduces the dependence on any one particular set of products or clients.

The management team of Gland Pharma has had long-term relationships with the company, and they bring decades of experience to the table. Apart from that, one of the promoters, namely Shanghai Fosun, is a global pharmaceutical giant. Fosun provides access to international markets, as well as complementary R&D and distribution assistance.

Another comparative strength of Gland Pharma, which has prompted it to outperform its peers, is its research and development activities. In the past two years, the company has launched almost 100 new products.

On average, other listed peers of the company have launched 100 products over 5 years.

Gland Pharma has been investing consistently in research and development activities. In 2020, the R&D expenditure of the company was Rs. 92.19 crores.

Gland Pharma also benefits from its association with Shanghai Fosun in this regard. As one of the largest players in the global pharma sector, Fosun already has a very strong R&D division, and the knowledge sharing and transfers help Gland Pharma maintain its R&D edge.

 

Weaknesses of Gland Pharma IPO

 

Just as the association with Shanghai Fosun is a strength for Gland Pharma, it can also be considered as a weakness from certain other perspectives.

In light of the COVID-19 pandemic and China’s worsening diplomatic and trade relations with the rest of the world, Shanghai Fosun’s association can be a hindrance for Gland Pharma. It can impact the performance of the Gland Pharma IPO.

In 2020, 66.7% of the operational revenue came from the United States. If there are any changes in the trade relations or any change in the business relationships of the company, then, the revenue sources will be affected significantly.

The major share of Gland Pharma’s revenue comes from other countries. This exposes the company to interest rate fluctuations that are rampant in the global market.

There is also the fact that Gland Pharma faces high competition from other major pharmaceutical companies. In this regard, if the company is not able to establish a competitive moat for itself, then it will lose out on market share to its competitors.

Apart from that, there are several outstanding taxations and regulatory cases against the company and its promoters. The total amount involved is Rs. 9.25 crores.

 

Valuation of Gland Pharma IPO

 

The table below summarizes the key valuation parameters for Gland Pharma and its listed peers.

 

Market Capitalisation (Rs. Crore)

EPS (Rs.)

P/E

P/B

Gland Pharma

24,000*

49.88

30.07

-

Sanofi India

19,124.60

223.52

38.96

6.72

Pfizer India

22,485

109.39

35.41

5.04

Abbott India

33,843.60

219.89

34.43

7.83

*The market capitalisation value for Gland Pharma is the predicted value based on the available data.

Now, there are several parameters that we can use to value the Gland Pharma IPO.

The most prevalent parameter that is used is the metric – price to earnings ratio.

As a thumb rule, the company’s price to earnings ratio is compared with the industry average. If the company’s P/E ratio is higher than the industry average, then we can consider that company to be overvalued. Similarly, if it is lower than the industry average, then that company is considered to be undervalued.

In this case, for the pharmaceuticals sector in India, the average P/E ratio for the industry is 36.39.

According to the price band set out for the Gland Pharma IPO, the company’s P/E ratio is 30.07 as mentioned in the table above.

This means Gland Pharma is undervalued as compared to the overall pharmaceuticals industry.

Frequently Asked Questions

 

1. How to apply in Gland Pharma IPO through Zerodha?

Simply log onto the Zerodha website or the Zerodha mobile app. Select the Gland Pharma IPO from the IPO menu. Select the number of lots and submit your bid for the Gland Pharma IPO.

2. When Gland Pharma IPO will open?

The Gland Pharma IPO will open for subscription on November 9. The issue will remain open till November 11.

3. What is the lot size of Gland Pharma IPO?

The Gland Pharma shares will be available in lots of 10. This means you have to bid on a minimum of 10 shares. If you want to bid on more than 10 shares, you will have to do so in multiples of 10 – that is, 2 lots for 20 shares, 3 lots for 30 shares and so on.

4. How to apply for Gland Pharma IPO?

There are two ways to apply for an IPO. You can apply either through UPI or through ASBA (net-banking).

In order to apply, simply log on to your brokerage house’s website, select the IPO for which you want to apply, select the number of lots that you want to bid for, and submit your bid.

5. When is Gland Pharma IPO listing date?

The Gland Pharma shares will be listed on NSE and BSE on November 20.

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