Concord Biotech IPO: 5 Things to Know

The late Rakesh Jhunjhunwala was known as the Warren Buffett of the Indian share market. So, when a company backed by him comes out with an IPO, it will definitely raise eyebrows.

Take the example of Nazara Technologies. In March 2021, the Jhunjhunwala-backed mobile gaming company saw its initial public offer (IPO) attracting 175.5 times bids.

This week, one more company backed by the big-bull, Concord Biotech, is set to open for subscription.

Here are some important details about the upcoming IPO.

Issue Period: 4 August 2023 to 8 August 2023

Face Value: Rs 1 per share

Issue Size: Rs 15,510 million (m)

Type: Offer through sale of Rs 15,510 m

Price Band: Rs 704 to Rs 741 per share

Employee discount: Rs 70 per share

Lot size: 20 shares

Application Limit: Minimum one lot and maximum thirteen lots for retail investors.

The company has reserved not less than 50% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not more than 35% of shares are available for retail individual investors.

Tentative IPO allotment date: 11 August 2023

Tentative listing date: 18 August 2023

Here are five key details about the IPO.

#1 About the company

Incorporated in 1984, Concord Biotech is an India-based R&D-driven biopharma company. The company is ranked among the leading global developers and manufacturers of select fermentation-based APIs. This is across immunosuppressants and oncology in terms of market share, based on volumes.

Concord Biotech has a global presence. It supplies to over 70 countries including the USA, India, Europe, and Japan.

The company manufactures Active Pharmaceutical Ingredients (API) through fermentation & semi-synthetic process and finished formulations. It started with a single product and has grown to become a wide-spectrum solution provider.

Concord manufactures fermentation and semi-synthetic-based products in therapeutic segments such as Immunosuppressants, Anti-bacterial, Oncology, Antifungals & others. This wide range of products has attracted customers across the globe.

Concord also has a robust pipeline of products under development.

#2 Financial position

In financial year 2023, the company's revenue grew to Rs 8,531.7 m. In the past three years, the company has reported a compounded annual growth (CAGR) of 17.6% in its revenue.

The net profit stood at Rs 2,400.8 m in financial year 2023.

Financial Snapshot (2021-23)

Particulars	31-Mar-23	31-Mar-22	31-Mar-21
Revenues (Rs m)	8,531.70	7,129.30	6,169.40
Revenue growth	19.70%	15.60%
Expenditure before Tax (Rs m)	5,684.20	4,951.90	3,175.80
% of Total Income	64%	67.20%	50.30%
Net Profit	2,400.80	1,749.30	2,348.90
Net Profit Margin (%)	38.10%	24.50%	28.10%
Net Worth	12,900	11,032.20	9,993.70
Return on net worth	20.10%	16.70%	26.60%
Basic Earnings Per Share (EPS) (Rs)	22.95	16.72	22.45
Diluted EPS (Rs)	22.95	16.72	22.45

Data Source: DRHP

#3 Peer comparison

According to the company's red herring prospectus, Divi's Laboratories, Suven Pharmaceuticals, Laurus Labs, and Shilpa Medicare are its listed peers.

Peer Comparison

Company	Total Income (Rs in m)	Net Profit (Rs in m)	EPS (Rs)		Return on Net worth (%)
			Basic	Diluted
Divi’s Laboratories	77,675.10	18,230	68.69	68.69	14.30%
Suven Pharmaceuticals	13,403.30	4,110	16.16	16.16	23.70%
Laurus Labs	60,405.50	7,960	14.69	14.64	19.70%
Shilpa Medicare	10,501.10	-270	-3.74	-3.74	-

Data Source: DRHP

#4 Arguments in favour of the business

Growing population and increasing life expectancies have led to aging population with greater healthcare needs and pharma consumption due to factors such as increased prevalence of chronic illnesses. Global pharmaceutical spending grew at a CAGR of 5.4% between 2018 and 2021.

India's domestic healthcare market is growing rapidly and is projected to grow at a CAGR of 8% to 10% between 2023 and 2026.

The company's strength relies on its fermentation value chain. The fermentation value chain is made up of R&D, patents, key materials, API, and formulations.

With the help of effective marketing and distribution, the company has been able to command over 20% market share by volume.

#5 Risk factors

The issue by Concord Biotech is an offer for sale (OFS). Concord Biotech will not receive any proceeds from the IPO. The entire consideration will go towards Helix Investments Holdings.

The company depends on third-party suppliers for raw materials. It purchased around 49.2% of its raw materials from the top 3 suppliers for the financial year 2022-23. And 81.5% raw materials from top 10 suppliers during the same time.

The company depends on its top ten customer for 44.3% of the revenue.

If third parties on whom the company relies for clinical trials (including bio-equivalence studies) do not perform their obligations as contractually required, they may not be able to obtain regulatory approval for or commercialize its formulations products.

Conclusion

It appears Concord Biotech has a decent business with clean regulatory record. It has reported strong growth in the past three years while return ratios have also been consistent over 20%.

The company is already commanding a grey market premium of Rs 300.

However, the current peak operating margins at 40% don't look sustainable in the long run. Keep a watch on margins if you choose to apply to this IPO.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...