For short term and listing gains: AVOID
IPO DETAILS-AANJANEYA LIFECARE LTD. | |
No. of shares offering | 50 Lakh Equity shares |
IPO Grading | Fitch 2/5 i.e. below avg. fundamentals ICRA 1/5 i.e. poor fundamentals |
Price Band (INR) | 228-240 |
Face Value (INR) | 10 |
BRLMs of IPO | Anand Rathi; IDBI Capital |
Registrar of Issue | LINK INTIME |
Issue Opens On | 09 May, 2011 |
Issue Closes On | 12 May, 2011 |
25 Equity Shares | |
5700-6000 | |
Listing Stock Markets | BSE; NSE |
Sector | Pharmaceuticals |
COMPANY BACKGROUND:
BUSINESS STRATEGY:
Company’s business strategy is to be vertically integrated with presence in bulk drug manufacturing, intermediate drugs and finished dosage forms. It has recently acquired assets situated at Mulshi, Pune of Prophyla Biologicals (P) Limited, a company engaged in the business of formulations/ FDFs through an asset purchase agreement dated March 30, 2010, Sale Deed dated October 24, 2010 and deed of assignment dated April 01, 2010. Prophyla Biologicals (P) Limited is a contract manufacturer of lozenges, syrups and ointment/gels/creams. This acquisition gives us access to tap the potential of the formulation business thereby making us an integrated player with presence in the entire value chain in the pharmaceutical industry. The unit, spread over an area of 6,430 sq. mts. is situated at Mulshi, near Pune.
Aanjaneya Lifecare Limited is a vertically integrated pharmaceutical company with manufacturing and marketing capabilities in APIs (Active Pharmaceutical Ingredients) with focus on anti-malarial, & Finished Dosage Forms (FDFs) catering to various therapeutic segments.
It started manufacturing activities in the year 2007 with an installed capacity of 2 Lakh kgs per annum for processing quinine, a pharmaceutical API for malaria derived from natural extracts, for supplying to other pharmaceutical companies for their finished dosages forms (FDFs). The facility for APIs is GMP certified and is located at Additional MIDC, Mahad, Maharashtra . The same is awarded with ISO 14001:2004 (Environment Management System), ISO 9001:2008 & ISO 22000:2005 certifications by BSI Systems. The company has also received the Certificate of Suitability from EDQM for it’s API Product Quinine Sulphate manufactured at unit in Mahad.
MILESTONES IN THE HISTORY OF COMPANY:
MILESTONES IN THE HISTORY OF COMPANY:
BUSINESS STRATEGY:
Company’s business strategy is to be vertically integrated with presence in bulk drug manufacturing, intermediate drugs and finished dosage forms. It has recently acquired assets situated at Mulshi, Pune of Prophyla Biologicals (P) Limited, a company engaged in the business of formulations/ FDFs through an asset purchase agreement dated March 30, 2010, Sale Deed dated October 24, 2010 and deed of assignment dated April 01, 2010. Prophyla Biologicals (P) Limited is a contract manufacturer of lozenges, syrups and ointment/gels/creams. This acquisition gives us access to tap the potential of the formulation business thereby making us an integrated player with presence in the entire value chain in the pharmaceutical industry. The unit, spread over an area of 6,430 sq. mts. is situated at Mulshi, near Pune.
OBJECTS OF THE ISSUE |
| Setting up of anti cancer API facility at Mahad, Maharashtra |
Setting up of cGMP block for APIs at Mahad, Maharashtra |
Setting up of Intermediate API block at Mahad, Maharashtra |
Expansion of existing research & development centre at Mahad and Pune, Maharashtra |
Setting up of a quality control and quality assurance block at Mahad, Maharashtra |
Setting up of product development laboratory at Mahad, Maharashtra |
Setting up of stores building at Mahad, Maharashtra |
Meeting expenses for branding and registration of products in international markets |
General Corporate Purposes |
Public Issue Expenses |
PRODUCT PORTFOLIO:
PEER BASED P/E VALUATION:
MAJOR CONCERNS:
Company’s present product portfolio consists of second generation, quinine based anti-malarial APIs and third generation artemisinin based anti-malarial APIs, niche API’s and FDFs. With the expansion of existing facility and the acquisition of the formulation unit at Pune, Company’s product portfolio will consist of APIs and FDFs which shall be marketed in domestic and international markets as branded generics. In finished dosages, it will cover important therapeutic segments such as anti malarial, pain management, erectile dysfunction and hormone replacement therapy, anti-obesity and herbal supplements in syrup and tablet form amongst others. Few herbal formulations are for cough and cold, liver protection, throat congestion and osteoporosis.
Presently company is supplying our APIs, niche API’s and FDFs both domestically and exporting to around 15 countries namely Kenya, Uganda, Argentina, Cyprus, South Africa, Indonesia, Tanzania, Yemen, West Indies, Switzerland, Vietnam, Congo, Hong Kong, Haiti, Syria and Jordan. In our formulation segment, as contract manufacturer, it also supplies to companies like Wockhardt, Cipla, Glenmark etc. In it's own branded generic segment, company is offering products like Anjtil, Rankorex, Doktor Qure, Prosils, LivChek, Herbal Drops and Esyhil. Further, in 2011, they have also launched products like Aanrich, Actipros, Ulsacare, Apticatch, Anjeniya Curcumacare, and Nicco-nil amongst others.
FINANCIALS & VALUATION:
PEER BASED P/E VALUATION:
Given the upper band price of INR 240, the company is valued at P/E of around 8 which is fairly valued looking at its future uncertainty in execution of plans and lack of experience in the industry. If the company sustains it's plans and gives consistent results then it can give significant growth in share price given suitable market conditions. But as of now it looks fairly priced as per PE valuation method based on it's peers.
MAJOR CONCERNS:
1. POOR CAPACITY UTILIZATION:
Currently the company has very poor capacity utilization in it's existing plants namely at Mahad and Pune, this doesn't justify new CAPEX and spending this from proceeds of IPO. This also signifies poor management of plants as this adds to increased fixed costs and increases operational leverage.
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| Fig. CAPACITY UTILIZATION AT IT'S EXISTING PLANTS 2. HIGH DEPENDENCE ON FEW CUSTOMERS: Currently (ten months period ended Jan.2011) the company's top five customers constitute about 84.03% customers of total customers and top 10 customers form about 94.48% of total customers which suggests very high dependence on few customers and hence the profitability of company depends mainly on orders received and financial position of these companies. Moreover the trend of high dependence has increased over last year which is an alarming sign.  |
3. HIGH DEPENDENCE ON SINGLE PRODUCT:
The gross sales constituted of about of 94.53% of sales of single product i.e.salts of quinine in FY2010 and about 59.85% of sales in ten months ending Jan.2011. This means that fluctuations in demand and prices of raw material of this product as well as competition may significantly impact the sales of company, unless it doesn't diversify it's product portfolio in future. The company boasts about being core Pharmaceutical company but on other hand it doesn't sell much of innovative pharma product.4. LACK OF EXPERIENCE IN MANUFACTURING:
The company has forayed recently into finished pharma product by acquiring Pune based Prophyla Biologicals Limited in FY2010. Thus, this may lead to failure in developing and manufacturing of new products given the lack of experience. This also means that they do not have significant customer base in this front and hence needs lot of groundwork to be done by the company to successfully implement it's plans.
CONCLUSION:
Looking at the last year's performance in terms of sales and profit, the company looks good. Also the valuation is also done at fair price. The only question remains is on uncertainty to sustain this given it's lack of experience and other concerned mentioned. Hence, investors with high risk appetite and who can track the performance of the company should only subscribe for long-term prospects. People who are looking for short-term gains as well as listing gains should AVOID this issue.
For long term and high risk appetite : SUBSCRIBE or wait for some downside after listing
For short term and listing gains: AVOID
References: Red Herring Prospectus (RHP) from SEBI website.
