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Motilal Oswal's IPO Report
Issue Size:
Concord Biotech Ltd. will launch its initial public offering on August 4.
Rs 15.5 billion IPO consists of only offer for sale of 20.9 million shares by investor Helix Investment which would mark its complete exit. The market cap post listing would stand at Rs 77.5 billion.
Financials:
Concord Biotech recorded 18% compound annual growth rate in revenue over FY21-23 with robust Ebitda margin of 40%. Its return ratios are healthy with return on equity/return on capital employed of 20%/19% and it generated free cash flow over last two years with free cash flow/Ebitda at 29%.
Risk and concerns
Concord Biotech's all three manufacturing facilities and two research and development centers are located in Gujarat. Any slowdown or shutdown could impact its operations.
Top five/10 customers contributed 33%/ 44% to Concord Biotech's FY23 revenues. Any significant reduction in demand from such customers may adversely affect Concord Biotech's business.
As of June 30, 2023, the company has filed 128 drug master files for active pharma ingredients with various regulatory agencies around the world. If it is unable to obtain trademarks and patents for its products, the business may be adversely affected.
Concord Biotech is subject to extensive government regulations and any failure to obtain, maintain or renew them could adversely impact its operations.
Working capital requirement is high at 150-160 days. Thus any insufficient cash flows may adversely affect its business.
View:
We like Concord Biotech given its complex product portfolio, presence in niche space, strong client relationship and high entry barriers. The issue is valued at 32 times price/earning in line with peer group's average: ~32 times.
We believe Concord Biotech could benefit from the industry tailwinds given its production linked incentive approval in place. Hence we recommend 'Subscribe'.
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