What you must know about Emcure Pharmaceuticals IPO?

About Emcure Pharmaceuticals Ltd

Emcure Pharmaceuticals Ltd was incorporated in the year 1981 and over these years, it has emerged as the 13th largest pharmaceutical company in India in terms of sales. The company employs over 10,852 personnel and has a presence in over 70 countries globally. Emcure Pharmaceuticals Ltd develops, manufactures, and globally markets a wide range of pharmaceutical products across several major therapeutic areas. These include biologics, mRNA Vaccines, gynaecology, cardiology, anti-infective, vitamins, diabetics, and anti-retro-viral medicines.  Emcure Pharmaceuticals Ltd today has a wide portfolio of over 350 brands, and supported by 5 R&D centres (for start of the art research) as well as 13 manufacturing facilities across the country. The company has its own API (active pharma ingredients) facilities to ensure that the supply chain is vertically integrated . This provides the company substantial flexibility and control of manufacturing process. In the last few years, Emcure Pharmaceuticals Ltd has also cemented strategic global partnerships with local and multinational companies; with leadership position in key therapeutic areas. 

While Emcure Pharmaceuticals Ltd is the 13th largest in terms of top line, it is ranked 4th in market share in its covered markets. It is the leading pharmaceutical company in gynaecology and HIV antiviral therapeutic areas. While domestic market constitutes about half of its sales, the balance come from its global markets. Emcure has on its rolls over 552 scientists across its 5 research facilities in India. Till date, the company has filed over 1,800 documents globally, including 204 in the EU and 133 in Canada. They had 201 granted patents, 33 pending patent applications, and have already submitted 102 drug master files. Across its 13 major manufacturing facilities spread across India, the company has the ability to produce various pharmaceutical and biopharmaceutical products. These include pills, liquids, injectables, and complex ingredients such as chiral molecules, iron molecules, and cytotoxic substances. For its front end marketing, Emcure Pharmaceuticals has over 5,000 stockists and over 37 CF agents. It has a sales feet on street (FOS) team of over 5,000 personnel, in continuous touch with healthcare providers to have an ear to the ground.

The fresh funds will be used for repaying / prepaying some of its outstanding debts and partially for general corporate purposes. The promoters of the company are Satish Ramanlal Mehta, Sunil Rajnikant Mehta, Namita Thapar, and Samit Satish Mehta. The promoters currently have 98.90% stake in the company, which will get diluted post the IPO. The IPO will be lead managed by Kotak Mahindra Capital, Axis Capital, Jefferies India, and JP Morgan India; while Link Intime India Private Ltd will be the IPO registrar.

Highlights of Emcure Pharmaceuticals IPO

Here are some of the key highlights to the public issue of the Emcure Pharmaceuticals IPO:

• Here are some of the key highlights to the public issue of Emcure Pharmaceuticals Ltd.
  •    The IPO of Emcure Pharmaceuticals Ltd will be open from July 03rd, 2024 to July 05th, 2024; both days inclusive. The stock of Emcure Pharmaceuticals Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹960 to ₹1,008 per share. 

  •    The IPO of Emcure Pharmaceuticals Ltd will be a combination of a fresh issue of shares and offer for sale (OFS) component. The fresh issue brings in fresh funds into the company, but is also EPS and equity dilutive. The OFS is just a transfer of ownership; and hence neither EPS nor equity dilutive.

  •    The fresh issue portion of the IPO of Emcure Pharmaceuticals Ltd comprises the issue of 79,36,507 shares (79.37 lakh shares approximately), which at the upper price band of ₹1,008 per share will translate into a fresh issue size of ₹800.00 crore.

  •    The offer for sale (OFS) portion of the IPO of Emcure Pharmaceuticals Ltd comprises the sale / offer of 1,14,28,839 shares (114.29 lakh shares approximately), which at the upper price band of ₹1,008 per share will translate into an OFS size of ₹1,152.03 crore. 

  •    The 114.29 lakh shares in the OFS is being offered by a mix of promoter shareholders and investor shareholders. Out of the 114.29 lakh shares offered in the OFS, 17.39 lakh shares will be offered by the promoter shareholders; 10.46 lakh shares will be offered by the promoter group shareholders; 72.34 lakh shares by BC Investments IV Ltd; and the balance by other individual shareholders.

  •    Therefore, the total IPO of Emcure Pharmaceuticals Ltd will comprise of a fresh issue and an OFS of 1,93,65,346 shares (193.65 lakh shares approximately) which at the upper end of the price band of ₹1,008 per share aggregates to total issue size of ₹1,952.03 crore.
  The IPO of Emcure Pharmaceuticals Ltd will be listed on the NSE and the BSE on the IPO mainboard.
   

Emcure Pharmaceuticals IPO: Key Dates and Application Process

The IPO of Emcure Pharmaceuticals Ltd opens on Wednesday, 03rd July 2024 and closes on Friday, 05th July 2024. The Emcure Pharmaceuticals Ltd IPO bid date is from 03rd July 2024 at 10.00 AM to 05th July 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 05th July 2024.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on July 09th 2024, will be visible to investors under the ISIN Code – (INE168P01015). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

Emcure Pharmaceuticals IPO: Promoter Holdings and Investor Allocation Quota

The promoters of the company are Satish Ramanlal Mehta, Sunil Rajnikant Mehta, Namita Thapar, and Samit Satish Mehta. The promoters currently have a 98.90% stake in the company, which will get diluted post the IPO. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is a specific dedicated employee quota of shares as per the red herring prospectus (RHP). The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the Emcure Pharmaceuticals IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Emcure Pharmaceuticals Ltd, the minimum lot size is 14 shares with upper band indicative value of ₹14,112. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Emcure Pharmaceuticals Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Financial Highlights of Emcure Pharmaceuticals Ltd

The table below captures the key financials of Emcure Pharmaceuticals Ltd for the last 3 completed financial years. 

There are few key takeaways from the financials of Emcure Pharmaceuticals Ltd which can be enumerated as under:

a)    In the last 3 years, revenue growth has been rather modest. For instance, between FY22 and FY24, the sales have grown overall by about 14% while the employee benefit expenses in the same period are up by 28%. That is the reason there is pressure on profits and also on some of the key ratios like the ROE and ROA. 

b)    While the net margins of the company have been quite strong at 7.48%, the trend is once again the same, with the net margins falling from a high of 11.31% in FY22. Similarly sharp fall in ROE and ROA is also seen in the latest year and that can also be attributed to the profits getting impacted by the sharply higher manpower costs. 

c)    The company has relatively healthy sweating of assets at around 0.85X in the latest year, and this is normal in the pharma sector where a lot of investments tend to get front loaded. 

Overall, the company has reported modest growth in sales in the last 3 years, but the profits and the margins have not kept pace due to the relatively higher manpower costs incurred. That has reflected in falling ROE and ROA also, over the last two years.
 

Valuation metrics of the Emcure Pharmaceuticals IPO

Let us turn to the valuations part. On the latest year diluted EPS of ₹27.54, the upper band stock price of ₹1,008 gets discounted at a P/E ratio of 36-37 times of current earnings. That is fairly reasonable valuations from a pharma company standpoint, especially one that has a leadership position in the niche that it operates in. We do not have projected data, but the only question that the company may have to answer is whether they can arrest the persistent fall in profits and the fall in profitability ratios over the last 2 years.

Here are some qualitative advantages that Emcure Pharmaceuticals Ltd brings to the table:

•    The company has built a strong franchise in its core therapeutic area in the domestic and the global market. That is likely to be a serious moat for new players entering into this market, or even for existing players to venture. Also, this is backed by robust R&D.

•    The company has invested heavily in its R&D capabilities and its manpower quality and that is a long term wealth franchise that the company has built.

If you add up the qualitative factors and the valuation on P/E of FY24, the story looks to be reasonably good; although it is not too clear yet if the company can arrest the declining trend in profitability ratios. For investors with a longer waiting period and looking for a low correlation asset class, Emcure Pharmaceuticals Ltd IPO is a good addition to the portfolio.