What you must know about Mono Pharmacare IPO

Mono Pharmacare Ltd was incorporated in 1994 and is engaged in the business of marketing and distribution of pharmaceutical products. It counts some of the top pharma companies in India as its key clients. Mono Pharmacare Ltd is a distributor and supplier of a wide array of pharmaceuticals products and medicines. Mono Pharmacare Ltd offers healthcare and cosmocare products as part of its portfolio. Under healthcare products, it offers antibiotic medicines, cough and cold related anti allergic medicines, antifungal medicines, Nutraceutical medicines, analgesic, antipyretic medicines, Antacid medicines, and cardiac–diabetic medicines. Under the Cosmocare products the company offers sunscreen lotions, charcoal anti-pollution facewash, deep cleansing facewash, aqua lemon skin rejuvenating facewash and foaming facewash.

On the distribution side, Mono Pharmacare Ltd works directly with over 23 companies including marquee names like Abbot, Reddy Labs, Elder Pharma, Eris Lifesciences, HLL Lifecare, Mylan, Novo Nordisk, Pfizer, Sanofi, Torrent Pharma, Cadilla, Alembic, Emcure and Wockhardt. The Ahmedabad Medical Corporation works closely with over 13 companies including Bayer, Cipla, Natco, Sun Pharma, Zydus and Micro Labs. Finally, Supal Distributors unit works closely with Alkem, Biocon, Ajanta Pharma, GlaxoSmithKline, Lupin, Hetero, Intas and Johnson & Johnson. Mono Pharmacare is currently led by Panilam Lakhatariya, with over 20-years exposure to the pharmaceutical field.

Key terms of the SME IPO of Mono Pharmacare SME IPO

Here are some of the highlights of the Mono Pharmacare IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 28th August 2023 and closes for subscription on 30th August 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price band for the fresh issue IPO has been fixed in the band of ₹26 to ₹28 per share. For all analysis purposes, the upper end of the price band has been considered.
   
• The IPO of Mono Pharmacare Ltd has only a fresh issue component with no book built portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, Mono Pharmacare Ltd will issue a total of 53,00,000 shares (53 lakhs), which at the upper end of the band price of ₹28 per share aggregates to a total fund raising of ₹14.843 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will comprise of 53 lakh shares, which at the upper end of the price band of ₹28 per share will aggregate to ₹14.84 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 2,76,000 shares. The market maker for the issue is Rikhav Securities Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Panilam Lakhatariya and Supal Lakhatariya. The promoter holding in the company currently stands at 81.02%. However, post the fresh issue of shares and the OFS, the promoter equity holding share will reduce to 56.72%.
   
• The fresh issue funds will be used by the company for meeting its working capital funding gaps and for general corporate expenses. Part of the monies raised will also go towards meeting the expenses of the issue.       
   
• While Unistone Capital Private Ltd will be the lead manager to the issue, Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Rikhav Securities Ltd.

Mono Pharmacare IPO allocation and minimum lot size for investment

The company has allocated 10% of the issue size for the QIBs, 45% for the retail investors and the balance 45% for the HNI / NII investors or the non-retail investors in the IPO of Mono Pharmacare Ltd. The break up in terms of minimum and maximum allowed quota has been captured in the table below.

The minimum lot size for the IPO investment will be 4,000 shares. Thus, retail investors can invest a minimum of ₹112,000 (4,000 x ₹28 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 8,000 shares and having a minimum lot value of ₹224,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Mono Pharmacare IPO

The SME IPO of Mono Pharmacare Ltd IPO opens on Monday, August 28th, 2023 and closes on Wednesday August 30th, 2023. The Mono Pharmacare Ltd IPO bid date is from August 28th, 2023 10.00 AM to August 30th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is August 30th, 2023.

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.

Financial highlights of Mono Pharmacare Ltd

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

Data Source: Company DRHP filed with SEBI

The company has reported net margins of 2.8% only in the current year, whereas in previous years the net margins were under 1%, which raises serious questions about the ability of the company to sustain valuations. By default, the pharma distribution business is a very low margin business, but then bargaining power matters a lot, which does not appear to exist in this case. Also, the ROE is consistently below 10% which is unlikely to inspire valuations beyond a point. Also, if you look at the sales trend of the company, the sales are up nearly 3-fold over the last 3 years. However, bulk of this growth came in FY21, with the average growth in revenues less than 7% in the last 2 years.

The traditional P/E model becomes difficult to apply in the case of Sahaj Fashions as the company has delivered a relatively better performance only in the latest year. Also, the P/E equations change drastically if the current year is included but remain unattractive if the latest FY23 year is not included. One must also factor the fact that bulk of the top line growth came in FY21 and not much has grown after that. That is the real challenge for investors as they need to take a call on whether the FY23 performance was an exception or a sustainable model for the future. The investment call would be based on the kind of risk that investors are willing to take; and in this case the risk appear to outweigh the rewards. Investors have to be cautious since the risks are high and the returns generated on capital and on sales have been relatively tepid in the last 3 years. It remains a high risk decision.