Things to know about the Sotac Pharmaceuticals IPO

Sotac Pharmaceuticals Ltd was incorporated in the year 2015 and is based out of the state of Gujarat. Sotac Pharmaceuticals Ltd is into the business of manufacturing pharma products for varied marketers on a loan license basis. This is also better known as contract manufacturing, which falls under the CRAMS model, wherein pharma contractors offer the complete range of services ranging from manufacturing to research to testing facilities.

Currently, SOTAC caters to over 162 institutional / corporate clients offering them contract manufacturing of pharmaceuticals. It has been scaling up operations quite aggressively. It currently has a manufacturing capacity of 90 crore tablets per year, in addition to capacity of 14 core capsules per year. The company will use the fresh funds from the IPO to invest in subsidiary companies, upgrade existing premises and for working capital purposes.

The focus of Sotac Pharma has been to offer contract manufacturing in pharma of a wide scale and at economical rates. In India, Sotac Pharma has presence across 25 states, with a network comprising of over 500 stockists, 10,000 prescribers and over 500,000 retail outlets. Its international presence is in the Philippines, Mauritius, Ghana, Yemen, Sri Lanka, Kenya, Mozambique, the USA, Iraq, Afghanistan, and Cambodia.

Key terms of the SME IPO of Sotac Pharmaceuticals Ltd

Here are some of the highlights of the Sotac Pharmaceuticals Ltd IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 29th March 2023 and closes for subscription on 03rd April 2023; both days inclusive. This extended time line is due to a slew of business and clearing holidays coming in between.
   

• The company has a face value of Rs10 per share and the SME IPO of Sotac Pharma will be entirely by way of fresh issue of shares. The price band for the book built IPO has been set in the range of Rs105 to Rs111 per share.
   

• The overall issue of Sotac Pharmaceuticals Ltd will comprise of 30.00 lakh shares, which at the upper end of the price band of Rs111 will aggregate to Rs33.30 crore. This will entirely be a fresh issue of shares for the said amount and there will not be any OFS component. Fresh issue tends to be equity and EPS dilutive for the company.
   

• The company has allocated 50% of the issue size for the QIB segment, 15% for the HNI / NII segment and 35% for the retail investors. This will be on the net offer, after excluding the market maker allocation for the SME IPO issue of Sotac Pharmaceuticals Ltd.
   

• The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of Rs133,200 (1,200 x Rs111 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 2,400 shares and having minimum value of Rs266,400. There is no upper limit on what the HNI / NII investors can apply for. The allocation can be summarized as under.

Application	Lots	Shares	Amount
Retail (Min)	1	1200	₹133,200
Retail (Max)	1	1200	₹133,200
HNI / NII (Min)	2	2,400	₹266,400

• Like every SME IPO, this issue also has a market making portion with an allocation of 150,000 shares. Sunflower Broking Private Ltd will act as the market maker to the issue providing two-way quotes to ensure liquidity on the counter.

• The company has been promoted by Sharad Kumar Patel, Vishal Patel, Chetan Patel and others and the entire 100% stake in the company is currently owned among the promoter and the family groups. However, post the IPO, being a fresh issue of shares, the promoter stake will be get diluted proportionately.

While Beeline Capital Advisors Private Ltd will be the lead manager to the issue, KFIN Technologies Ltd will be the registrar to the issue.

Key dates to be aware of in the Sotac Pharmaceuticals IPO (SME)

The SME IPO of Sotac Pharmaceuticals Ltd opens on March 29th, 2023 and closes on April 03rd, 2023. The Sotac Pharmaceuticals Ltd IPO bid date is from March 29th, 2023 10.00 AM to April 03rd, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5.00 PM on the issue closing day; which is the 03rd April 2023. Here is a quick gist of the important dates that investors need to be aware of in the SME IPO of Sotac Pharmaceuticals Ltd.

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. Being an NSE-SME IPO, Sotac Pharma Ltd will only be listed on the NSE SME segment.

Financial highlights of Sotac Pharmaceuticals Ltd

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

Data Source: Company DRHP filed with SEBI

The profit margins of Sotac Pharmaceuticals Ltd have been fairly low and erratic, but that is the nature of the contract manufacturing business. Margins are globally under pressure although the business volumes are expected to build up. That is evident from the strong sales growth, even as profits have been erratic. However, the company has an established model with a rapidly growing market in the Indian and the global context and that is a major edge. However, investors must remember that this is a traditionally low margin where margins can be extremely erratic and entry barriers are not too high. That could be an overhang on valuations; and would suite investors with a slightly higher risk appetite.