The initial public offer (IPO) of Eris Lifesciences Ltd opened for subscription on Friday, with a price band of Rs600-603 apiece. The Ahmedabad-based company is planning to raise Rs1,741.1 crore through the issue which closes on 20 June. The IPO is an offer for sale and will not raise any primary capital.
It has already raised Rs779.43 crore by selling shares to anchor investors, including Abu Dhabi Investment Authority, Goldman Sachs India Ltd, Morgan Stanley India Investment Fund Inc., SBI Magnum Balanced Fund, SBI Magnum Midcap Fund, Birla Sun Life Balanced, FIL Investments (Mauritius) Ltd, Merrill Lynch Markets Singapore Pte Ltd and IDFC Premier Equity Fund.
The objects of the offer are to get listing benefits and sale of 28.87 million shares by existing shareholders. The company expects that listing of equity shares will enhance visibility, brand image and provide liquidity to its shareholders.
Analysts said that the company’s strong financials with zero-debt status makes it attractive for investment. According to Angel Broking Pvt. Ltd, at FY2017 earnings per share (EPS) of Rs17.6, the issue is priced at price-to-earnings (PE) multiple of 34.25 times, which is at par with its multi-national peers but higher than domestic peers like Alkem Laboratories.
However, the brokerage firm still thinks the valuation is fair due to Eris’s faster growth, superior returns, debt-free status and specialty play. “While most pharma companies are currently facing issues on several fronts, this business model looks attractive with no United States Food and Drug Administration (USFDA) concerns and pricing pressure. We believe that Eris is likely to continue growing faster than its competitors owing to its marketing capability, higher operating leverage and growing market share of its mother brands,” said Shrikant Akolkar, senior research analyst, Angel Broking, in a 14 June report.
Eris Lifesciences manufactures and sells branded pharmaceutical products in the chronic and acute therapeutic areas. It gets 66% from the chronic segment and 34% from the acute segment. It has a formulations facility located in Guwahati.
Angel Broking said that the drug manufacturer’s business focusses on domestic markets which is a differentiated strategy and insulates it from the risk of foreign regulator as well as higher expenses in terms of research and development (R&D).
Hem Securities said that Eris Lifesciences is the fastest growing company in the chronic category among the top 25 companies in terms of revenue. Between the fiscal year 2013 and 2017, there has been an increase in the number of doctors prescribing its products from 37,842 to 50,282 with a prescription share of 1.3% for the fiscal year 2017. “At price band of Rs600-603, its PE is around 34.05-34.22 on FY17 EPS of Rs17.62 per share,” it said.
The company has reported a compounded annual growth rate (CAGR) of 16.5% in the top-line over the last five years and its Ebitda (earnings before interest, tax, depreciation, and amortization) margin was 37% in FY2017. Its margins have seen consistent expansion due to which its bottom-line CAGR is at 42.6% over the last five years.
Its return on equity (ROE) and return on capital employed (ROCE) was at 45% and 49%, respectively, in FY17.
Source: Mint