Gland Pharma is set to open its initial public offering for subscription on November 9, but its premium in the grey market fell significantly after the announcement of issue price band at Rs 1,490-1,500 per share.
The grey market premium dropped to around Rs 50-70 against around Rs 200 quoted before the company fixed IPO price band, sources told Moneycontrol.
The fall is largely attributed to the pricing of issue which is comparatively on the higher side and also higher than market expectations given the 80 percent rally registered by the pharma index from March lows, experts feel.
In fact, the pharma was the second-highest gainer among sectors in the last 9 months, while the equity benchmark indices rallied 60 percent in same period and are near record high levels.
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"Gland Pharma is coming up with the IPO at PE levels of 30.1x for FY20 which is slightly premium to midcap pharma peers along with this company also trading at EV/Sales of 8.1x and EV/EBITDA of 20.1x for FY2020 which are also expensive to peers. Price band fixed by the company is above market expectations as per market news," Yash Gupta - Equity Research Associate at Angel Broking told Moneycontrol.
Pharma index has given a good run-up throughout this year, hence at this point of time the pharma index is consolidating and other sectors have taken the lead, he said.
Gaurav Garg, Head of Research at CapitalVia Global Research feels the market was expecting a price band at around Rs 1,300 per share, which may be the reason for the fall-off premium on the grey market.
Gland Pharma is largely owned by the Chinese companies Fosun Singapore and Shanghai Fosun Pharma with 74 percent stake pre-offer, which could be one of the reasons for the decline in premium, given the clashes between India and China at border, experts feel.
"At a time when border tensions are heating up, the business is largely purchased by the Chinese company and 3.87 percent of the stake is held by 10 companies belonging to Ramalinga Raju's and the family involved in the Satyam scam," Gaurav Garg said.
Gland Pharma will launch its maiden public offer on November 9, which consists a fresh issue of Rs 1,250 crore and an offer for sale of over 3.48 crore shares by promoters and others.
Promoters Fosun Pharma Industrial Pte and Gland Celsus Bio Chemicals will sell over 1.9 crore shares and 1 crore shares via offer for sale respectively, while Empower Discretionary Trust will offload 35,73,014 equity shares and Nilay Discretionary Trust 18,74,500 equity shares.
The issue will close on November 11. The company aims to raise Rs 6,479.54 crore via public issue, of which Rs 1,943.86 crore has already been raised from anchor investors on November 6.
The company will utilise the net fresh issue proceeds towards funding incremental working capital requirements, funding capital expenditure requirements and general corporate purposes.