Will Innova Captab see double-digit gains on debut?

Innova Captab: The pharmaceutical firm is set to debut on the bourses on December 29. The final issue price has been fixed at Rs. 448 per share.

Pharmaceutical firm Innova Captab is set to debut on the bourses on December 29. This will be the last mainboard listing for the current calendar year.

Analysts expect the stock to start its first day and first trade with up to 25 percent gains on the back of strong IPO subscription data, healthy financial performance, long-term relationships with leading pharma companies and a strong brand image.

The grey market is also indicating healthy debut of Innova Captab on the BSE and NSE. Its IPO shares were available at around 25 percent premium over the final issue price of Rs 448 per share in the grey market, an unofficial platform for trading in IPO shares till the listing, the market observers told Moneycontrol.

The Rs 570-crore public issue of the Himachal Pradesh-based pharmaceutical finished dosage formulation manufacturing company received an overwhelming response from investors with a subscription of 55.26 times during December 21-26 supported majorly by qualified institutional buyers (QIBs), who bought 116.73 times the portion set aside for them.

High networth individuals (HNIs) and retail investors also showed strong interest in the issue, subscribing 64.95 times the allotted quota and 17.15 times the reserved portion, respectively.

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"We expect the stock to list at a premium of around 25 percent to the issue price of Rs 448 per share," Prathamesh Masdekar, research analyst at StoxBox said.

He believes Innova Captab's strong brand recognition, long-term relationships and ongoing active engagements with distributors have helped the company expand its product offerings and geographic reach.

The company also has a record of sustained consolidated revenue from operations, growing at a CAGR of 50.2 percent during FY21-23. "The company's focus on branded generic products for the domestic and international markets, strong brand presence, consistent financial performance, R&D focus on building an increasingly complex product portfolio and customer stickiness have helped it to grow its business successfully," Prathamesh said.

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Innova earns maximum business from the contract development and manufacturing organisation (CDMO) segment, besides focussing on domestic and international branded generics businesses.

In its CDMO business, it provides products to several leading domestic pharma companies including Cipla, Glenmark Pharmaceuticals, Wockhardt, Emcure Pharmaceuticals, Lupin, Intas Pharmaceuticals, Indoco Remedies, Zuventus Healthcare, Ajanta Pharma, and Mankind Pharma. Revenue from the said grew at a 35.36 percent CAGR during FY21-FY23 to Rs 679.6 crore in FY23.

"Innova Captab could list at Rs 488-490 (against issue price of Rs 448), which would imply a PE of 52x i.e. expensive valuation versus peers," Saral Seth, VP - Institutional Equities at Indsec Securities said.

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Meanwhile, during the current financial year, the Manoj Kumar Lohariwala and Vinay Kumar Lohariwala-promoted pharma company acquired Sharon Bio–Medicine under the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC) in Q1FY24 for Rs 195.4 crore.

The acquired company is into API and intermediates and finished dosages manufacturing and CDMO services, largely exporting with 75.3 percent of its revenue for FY23. The acquisition has been made at ~12.5x of Sharon’s EBITDA for FY23, which looks slightly expensive, said KR Choksey Securities. Nevertheless, given the likely synergies from the acquired entity and incremental revenue and improved profitability, the brokerage had recommended 'subscribe' rating for the issue.

Innova Captab is going to utilise Rs 168 crore of net fresh issue proceeds for repaying debts of its own and its subsidiary UML, and Rs 72 crore for working capital requirements. The remaining proceeds will be kept for general corporate purposes.

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