Innova Captab IPO - Outlook, Valuation, Future Growth Strategies, Risks, Peer Comparison: KRChoksey

KRChoksey Research Report

Innova Captab Ltd. launched its initial public offering on Dec 21 and will conclude on December 26. An integrated pharmaceutical company had fixed the price band in the range of Rs 426 to Rs 448. The minimum order lot is 33.

The 570-crore IPO comprises of fresh issue of equity shares worth up to Rs 320 crore and an offer-for-sale of Rs 250 crore, up to 55.80 lakh equity shares by promoters and selling shareholders.

Investment Rationale

• Increasing demand for  contract development and manufacturing organisation and Innova’s position as one of the largest market players in India to drive growth.

• The quality quotient is high indicative of likely strengthening of its competitive edge.

• Cost rationalisation to sustain profitability.

• Rapid rise in demand for branded generics to drive growth.

Key strengths

• Leading presence and one of the fastest growing CDMOs in the Indian pharmaceutical formulations market.

• Well established relationships with marquee CDMO customer base.

• Highly efficient operations, including world class manufacturing facilities and supply chain.

• Rapidly growing domestic and international export branded generics businesses.

Future growth strategies

• Expansion of manufacturing capacities.

• Continued focus on research and development operations.

• Growing international export business.

• Acquisition of Sharon Bio-Medicine Limited (Sharon').

Key risks

• Recent acquisition may not materialize as anticipated.

• Depends on limited number of CDMO customers.

Outlook and valuation

Innova Captab, is promoted by experienced management such as Manoj Kumar Lohariwala (Chairman and whole time Director) and Vinay Kumar Lohariwala (Promoter and Co-Founder and MD) (holding 66.8% pre-IPO), with over 26 and 21 years of industry experience, respectively, in the field of manufacturing and marketing of pharmaceutical products.

The company is considered to be the third largest in terms of revenue generated and net profits margin generated in FY22 as per CRISIL among the CDMO players.

It has 14 of the top 15 Indian pharma companies as its customers for its CDMO services. Its branded generics business is also growing at a strong pace in line with increased demand for branded generics products in India and overseas markets as well as its increased capacity for the same.

Innova Captab has acquired 100% of the Sharon Bio – Medicine Ltd. under the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC) in Q1 FY24 for Rs 1,954 million.

The acquired company is into API and intermediates and finished dosages manufacturing and CDMO services, largely exporting with 75.3% of revenue coming from it for FY23.

The acquisition has been made at ~12.5 times of Sharon’s Ebitda for FY23, which looks slightly expensive. Nevertheless, given the likely synergies from the acquired entity and incremental revenue and improved profitability likely, we recommend 'Subscribe' to the issue.

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