The initial public offering (IPO) of biotechnology company Concord Biotech kicked off for subscription on Friday, August 4 and will be available till August 8.

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The IPO, which is completely an offer for sale (OFS) of 2.09 crore equity shares up, aggregating up to Rs 1,551 crore, is priced in the range of Rs 705-741 per share. There is no fresh equity issue in the IPO.

Investors can bid for a minimum of 20 equity shares in one lot, and its multiples thereof.

Helix Investment would mark its complete exit. Under the OFS, Helix Investment Holdings Pte Ltd, backed by private equity firm Quadria Capital, will offload 2.09 crore equity shares.

GMP

The grey market premium (GMP) of Concord Biotech Ltd has remained firm. Last heard, the shares of the company were commanding a premium of Rs 185 per share in the unlisted market, rising about 23 percent in a day from Rs 150 apiece on Thursday.

The company is expected to deliver a decent listing pop, as per the current grey market signals.

The grey market is an unofficial market wherein the shares can be bought and sold till the listing on the BSE and NSE.

Investors may apply for listing gain: Analysts

Though analysts have a 'Subscribe' rating to the IPO, they remain a bit cautious on the purely secondary (OFS) issue, which is an exit route to Helix Investments, where in post issue Concord Biotech is not receiving any funds for any growth capital.

"In view of strong global footprint, diversified products portfolio, robust in-house R&D capabilities and experienced management team, we recommend a subscribe to the issue," said Reliance Securities.

According to Swastika Investmart, the company has a diversified global customer base, strong R&D capabilities, and scaled manufacturing facilities. However, its international operations expose it to complex management, legal, tax, and economic risks.

"Additionally, the industry has been facing margin pressure in recent quarters. It is also worth noting that this IPO is purely an OFS, meaning that the company will not receive any proceeds from the offering. While the valuations may not appear overly attractive, this IPO could still deliver a moderate return, thus investors may apply for listing gain," the brokerage said.

Choice Broking has a subscribe rating for the issue, as the brokerage said, "Considering the manufacturing capabilities and geographic presence CBL is well placed to benefit from the expansion in the market."

"The issue is valued at 32x P/E in line with the peer group’s average of 32x. We believe CBL could benefit from the industry tailwinds given its PLI approval in place. Hence, we recommend a Subscribe," according to Motilal Oswal.

For CDMO biz, China+1 strategy is playing out

Speaking to CNBC-TV18, Ankur Vaid, Joint MD & CEO of Concord Biotech said, "The CDMO business is where we see the China plus one strategy playing out because many of the CDMO players went to China in search of larger capacities. But now from a de-risking perspective, and China plus one strategy they're looking in terms of where they can partner with which potential partners they can work with. And definitely India is a preferred choice."

"And within India, Concord, being an expert in the fermentation space, becomes a partner of choice in such kind of molecules. So we're seeing more and more increased interest coming in the CDMO place, but again, such kind of CDMO opportunities do take time. And that's why we consider it more from a medium to a long term perspective strategy for us," he noted.

Key concerns

1) Dependence on a limited number of customers for a substantial portion of its revenues.

2) They have significant working capital requirements. If they experience insufficient cash flows to fund their working capital requirements, there may be an adverse effect on the business.

3) Their international operations expose them to complex management, legal, tax and economic risks, which could adversely affect their business.

4) They operate in a highly-regulated industry and various aspects of their operations are subject to extensive laws and regulations in India and internationally.

5) The pharmaceutical industry in which they operate is highly competitive.

Financials

Concord Biotech posted an 18 percent compound annual growth rate (CAGR) in revenue over FY21-23 with the EBITDA margin of 40 percent. The company's return ratios are healthy with RoE/RoCE of 20 percent and 19 percent and it generated free cash flow over the last two years with FCF/EBITDA at 29 percent.

The company is one of the leading global manufacturers of select fermentationbased APIs (F-APIs) across immunosuppressants and oncology with market share of over 20 percent by volume in 2022.

It is present across the fermentation value chain, and supplies to over 70 countries including regulated markets, such as US, Europe and Japan, and India.

As of FY23, Concord Biotech had 23 APIs (89 percent of revenue), which it aims to increase further, especially in anti-infective/oncology segments.

The Ahmedabad-headquartered biotechnology firm is backed by Quadria Capital Fund and Rare Enterprises, which was set up by late investor Rakesh Jhunjhunwala, along with his wife Rekha. The ace stock market investor passed away in August last year.

Kotak Mahindra Capital, Jefferies India, Citigroup are the book-running lead managers and Link Intime India is the registrar for the issue.

The shares of Concord Biotech will be listed on both BSE and NSE, with August 18 as the tentative date of listing.

First Published:Aug 4, 2023 10:53 AM IST