Highlights
| Issue Size –: 27,345,162 shares | Issue Open/Close – 30 July / 01 Aug, 2024 |
| Price Band (Rs.) 646 – 679 | Issue Size (Rs.) – 18,567 mn |
| Face Value (Rs) 2 | Lot Size (shares) 22 |
Akums Drugs and Pharmaceuticals Limited (ADPL) incorporated on 2004, is a pharmaceutical contract development and manufacturing organization (CDMO) offering a comprehensive range of pharmaceutical products and services in India and overseas.
Some of their other services include formulation research and development (R&D), preparation and filing of regulatory dossiers in the Indian and global markets, and other testing services. In addition to their core CDMO business, they are also engaged in the manufacturing and sale of branded pharmaceutical formulations and active pharmaceutical ingredients (APIs).
As one of the leading CDMOs in India, they own the intellectual property for the manufacturing processes of several of their formulations, and their core business is focused on providing end-to-end product development and manufacturing solutions to their clients.
As a CDMO, they produce an extensive range of dosage forms including (i) tablets (ii) capsules (iii) liquid orals (iv) vials (v) ampoules (vi) blow-filled seals (vii) topical preparations (viii) eye drops (ix) dry powder injections and (x) gummies, among others. During the FY24, they had a market share of 30.2 pct of the Indian domestic CDMO market by value, which increased from 26.7 pct during the FY21.
Since their inception, they have manufactured 4,146 commercialised formulations across over 60 dosage forms. During the FY24, they have manufactured formulations for 26 of the leading 30 pharmaceutical companies in terms of sales in India.
Out of the total proceeds of Rs. 18,567 mn, Rs. 550 mn would go towards funding incremental working capital requirement of the company. Rs. 1,599 mn would go towards repayment and/or prepayment of all or certain outstanding borrowings availed by the company, ~Rs. 2,270 mn would utilize towards repayment/prepayment of all or certain borrowings of their subsidiaries namely, Maxcure Nutravedics Limited and Pure and Cure Healthcare Private Limited, ~Rs. 2,381 mn would utilize towards general corporate purpose and ~Rs. 11,767 mn would go towards existing selling shareholders of the company.
Key Highlights
- As per F&S report, the Indian domestic CDMO market is forecasted to grow at a CAGR of 14.3 pct between FY24 and FY28, nearly doubling its historical growth rate. Moreover, the market size of Indian domestic CDMO market is expected to grow to USD 2.8 bn during FY28 and ADPL is poised to benefit from growing market and opportunities.
- In their CDMO business, they operate 10 manufacturing units, with a cumulative formulations manufacturing capacity of 49.23 bn units annually, as of FY24. Further, they expect their new injectable facility to be operational in FY25. Some of their manufacturing units have been accredited by various global regulatory agencies such as the European Good Manufacturing Practice (EU-GMP), the World Health Organization Good 210 Manufacturing Practice (WHO-GMP) and the United States National Sanitation Foundation (US NSF).
- In their core CDMO business, they engage in marketing their own branded formulations in India and across global markets, and have established a domestic and international presence through their Subsidiaries Akumentis and Unosource, respectively. Through Akumentis, they focus on therapy areas such as gynaecology, cardiology, orthopaedic and paediatric and through Unosource the focus on therapy areas such as anti-infectives, analgesics, central nervous system, and gynaecology.
- Their key strategy includes (i) to leverage their leadership position to continue to increase their market share and consolidate their position in the CDMO market (ii) sustaining R&D for product development across therapies and dosage forms (iii) grow their domestic formulations business (iv) Expanding their global presence through strategic initiatives and (v) scale their API business.
- ADPL plans to offer APIs into semi-regulated and regulated markets and explore contract manufacturing of APIs for overseas markets. Pursuant to this, they aim to secure regulatory approvals in multiple jurisdictions such as the Philippines, South Korea, Vietnam, Europe, and South America, among others, followed by other regulated markets. This initiative positions them as a reliable manufacturer for pharmaceutical companies seeking high-quality API manufacturing services.
- Sales of the company has grown by ~6.67 pct CAGR during the period FY22-24. During FY24, company reported sales of Rs. 41,782 mn which grew by ~14.20 pct YoY while EBITDA fell by 59 pct YoY to Rs. 1,570 mn as EBITDA margin shrank sharply from 10.38 pct in FY23 to 3.73 pct in FY24. As of FY24 the company reported profit of Rs. 7.9 mn which was fell by ~99 pct YoY. Losses were due to accounting adjustments related to fair value changes in financial instruments (put option liability).
Key Risk
- ADPL relies on third party providers to carry out clinical trials on products introduced by them. While they do not have direct control over such trials, any occurrence of non-compliance with applicable regulations, or any errors or omissions during the trial process could adversely affect ADPL business.
- They export their products to regulated and semi-regulated markets and a failure to comply with the regulatory and other requirements of such markets could have an adverse effect on their business.
Financial Performance
| Particulars | FY22 | FY23 | FY24 |
| Sales (in Rs. mn) | 36719 | 36548 | 41782 |
| EBITDA (in Rs. mn) | -691 | 3841 | 1570 |
| EBITDA Margin (%) | -1.87% | 10.38% | 3.73% |
| EBIT (in Rs. mn) | -1638 | 2712 | 314 |
| EBIT Margin (%) | -4.43% | 7.33% | 0.74% |
| Profit (in Rs. mn) | -2509 | 978 | 8 |
| Profit Margin (%) | -6.79% | 2.64% | 0.02% |
| Fixed Asset Turnover ratio | 3.79 | 3.41 | 3.3 |
| D/E Ratio (X) | 58.00% | 75.00% | 0.69 |
| RoE (%) | -40.13% | 13.52% | 0.11% |
| RoCE (%) | -18.89% | 24.60% | 3.31% |
| Adj EBITDA (in Rs. mn) | 4251 | 3401 | 5148 |
| Adj EBITDA Margin (%) | 11.51% | 9.19% | 12.22% |
| Adj EBIT (in Rs. mn) | 3304 | 2273 | 3891 |
| Adj EBIT margin (%) | 8.94% | 6.10% | 9.24% |
| Adj RoE (%) | 14.51% | 3.11% | 17.19% |
Peer comparison based on FY24 Financials
| Particulars | Akums Drugs and Pharm | Divi’s Laboratories | Torrent Pharma | Alkem Laboratories | Mankind Pharma |
| Sales (in Rs. mn) | 41782 | 78450 | 107280 | 126676 | 103348 |
| EBIT (in Rs. mn) | 324 | 21660 | 26180 | 22570 | 24177 |
| EBIT Margin (%) | 0.74% | 26.47% | 24.27% | 17.39% | 22.77% |
| EBITDA (in Rs. mn) | 1570 | 25440 | 34260 | 25563 | 28159 |
| EBITDA Margin (%) | 3.73% | 31.09% | 31.76% | 19.70% | 26.53% |
| Profit (in Rs. mn) | 7.9 | 16000 | 16560 | 18115 | 19418 |
| Profit Margin (%) | 0.02% | 19.55% | 15.35% | 13.96% | 18.29% |
| Fixed Asset Turnover ratio | 3.3 | 1.42 | 1.34 | 5.35 | 2.21 |
| D/E Ratio (x) | 0.69 | 0 | 0.57 | 0.12 | 0.02 |
| RoE (%) | 0.11% | 11.79% | 24.15% | 16.91% | 20.28% |
Valuation
Akums is among the largest domestic market-focused Indian CDMOs on a revenue basis serving IPM, with a market share of 9.3 pct by value in FY23 in the total addressable Indian domestic CDMO market and 8.8 pct by volume in the total IPM market in FY23. While the market share by value increased to 10.0 pct, the volume share remained almost stable at 8.7 pct in FY24. In the Indian domestic CDMO market, the company had a market share of 30.2 pct by value in FY24, which increased from 26.7 pct in FY21. At the upper end of the price band of Rs. 679 the issue is priced at a PE of ~29x its FY24 earnings after adjusting put call liabilities. The issue looks fully priced. However, one can subscribe for listing gains.
Also read: Evolving Landscape of Financial Advisory in India
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