Eris Lifesciences has a strong track record of growth and profitability, says Angel Broking.
Eris Lifesciences, an Ahmedabad-based pharma company, is offering shares to public through an initial public offer (IPO), which opened today (June 16). The IPO comes at a time when the entire pharma industry is witnessing increased regulatory crackdown from foreign regulatory bodies and pricing pressure in their biggest market - the US. However, Eris Lifesciences IPO is unlikely to be affected by the weak sentiment towards pharma sector as it is purely a domestic focused company with focus on lifestyle related diseases and without any product being under price control, say analysts. The Rs 1,741-crore IPO is priced in a band of Rs 600-603 and will be open for three days through Tuesday (June 20). Investors can apply for the IPO in lot sizes of 24 shares. Employees will get a discount of Rs 60 on the final offer price. The issue was subscribed 75 per cent on Monday.Here are 5 things to know about Eris Lifesciences IPO:
1) Eris Lifesciences IPO is purely an offer for sale and the company does not intend to raise any fresh capital through this issue. Existing investors are selling 2.89 crore shares to public through this IPO. Post this issue, promoter holding in the company will fall to 55.93 per cent from 59.2 per cent now. Eris Lifesciences has raised Rs 779 crore from 21 anchor investors at Rs 603 per share on Thursday.
2) Started in 2007, Eris Lifesciences has become the 32nd biggest company in India, according to domestic revenue market share. It manufactures and sells branded pharmaceutical products in chronic and acute therapeutic areas such as cardiovascular, anti-diabetics, vitamins, gastroenterology, and anti-infective. Its primary focus has been on developing products in the super specialties in the chronic and acute category, which are linked to lifestyle-related disorders.
3) Eris Lifesciences is a 100 per cent domestic branded generic player and the company has no intention to start exports. This is a differentiated strategy, says Angel Broking, "as it insulates the company form the risk of foreign regulator as well as higher expenses in terms of R&D. This bodes well in the times of heightened regulatory issues in the sector."
4) Eris Lifesciences has a strong track record of growth and profitability. Its revenues have witnessed a compound annual growth rate (CAGR) of 16.5 per cent in last five years, while its net profit saw a CAGR of 42.6 per cent. For FY17, the company reported a net profit of Rs 242 crore on sales of Rs 725 crore, with operating margin at 37.1 per cent, much better than its Indian and MNC peers, said Angel Broking.
5) At the upper end of the price band, Eris Lifesciences shares are valued at 34.25 times its FY17 earnings per share of Rs 17.6, which is at par with its MNC peers but higher than domestic peer Alkem Labs, said Angel Broking. "Considering that Eris' faster growth, superior returns, debt free status, and specialty play, we believe that this is a fair valuation," the brokerage said. It has a "subscribe" rating on the issue. Eris' high dependence on a few suppliers and single manufacturing facility in Assam and a change in domestic regulations adverse to the branded generic companies are key risks in its business, the brokerage said.