Month: July 2021

1. IPO details:

The company through the IPO will look to mobilize Rs. 1513.6 crore. Price band for the issue is pegged between Rs. 695-720 per share

IPO offer period: July 27- July 29

BRLM: Kotak Mahindra Capital Company, BofA Securities India and Goldman Sachs (India) Securities are the global co-ordinators and book-running lead managers to the offer.

Issue details: Fresh issuance of 1.47 crore equity shares and an offer for sale of up to 63 lakh equity shares by promoter Glenmark Pharmaceuticals.

Market lot: 20 equity shares and retail investors can apply for up to 13 lots. Up to 35% of the quota is reserved for retail investor class.

2. About the company:

Glenmark Life Sciences is a leading developer and manufacturer of active pharmaceutical ingredients (APIs). The company is a fully owned subsidiary of Glenmark Pharmaceuticals. The company works with 16 of the 20 largest generic companies globally. (Source: A Year of Surprises Shakes Up Off-Patent Industry” | Informa, 2020)

The company provides APIs for cardiovascular disease (CVS), central nervous system disease (CNS), pain management and diabetes.

The company’s portfolio comprises 120 APIs and through employing innovative approach as well as operational excellence for delivering reliability as well as consistent product quality. Powered by its massive, world-class manufacturing and research capabilities, the company supplies high-quality APIs to over 540 pharma companies in multiple countries.

3. Issue objectives:

As per the Business Purchase Agreement (BPA), the company will use the mobilized funds for payment of outstanding purchase price to the promoter for the spin-off of the API business from the promoter into the company amounting to as much as Rs. 800 crore, financing capital expenditure requirements (Rs 152.76 crore), and for general corporate purposes.

4. Financials and Grey market premium:

Glenmark Life Sciences for the Fy21 period logged a net profit of Rs 351.58 crore and revenue of Rs 1,885.16 crore.

In the grey market or market for unlisted securities, shares of Glenmark Life Science are available at a premium of Rs. 110 per share, which indicate the shares of Glenmark Life Science on listing may provide good listing gains.

5. Brokerage recommendations on Glenmark Life Sciences’ IPO:

Ashika Research has given a ‘Subscribe’ rating to the IPO issue of Glenmark IPO considering the fact that In terms of the valuations, on the higher price band, GLS demands a P/E multiple of 25.1x based on FY21 post issue fully diluted EPS. Almost all listed peers are trading in the range of 30x – 60x and industry average is at 40x. GLS is valued at discount to peers. Thus, issue appears attractive for investment, said Ashika Research. Further on the financials the brokerage said its performance has been quite impressive on all counts. Revenue and EBITDA recorded a CAGR growth of 15.8% and 17.3%, respectively through FY18- FY21, its net profit recorded a 9.6% CAGR over the same period. EBITDA margin has remained stable at ~31%.

ICICI Securities has given a ‘Subscribe’ rating to the IPO issue of Glenmark Life giving the rationale that priced at FY21 EV/EBITDA of 14.7x on upper band. GLS has a good performance execution and clean regulatory track record. The company is also a leading developer and manufacturer of select high value, non-commoditised APIs in chronic therapies and works with 16 of the 20 largest generic companies globally. The growth momentum also has a strong undercurrent of global API industry growth. We recommend SUBSCRIBE to the issue, added the brokerage research firm.

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3 Stocks To Buy With Strong Support, Says ICICI Securities

SKF India

SKF India is a renowned bearing manufacturer that specializes in deep groove ball bearings and has a presence in the industrial and automotive sectors.

SKF India Results:

SKF announced strong Q1FY22 performance. Revenue for the quarter was Rs 693.5 crore (I-direct estimate: Rs 638.3 crore), up 130.2 percent year over year but down 18.2 percent quarter over quarter.

In Q1FY22, EBITDA was Rs 113.8 crore, down 23.3 percent from the previous quarter. With a tax rate of 25.2 percent, subsequent PAT in Q1FY22 stood at Rs 79.1 crore.

“SKF has been making strides towards innovation and R&D and has made significant inroads in REP. Going ahead, a recovery in auto, upcoming e-market & commencement of DFC should augur well for the company. Build-in revenue, EBIDTA, PAT CAGR of 18.6%, 22.2%, 25.2% respectively Target Price and Valuation: We value SKF at Rs 3300 i.e. 35x P/E on FY23E EP,” ICICI said in its research report.

• CMP: Rs 2852
• Target: Rs 3300 (16%)
• Target Period: 12 months

SKP India: Key triggers for future price performance

• The auto industry’s recovery should help the manufacturing sector.
• The upcoming DFC in mid-CY22, which will push out Class K bearings, as well as metro developments in 25-26 new cities, would give the industrial industry a boost.
• A new e-market is set to launch, with the goal of increasing reach and market share while also reducing counterfeit products.

Alternate Stock Idea:

In addition to SKF, we like NRB Bearings in our capital goods coverage. It is based on needle roller bearings, which are commonly used in automobiles. BUY with a price target of Rs 175 per share, it added.

Crompton Greaves Consumer

Crompton Greaves Consumer (CGCEL) is one of India’s largest fast moving electrical goods (FMEG) companies, with a 78 percent revenue share in electrical consumer durables and lighting (22 percent of revenue).

With a value market share of 24 percent in the domestic fan sector, it is the market leader.

With a three-year average RoE and RoCE of 34% and 39%, respectively, and a strict working capital management, the balance sheet is robust.

Crompton Greaves Consumer Q1FY22 Results:

• Higher other costs slowed the EBITDA margin’s recovery.
• Revenue increased by 46% year on year to Rs 1050 crore (down 31 percent QoQ) Price increases (5-6 percent )
• A better product mix helps to keep gross margins consistent year over year.
• However, higher advertising costs and other costs resulted in a 215 basis point EBITDA margin reduction to 12% YoY. PAT climbed by 27% year on year to Rs 95 crore, in line with topline growth.

“CGCEL’s share price has grown by ~3x in the past five years (from ~| 157 in July 2016 to ~| 467 levels in July 2021). We maintain our BUY rating on the stock Target Price and Valuation: We value CGCEL at Rs 540 i.e. 45x P/E on FY23E EPS,” according to ICICI securities.

• CMP: Rs 468
• Target: Rs 540 (16%)
• Target Period: 12 months

Crompton Greaves Consumer: Key triggers for future price performance

• Under the government’s main plan, PMAY, 1.7 crore new dwellings will be built and 20 million water pumps will be replaced.
• Home appliance demand is boosted by KUSUM, urbanisation, and rising ambition. In the next five years, add dealers in locations with populations of 10 to 100 thousand people.
• Focus on premium product introductions to drive margins.
• In FY21-23E, model sales and earnings CAGRs are 17 percent and 10%, respectively.

Alternate Stock Idea:

In addition to CGCEL, we enjoy Havells in the same area. The restoration of Lloyds revenues and increase in margins would be a trigger for Havells’ future revenue growth. BUY with a price objective of Rs 1345.

United Spirits

United Spirits (USL) is India’s largest alcoholic beverage firm and a part of Diageo plc, the world’s largest alcoholic beverage corporation. Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Royal Challenge, McDowell’s No 1, Smirnoff, and Captain Morgan are among the premium liquor brands it produces and sells.

Q1FY22 Results:

• USL had a strong first quarter of FY22. Revenues were up 57 percent year over year, with volumes up 61 percent to 15.8 million cases.
• In Q1FY22, EBITDA was Rs 168 crore, with margins of 10.4%. (vs. loss of Rs 78 crore in Q1FY21)
• As a result of the extraordinary loss of Rs 36 crore, subsequent PAT was at Rs 69 crore (vs. a loss of Rs 215 crore).

“USL with its new CEO (earlier stint ~2.5 years as MD, Diageo Africa Emerging Markets) is charting a newer course for its next leg of growth (focus on building newer alliances for growth and stability of supplies, strategic review of popular brands to get finished in December, 2021). We remain positive on the long term growth prospects of the stock and maintain our BUY recommendation Target Price and Valuation: We value USL at Rs 770 i.e. 46x P/E on FY23E EPS,” ICICI said in its report.

• CMP: Rs 655
• Target: Rs 770 (18%)
• Target Period: 12 months

United Spirits: Key triggers for future price performance

• Double-digit return ratios and substantial cash generation are expected in the future.
• Newer distribution channels (e-commerce) and portable packaging (Hipster) are expected to engage with a younger client base.

Alternate Stock Idea

Apart from USL, we remain bullish on Radico. It has been reporting volume growth well ahead of the industry and is planning to enter the premium whisky category. It has been steadily reducing its overall net-debt from a peak of Rs 950 crore in FY21 to Rs 198 crore in FY21, and generated Rs 380 crore in CFO.

Disclaimer

Stock investing is risky, and investors must exercise caution. Neither Greynium Information Technologies Pvt Ltd nor the author are liable for any losses caused as a result of decisions made based on the information provided in this article. Investors should exercise prudence while the markets have reached new highs. Please seek professional advice before investing large sums of money.