Concord Biotech Limited is an India-based biopharma company and one of the leading global developers and manufacturers of select fermentation-based APIs across immunosuppressants and oncology in terms of market share, based on volume in 2022, supplying to over 70 countries including regulated markets, such as the United States, Europe and Japan, and India. They commanded a market share of over 20% by volume in 2022 across identified fermentation-based API products, including mupirocin, sirolimus, tacrolimus, mycophenolate sodium and cyclosporine. As of March 31, 2023, they had a total installed fermentation capacity of 1,250 m3. In 2016, they launched the formulation business in India as well as emerging markets, including Nepal, Mexico, Indonesia, Thailand, Ecuador, Kenya, Singapore and Paraguay, and have further expanded to the United States. Company manufactures (i) bio-pharmaceutical APIs through fermentation and semi-synthetic processes, across the therapeutic areas of immunosuppressants, oncology and anti-infectives; and (ii) formulations, which are used in the therapeutic areas of immunosuppressants, nephrology drugs and anti-infective drugs for critical care. Concord Biotech is amongst the few companies globally that have successfully and sustainably established and scaled up fermentation-based API manufacturing capabilities. Complex technical capabilities, difficulties in scaling up operations and the substantial capital investment required have resulted in significant barriers to entry in the fermentation-based API space. Company has invested significantly in capacity expansion in recent years. With the increased capacities, they are in the process of scaling up the API production to serve more customers. As of March 31, 2023, they had 23 API products. They had filed 128 Drug Master Files ('DMFs') across several countries for the APIs, including 20, 65 and four, respectively, in the United States, Europe and Japan, as of June 30, 2023. In addition, they had obtained Certification of Suitability to the Monographs of the European Pharmacopoeia (“CEPs”) for 14 APIs as of March 31, 2023. As of March 31, 2023, company had three manufacturing facilities in the state of Gujarat, India, comprising API manufacturing facilities in Dholka and Limbasi and a formulation manufacturing facility in Valthera, which were commercialized in 2000, 2021 and 2016, respectively. The total annual installed fermentation capacity for APIs was 1,250 m3, as of March 31, 2023. They have a total of 41 manufacturing blocks and 387 reactors in the Dholka and Limbasi facilities, which allows them the flexibility in plant configuration to cater to customer demands. The Dholka facility has been subject to inspections by overseas regulators, including USFDA, Government of Upper Bavaria, Germany, PMDA of Japan, National Drug Authority of Uganda, and MFDS of Korea, on a periodic basis since 2005. In addition to the regulatory inspections, the Dholka facility has been subject to audits by the customers with regard to adherence to their specifications and standards since 2005. They intend for the Limbasi facility to cater to major regulated markets, subject to receipt of approvals from the regulatory authorities in these markets. Company has established two DSIR-approved R&D units with 148 members as of March 31, 2023, including members having doctoral qualifications. The R&D team has demonstrated ability to advance products, including complex products, from R&D to commercialization. The R&D initiatives focus on critical activities including new product development, cost improvement, process improvement, technology transfer and scale-up initiatives. As of March 31, 2023, they developed and commercialized 23 fermentation-based APIs with support from the R&D team. In addition, they offer contract research and manufacturing services, where they collaborate with third party pharmaceutical companies to develop APIs and formulations. Company had over 200 customers in over 70 countries as of March 31, 2023 for the APIs and formulations. They have entered into long-term supply agreements with some of the customers. The API customers include Intas Pharmaceuticals Limited and Glenmark Pharmaceuticals Limited. As of March 31, 2023, they had an average of eight years of relationships with the ten largest customers by revenue in the Financial Year 2023. For the Financial Years 2021,2022 and 2023, we generated revenues from operations of ?2,725.28 million, ?3,101.90 million and ?3,778.11 million, respectively, or approximately 44.17%, 43.51% and 44.28%, respectively, of the revenue from operations for the same years, from the ten largest customers by revenue for the respective years. As per financial performance, Concord Biotech Limited has posted total income / net profits of Rs 630.75 Cr / Rs 234.88 Cr (FY21) and Rs 736.34 Cr / Rs 174.92 (FY22) and Rs 888.47 Cr / Rs 240.08 Cr (FY23). So as per previous financials data, company has shown good growth. But company has high debt. Company has an average EPS of Rs 20.79 and average RoNW of 20% for last three fiscals. Issue is priced at a P/BV of 6.01 as per NAV of 123.3 as on 31.03.23. If we attribute latest earnings of FY22 on fully diluted equity post issue, then asking price is at a P/E of around 44.32 and as per FY23 earnings P/E is around 32.29, which looks fully priced. As per RHP, peers comparison is shown in above table. On BRLM's front, three lead managers are associated with this IPO, and have handled around 47 IPOs in last three fiscals.Kotak Mahindra Capital Company Limited : This is 32nd IPO from this BRLM. From last 10 IPOs, 2 opened below issue price and remaining above issue price or at par on the day of listing. As of now, from last 10 IPOs, 2 are trading below issue price and remaining are trading above issue price or at par. (As on 28.07.2023) Citigroup Global Markets India Private Limited : This is 11th IPO from this BRLM. From last 10 IPOs, 6 opened below issue price and remaining opened above issue price or at par on the day of listing. As of now, from last 10 IPOs, 9 are trading below issue price and remaining are trading above issue price or at par. (As on 28.07.2023) Jefferies India Private Limited : This is 7th IPO from this BRLM. From last 6 IPOs, 1 opened above issue price and remaining opened above issue price or at par on the day of listing. As of now, from last 6 IPOs, 2 are trading below issue price and remaining are trading above issue price or at par. (As on 28.07.2023) As per financials, Concord Biotech Limited has shown good growth, RoNW is 20.06% and P/E is respectively 44.32 and 32.29 as per FY22 and FY23 earnings, which looks fully priced and valuation is similar to listed peers. Also the IPO is complete OFS and brought to give exit to existing investor. Company is in business of development and manufacturing of select fermentation-based APIs and as per current sector trend near term results may see decrease in sales and profit margin. This Complete sector has under-performed market in recent past. Performance of one of the BRLM is very poor, while others are good. So, we give NEUTRAL rating for this IPO. Readers must consult a qualified financial advisor prior to making any actual investment decisions.
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