Concord Biotech IPO opens today: Should you subscribe to shield your portfolio?

The Rs 1,551-crore IPO of Concord Biotech will kick-off for subscription on Friday, August 4 and can be subscribed till Tuesday, August 8. The API manufacturer will be selling its shares in range of Rs 705-741 apiece with a lot size of 20 equity shares and its multiples thereof.

Incorporated in 1984, Concord Biotech is a homegrown research and development (R&D) driven biopharma company. The company is ranked among the leading global developers and manufacturers of select fermentation-based APIs across immunosuppressants and oncology.

The issue is entirely an offer-for-sale (OFS) of up to 20,925,652 crore equity shares by its selling shareholder Hellix Investment Holdings. The company has reserved 10,000 equity shares for the employees, who will get a discount of Rs 70 per share. Rare Trusts, which includes some entities of Rakesh Jhunjhunwala family, also owns a stake in the company.

Concord Biotech has a global presence, and supplies its products to more than 70 countries including the USA, India, Europe, and Japan. The company manufactures active pharmaceutical ingredients (API) through fermentation & semi-synthetic process and finished formulations. It started with a single product and has grown to become a wide-spectrum solution provider.

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For the year ended on March 31, 2023, Concord Biotech had reported a net profit of Rs 240.08 crore with a revenue of Rs 888.48 crore. The company had reported a net profit at Rs 174.93 crore, with a revenue from operations at Rs 736.35 crore in the year-long period.

Not more than 50 per cent of the net issue shall be offered to the qualified institutional bidders (QIBs), while non-institutional investors will get 15 per cent of the offer. Remaining 35 per cent of the equity shares shall be offered to the retail investors.

Kotak Mahindra Capital Company, Citigroup Global Markets India and Jefferies India are the booking running lead managers to the issue, while Link Intime India has been appointed as the registrar to the issue.

Ahead of its IPO, Concord Biotech raised Rs 464.95 crore from anchor investors by allocating them 62,74,695 shares at Rs 741 apiece, said a BSE circular. Anchor investors included the government of Singapore, Abu Dhabi Investment Authority, Government Pension Fund Global, Polar Capital Funds, HSBC Mutual Fund, WF Asian Reconnaissance Fund and Amundi Funds among others.

Majority of the brokerage firms are positive on the issue and have suggested subscribing to the issue citing its strong business model, global presence and in-line valuations. However, a fews analysts have suggested avoiding the issue citing its limited upside potential, complete OFS nature and dependency of large clients. Here's what a host of brokerage firms said about the issue:

Stoxbox
Rating: Avoid
Concord had over 200 customers in over 70 countries for both their APIs and formulations and has entered into long-term supply agreements with some of their customers. The company has a track record of sustained revenue growth which rose at a CAGR of 17.6 per cent during the FY 21-23 period, said Stoxbox, formerly known as BP Equities.

"On the upper price band, the issue is valued at a P/E of 32.2 times based on FY2023 earnings which we feel is richly valued, as it is higher than other industry API players such as Suven Pharma, Laurus Labs, and Glenmark Lifesciences. It is interesting to note that the entire IPO issue is by way of an OFS and no fund is being received by the company," it added with an 'avoid' rating.

Reliance Industries
Rating: Subscribe
On FY23 financials, the IPO is valued at 32.3 times P/E, 22.5 times EV/EBITDA and 9.1 times EV/Sales, on the upper price band. Concord has an established presence in the therapeutic areas and are well poised to benefit from the industry growth tailwinds. The immunosuppressant API portfolio is expected to remain one of the key contributors, said Reliance Securities.

"The R&D team is working on developing new formulations for which they expect to apply for ANDA approvals from the USFDA. 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," it added.

Swastika Investmart
Rating: Subscribe for listing gains
Concord Biotech is a leading fermentation-based API company with a strong track record. 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, said Swastika Investmart.

"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," it added, suggesting investors may apply for listing gain.

Choice Broking
Rating: Subscribe
At the higher price band, Concord Biotech's valuations are at discount to the peer average. Growth in the global market of fermentation-based APIs is expected to be driven by immunology, oncology and anti-infective therapeutic areas, said Choice Broking.

"It is focusing on these therapeutic areas with its wide range of niche & complex APIs. Moreover, considering its manufacturing capabilities and geographic presence CBL is well placed to benefit from the expansion in the market," it added with a subscribe rating for the issue.

Hensex Securities
Rating: Subscribe
Concord has an average of 8 years of relationships with their 10 largest customers by revenue for the financial year 2023 and their major chunk of revenue comes from top-10 major clients. It had a portfolio of 57 brands and 77 products manufactured by them, including 23 APIs and 53 formulations, said Hensex Securities with a subscribe rating from a medium term perspective.

Anand Rathi Shares and Stock Brokers
Rating: Subscribe for long term
Concord Biotech has established presence across the complex fermentation value chain with global leadership in immunosuppressant APIs along with a wide spectrum of complex fermentation-based APIs across multiple therapeutic areas and scaled manufacturing facilities with a consistent regulatory compliance track record and supported by strong R&D capabilities with diversified global customer base with long-standing relationships with key customers, said Anand Rathi with 'subscribe' tag.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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