Emcure Pharma IPO: Profitable or Overpriced? (Analysts Can’t Agree – 1 Might Shock You!)

Emcure Pharmaceuticals’ IPO opened on July 3 at a price range of Rs 960-1,008, aiming to raise Rs 1,952.03 crore. The company, backed by Shark Tank India’s Namita Thapar, plans to use proceeds for debt repayment and general corporate purposes. It has strong financials, with FY24 revenue of Rs 6,715.24 crore and a net profit of Rs 527.58 crore. Analysts highlight its leadership in key therapeutic areas, R&D focus, and global presence. Most brokerages recommend subscribing, citing reasonable valuation and growth potential. The IPO is valued at a P/E ratio of around 36x, seen as fair by many. Some caution remains due to regulatory risks and past profitability declines.

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Emcure Pharma IPO: Investment Opportunity or Overvaluation?

IPO Details and Subscription Timeline

Emcure Pharmaceuticals, backed by Shark Tank India’s Namita Thapar, is set to launch its initial public offering (IPO) on July 3, 2024, with the subscription window closing on July 5, 2024. The IPO is priced between Rs 960 and Rs 1,008 per share, with a minimum lot size of 14 shares. The company, founded in 1981, operates 13 manufacturing facilities in India and has a strong global presence.

The IPO aims to raise Rs 1,952.03 crore, comprising a fresh issue of Rs 800 crore and an offer-for-sale (OFS) of 1,14,28,839 shares from promoters and existing shareholders. The fresh issue proceeds will primarily be used to repay or prepay outstanding borrowings and for general corporate purposes.

Strong Backing and Market Position

Emcure Pharma has already raised Rs 582.6 crore through anchor investors, with prominent participants including Abu Dhabi Investment Authority, Goldman Sachs, Morgan Stanley, SBI, HDFC, ICICI Prudential, Whiteoak Capital, Axis, Kotak, Nippon Life India, Mirae, and Motilal Oswal.

Ranked 13th in domestic sales among Indian pharmaceutical firms (as of September 2023), Emcure Pharma holds the fourth-largest market share in its covered segments. It leads the market in gynaecology and HIV antiviral therapies. The company reported a net profit of Rs 527.58 crore on revenues of Rs 6,715.24 crore for FY24, compared to Rs 561.85 crore profit and Rs 6,031.72 crore revenue in FY23.

Investment Decision: Subscribe or Wait for Listing?

Emcure Pharma employs 552 scientists across five research facilities and has filed over 1,800 regulatory documents globally, including 204 in the EU and 133 in Canada. It also holds 201 granted patents, with 33 more pending approval.

The IPO has allocated:

• 50% shares to Qualified Institutional Buyers (QIBs)
• 15% to Non-Institutional Investors (NIIs)
• 35% to Retail Investors
  Additionally, 1,08,900 shares have been reserved for employees at a discounted price of Rs 90 per share.

The issue is managed by Kotak Mahindra Capital, Axis Capital, JP Morgan India, and Jefferies India, with Link Intime India as the registrar. Shares will list on BSE and NSE on July 10, 2024.

R&D-Driven Growth and Market Expansion

According to Anand Rathi Research, Emcure Pharma has strong growth potential due to its emphasis on R&D and scalable operations. The company has a diverse product portfolio including orals, injectables, and biotherapeutics, ensuring its presence across 70+ countries, particularly in India, Europe, and Canada. The firm believes the IPO is reasonably priced and recommends a long-term subscription.

Similarly, Reliance Securities highlights Emcure’s focus on chronic care therapies, which are expected to outpace acute therapies in growth over the next five years. With new manufacturing facilities and enhanced sales strategies, the brokerage sees strong future growth potential and has given a ‘subscribe’ rating.

Financial Performance and Valuation

Arihant Capital Markets notes that while Emcure Pharma has seen steady revenue growth, profitability has declined due to high finance costs. However, with the IPO proceeds being used to repay debt, financial performance is expected to improve. At the upper price band, the IPO is valued at 36.07x P/E based on FY24 earnings, which they consider reasonable, leading to a ‘subscribe’ recommendation.

Nirmal Bang Securities points out that Emcure’s 6-7% CAGR revenue growth has been impacted by rising employee and operational costs. However, debt reduction should enhance profitability. The IPO is priced at an EV/EBITDA of 16.7x, lower than the peer average of 27.4x, making it an attractive investment opportunity.

Balanced Valuation and Industry Challenges

Swastika Investmart acknowledges Emcure Pharma’s strong brand, diverse product portfolio, and R&D capabilities, but also highlights challenges such as regulatory risks and reliance on third-party distributors. Despite these factors, they believe the valuation is reasonable and recommend subscribing.

StoxBox supports investing in Emcure due to its leadership in key therapeutic areas, global presence, and effective brand-building strategies. They consider the 36.6x P/E ratio fair and endorse the IPO.

Long-Term Growth Potential

Both SBICap Securities and Canara Bank Securities emphasize Emcure’s domestic and international market expansion, strong R&D, and expected profitability boost post-IPO. The valuation at 36.1-36.6x P/E is deemed reasonable, prompting a ‘subscribe for the long term’ rating.

Cautious Outlook

Sushil Finance, however, advises a cautious approach, as the IPO is priced at a P/E ratio of 36.6x and P/BV of 6.17x. They recommend investing with a medium-to-long-term perspective, considering both the opportunities and associated risks.

Final Verdict: Subscribe for Growth Potential

Emcure Pharma’s IPO is backed by strong financials, market leadership, and R&D-driven growth, making it an attractive long-term investment. While concerns exist over profitability due to high costs, the planned debt reduction is expected to enhance margins. With multiple brokerages giving a ‘subscribe’ rating, investors seeking exposure to the pharmaceutical sector with a chronic care focus may find this IPO a worthwhile investment.