When Eris Lifesciences IPO opens for subscription next week, it will be the 12th mainboard IPO in India this year. Although the recent IPOs of PSP Projects and Indigrid InvIT Fund did not perform well and had discounted listings, investors have much to look forward to in case of Eris Lifesciences. Except price, all other important details about the IPO are now known. Here is a look at what makes Eris Lifesciences IPO special.
Eris Lifesciences was started by Amit Bakshi nearly a decade ago. Before starting Eris Lifesciences, Amit Bakshi spent nearly 12 years in the pharmaceutical industry. Majority of this experience was in sales and marketing functions at Torrent Pharma, Ely Lilly and Intas. Naturally, Bakshi has put together a well- qualified and experienced management team at the company. Its promoters have an average experience of over a decade in the pharmaceuticals industry.
Narrow focus on high margin generics
Eris Lifesciences manufactures and sells branded generics in the high margin super-specialty niches such as diabetes and hypertension. Quite clearly, the company’s focus is on developing products linked to lifestyle-related disorders. Its product portfolio comprised of 80 mother brand groups as of 31 March 2017.
The primarily focus is on therapeutic areas which require the intervention of specialists and super specialists such as cardiologists, diabetologists, endocrinologists and gastroenterologists. As these specialists and super specialists are based in metro cities and class 1 towns, the company’s sales in these markets accounted for a whopping 76.8% of its revenues in FY2017. Another important aspect of the company’s strong focus can be seen in the fact that it has no export operations. It is difficult to imagine a pharma company with annual revenues more than INR700 crore without exports.
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ChrysCapital as investor
Through its investment arm Botticelli, ChrysCapital’s owns 22,344,000 shares or 16.25% equity stake in the Ahmadabad-based specialty pharmaceutical player. While pricing of Eris Lifesciences IPO is not known as yet, ChrysCapital will likely make multibagger returns on its 2011 investment of INR160 crore (INR1.6 billion) in the company. It is noteworthy that ChrysCapital’s average cost of acquisition in Eris Lifesciences is INR87.27 per share.
Having been an investor in Intas Pharma and Mankind Pharma, ChrysCapital is no stranger to the pharma industry. Presence of a big private investor like ChrysCapital is not just a big positive for not just Eris Lifesciences but is also reassuring for retail investors.
Eris Lifesciences IPO = Full OFS
Eris Lifesciences IPO will not raise any money for the company and all the shares sold in the IPO will be offered by existing shareholders. In total, 28,875,000 shares will be offered in Eris Lifesciences IPO. The private equity player will be selling its entire stake in the company while CEO AMit Bakshi will also sell 687,500 shares or 0.5% stake in company. Following the offloading, Bakshi will still be the largest shareholder in the company with nearly 39.47%. Other investors selling their shares include Rakesh Shah, Rajendra Patel, Kausal Shah and Inderjeet Negi.
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Business growth and profitability
Amit Bakshi’s prior experience in the pharma industry and a narrow focus on high margin products has helped the company in registering strong revenue and profit growth in its relatively short operating history. In the 10 years of its existence, the company’s revenues grew from zero to nearly INR725 crore. Between FY2013 and FY2017, revenue growth translates into an average of 16.5%. And since the company is into high margin products, it is not surprising to see its profits galloping away. Between these years, Eris saw its profits growing 4X to INR242 crore. This means earnings surged 42.8% every year on an average!
In the latest financial year, Eris earned a net margin of 33.4% which is quite high considering that Alkem Laboratories’ margin stood at just 11.9% when it brought its IPO in late 2015. This is just to put things in perspective; double digit for generics is quite good.
Eris Lifesciences’ consolidated financial performance (in INR crore)
|Profit after tax||36.9||58.2||70.8||89.2||133.6||242.0|
|Profit margin (%)||13.5||14.8||13.9||16.4||22.4||33.4|
Source: Eris Lifesciences’ RHP
Some acquisitions too
Eris has largely expanded through organic growth without big acquisitions. However, the company has changed track slightly recently and acquired trademarks of 40 brands from Amay Pharma in July 2016 for INR32.9 crore. The acquisition has boosted Eris’ presence in the cardiovascular and anti-diabetics therapeutic areas. Eris Lifesciences also purchased nearly 75.5% equity stake in Kinedex through a series of transactions in late 2016. Kinedex primarily caters to mobility related disorders in the musculoskeletal therapeutic area and had revenues of INR83 crore in FY2017.
Since price of the IPO isn’t disclosed yet, there is no point in speculating about it. Once the company offers more details, we intend to analyze the IPO from pricing perspective. Till then, feel free to head to the discussion page for Eris Lifesciences IPO to get a sense as to what other investors think about this upcoming IPO.