Windlas Biotech IPO: Date, Price band & Review

Windlas Biotech IPO opens for subscription on 4th August. The company is looking to raise Rs 401.5 crore through the public issue. Here are the details:

Windlas Biotech IPO Date: 4th August – 6th August 2021

Windlas Biotech IPO Price band: Rs 448 – 460 per share

Issue Size: Rs 401.53 crore (Fresh equity shares worth Rs 165 crore and offer for sale by promoters and shareholders worth Rs 236.54 crore.)

Post Issue Implied Market Cap: Rs 1,002.54 Crore

Reservation: QIB 50%, Retail – 35%, NII 15%.

Employee Reservation: NA

Bid lot: 30 shares, and in multiples of 30 shares

IPO Objective

• To part finance its plans for the purchase of equipment for expansion projects – Rs 50 crore
• Working capital – Rs 47.56 crore
• Repayment/prepayment of certain borrowings – Rs 20 crore
• General corpus fund needs

About Windlas Biotech

• The company was incorporated in 2001, and they are one of the leading companies in the pharmaceutical formulations CDMO (Contract Development and Manufacturing Organization) in India.
• The company offers a range of CDMO services from product discovery to product development, commercial manufacturing of generic products, licensing.The company also sells its own branded products in the OTC market and trade generics.
• The company’s top customers include leading pharma companies like Cadila Healthcare Ltd, Pfizer Ltd, Sanofi India Ltd, Emcure Pharmaceuticals Ltd, Eris Lifesciences Ltd, Systopic Laboratories Private Limited, etc.
• It has four manufacturing facilities located at Dehradun and Uttarakhand with an installed operating capacity of 54.46 million pouches/ sachet, 7,063.83 million tablets/ capsules, and 61.08 million liquid bottles.
• In FY20, the company had a market share of 1.5% in terms of revenue in the domestic formulations CDMO industry.

Windlas Biotech Business Verticals

The company has three business verticals as below –

CDMO Services and Products: This vertical is focused on providing products and services across a diverse range of pharmaceutical and nutraceutical generic products for Indian as well as multinational pharmaceutical companies. In FY20, the company provided CDMO services to seven of the top 10 Indian formulations pharmaceutical companies.

Domestic Trade Generics and OTC Brands:The vertical consists of trade generic products and OTC brands. It includes nutraceutical and health supplement products that do not require a prescription and are marketed, distributed, and promoted in India under the company’s brand name through online and offline channels.

Exports – The vertical is engaged in identifying high-growth markets and opportunities in the semi-regulated international market as well as selected regulated markets.

Listed Peers

There are no listed companies in India that engage in a business similar to that of Windlas Biotech, so we cannot compare the company with others.

Company’s financials

• Windlas Biotech Limited has posted declining trends for bottom lines despite growth in top lines. The company has undertaken divestment (in FY19) and reacquisition (FY20) of its subsidiary, Windlas Healthcare and thus the company has few adjustments in its financials like impairment of goodwill, gain/loss in a joint venture, and associate company.
• The Return of Net Worth (RoNW) for FY19, FY20 and FY21 is 8.97%,8.04% and 18.19% respectively.
• CDMO Services and Products SBV accounted for 85%,Domestic Trade Generics and OTC Brands SBV accounted for 10% and Exports accounted for 5% of the total revenue from operations for FY21

USPs

• The company is one of the top players in the domestic pharmaceutical formulations CDMOs.
• They have an innovative portfolio of complex generic products supported by robust R&D capabilities.They are focused on developing and launching new complex generic products, particularly those related to the formulation manufacturing process and drug delivery.
• The complex generic products market has a high barrier to entry as these products are generally difficult to develop and require special know-how from the development and manufacturing perspective compared to conventional generic products
• They have long-term and strong relationships with leading Indian pharmaceutical companies. They have an increasing number of domestic CDMO customers from 92 in Fiscal 2018 to 143 in Fiscal 2020.

Growth Potential :

Further growth in CDMO customer base – In FY20, approximately 31% of the domestic formulations market was catered by CDMOs. The market is expected to grow from Rs 37,000 crore to Rs 40,000 crore by FY25.

Increase in product portfolio – The R&D efforts of the company focuses on expanding and diversifying their product and delivery system offering to cater to different therapeutic segments. The company intends to utilize R&D efforts to target select products which are currently under patent protection. Patents in relation to approximately 150 key products are likely to expire by FY26 and are expected to offer a significant growth opportunity to CDMO in India.

Strategic investments and acquisitions – The company has plans of selective acquisitions and strategic alliances that provide us access to better infrastructure, high-value technological and operational capabilities, technology expertise, industry knowledge, and geographical reach and allow us to expand our product offerings and customer base.

Key Risks :

Dependency on CDMO customers – As mentioned above, 85% of the company’s total revenue comes from CDMO customers. The company’s success so far is the result of its relation with CDMO customers. Any adverse developments or inability to maintain such relationships could have an adverse effect on the company’s business, results of operations, and financial condition.

New business risk – The company is entering into the new business of manufacturing injectables. If the company is unable to establish itself in the business segment and business conditions, the company’s cash flow may be adversely affected.

Working capital intensive – The business is working capital intensive. If they experience insufficient cash flows from operations or are unable to borrow to meet their working capital requirements, it may materially and adversely affect the business and results of operations.

Discrepancies – Certain of their corporate records are not traceable or have discrepancies. The company cannot assure that regulatory proceedings or actions will not be initiated against them in the future and they will not be subject to any penalty imposed by the competent regulatory authority in this regard.

Litigation – There are outstanding litigation proceedings against the Company and Directors. Any adverse outcome in such proceedings may have an adverse impact on their reputation, business, financial condition, results of operations and cash flows.

Dividend Policy 

The company has not declared dividends in the current financial year or the last three financial years. The company will follow a prudent dividend policy post listing based on prospects and financial performance.

Windlas Biotech IPO: INDmoney Recommendation

Windlas Biotech has reported a steady growth in topline, even though the bottomline has shown a declining trend. The company is one of the top players in the domestic pharmaceutical formulations CDMOs (Contract Development and Manufacturing). CDMOs have come into focus internationally over the last few years as large pharmaceutical players focus on optimising their operations. Windlas has a very long-term and strong relationship with leading Indian pharmaceutical companies such as Pfizer and Cadila healthcare. 

While the company does not have any direct listed peers, it competes with unlisted peers such as Theon Pharma, Synokem Pharma, and Innova Captab. Among these, Windlas Biotech has lower margins and return ratios as compared to Synokem and Theon Pharmaceuticals.  

At the higher end of the price band, Windlas Biotech is priced at a P/E ratio of ~64 times FY21 EPS (on a fully diluted on post-issue basis). While the P/E looks stretched, businesses are being priced at expensive valuations in this IPO season, and Windlas Biotech is no exception. Given the company’s leadership position, strong growth in topline, and good growth runway, we remain “positive” for listing gains. There needs to be caution on the long-term prospects of this issue