Nectar Lifescience IPO


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Nectar Lifescience (NLL) is coming out with an initial public offer for issue of 38.70 lakh equity shares of Rs 10 each in the price band of Rs 200-240 per equity share to fund its expansion plans and to strengthen its R&D facilities. At the upper range of the issue price band, NLL will raise Rs 92.88 crore.

The company is among the few manufacturers that has integrated facilities for oral as well as a sterile range of active pharmaceutical ingredients (API) and API intermediates. NLL has a large presence in the manufacture of semi synthetic penicillin (SSP) and cephalosporin range of oral and sterile API.

For the year ended March 31 05, NLL recorded sales of Rs 232.70 crore. The EBDITA was Rs 43.10 crore and PAT was Rs 22.60 crore. During the FY01-05 period, NLLs sales grew by a CAGR of 16.2%, while its PAT has grown at a CAGR of 30.9%.

According to this, the company is among the top players in India in the sterile and oral range of cephalosporin API. It also has a wide range of products in both the sterile and oral range of API, including third and fourth generation cephalosporins.

The cephalosporin category is among the fastest growing categories in the anti-infective segment in India with a CAGR of 15% during the last five years with a domestic market size of nearly Rs 1,000 crore. Globally, the cephalosporin segment is amongst the top 10 drug classes with annual sales of $7.6bn.

NLL has a wholly-owned subsidiary in Sri Lanka Chemphamra (Private) Limited, which manufactures cephalosporin intermediates. This gives NLL the benefit of outsourcing production from Sri Lanka in terms of fiscal incentives like zero custom duty and income tax holidays.

According to the financial numbers so far, the operational performance on some parameters appears to compare well with competitors in the industry. The company proposes to expanding capacities to target regulated markets. It is setting up an oral cephalosporin and non-antibiotic facility as per USFDA and UK MCA guidelines at Derabassi (Punjab) to be operational by the first quarter of FY06. From IPO funds, it proposes to set up a sterile cephalosporin facility at Derabassi, as per USFDA guidelines.

After the above capacity expansion, NLL expects to double its turnover. It is also entering the non-anti-infective API segments by introducing non-antibiotic API like Simvastatin, Atrovastatin, Enalpril, Lisnopril and Fexofenadine.

It also plans forward integration into formulations and strengthening R&D capabilities using funds from the IPO. This would focus on developing new variants of cephalosporin for non anti-infective API for segments like the cardiovascular and anti-histamine segments.

The company also proposes to expand its Sri Lankan facilities to take advantage of various FTA agreements by the Sri Lankan government with other countries like Pakistan, China, US and European nations.On a pre-issue capital of 1,10,16,667 equity shares, the FY05 EPS was Rs 20.50. At the upper range of the price band at Rs 240, the NLL stock is valued at 11.7 x the FY05 pre-issue EPS.

The listed companies operating in a similar line of business are Lupin, Aurobindo Pharma and Orchid Chemicals and Pharmaceuticals. NLLs PE multiple appears attractive in comparison with these leading industry players, though NLLs size is not comparable with these companies. However, the financial numbers in respect of EBDITA margins, RoCE and RoNW appear healthy.

According to projections after completion of ongoing and proposed expansions from the IPO fund, NLLs turnover is expected to double from the current level. If the projections are achieved by FY07, its PAT (at current level of margins) should grow in line. At the offer price, the valuation appears attractive for long-term investors.


FY03 FY04 FY05
Sales 166.7 213.4 229.8
EBITDA 20.6 29.2 43.1
EBIT 16.5 24.2 36.4
Other Income 0.6 0.6 0.8
PBT 10.7 17.4 27.8
PAT 7.2 10.6 22.6
Equity 11.0 11.0 11.0
EPS (Rs.) 6.6 9.6 20.6

Share Holding Pattern Pre Offer Post Offer
Promoters & Group 89.1 65.9
Others 10.9 8.1
Pubic and others - 26.0

Here's what a brokerage house has estimated:

Scrip Estimates (at Min. Offer Price)
Market Cap (Rs. Cr.) 298
P/E(x) - FY05 (fully diluted) 9.7
Market Cap/Sales(x) FY05 1.3
Ent. Val/EBIT(x) FY05 10.5
Div./Share (Rs.) FY05 1
Div. Yield (%) FY05 0.5

At the lower end of the price band, the stock quotes at PE of 9.7x its FY05
EPS of 20.6. Due to high level of competition, the company would find
challenging times to deliver high growth rates. Till more clarity emerges on
future performance, adopt wait-n-watch strategy and avoid subscribing to the issue.


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