ICICI direct.com has come out with a report on Bafna Pharmaceutical's IPO. It has recommended investors to subscribe the issue.
The issue has opened for subscription with its initial public offering (IPO) of 64,00,000 equity shares of face value Rs 10 each. The issue will close on May 30, 2008. The price is fixed at Rs 40 per equity share.
ICICI direct.com report on Bafna Pharmaceutical IPO:
Bafna Pharmaceuticals is a Chennai-based company engaged in manufacturing drug formulations. Currently, it sells its products to domestic institutional clients and unregulated markets. It now plans to foray into the domestic retail and regulated markets. Bafna is awaiting approval from the UK MHRA for its newly constructed plant near Chennai. The facility is already EU GMP compliant. With the approval, the company plans to enter the regulated market of UK, which offers better growth and margin prospects. It also plans to enter the retail prescription market, which is margin accretive.
The company intends to enter the CRAMS segment, which would boost its growth outlook. CRAMS offers a better growth outlook due to low-cost advantage in India. The company is well diversified in terms of therapeutic segment exposure with presence in anti-infective, cardio-vascular, analgesic and antipyretic, antihelmintics, appetite stimulants, cough & cold preparations, antiulcerants, anti diabetic and vitamins.
The company would be badly impacted if it does not receive approval from the UK MHRA. Without the approval, it cannot sell its products in the high-margin UK market and its revenue profile would remain unchanged. It is currently operating on a wafer thin operating margin of 5-8%. Well established and bigger companies already have a presence in the regulated markets. For a new entrant like Bafna, it may be difficult to gain a foothold. The company intends to enter into the very competitive domestic retail prescription market. We believe this would result in an increase in marketing expenses and put pressure on the EBIDTA margins.
Valuation:
The annualized EPS for FY08 (on a nine-month profit and post-IPO fully diluted equity) of Rs 1.08 discounts the offer price of Rs 40 by 37.04x. The annualized weighted average FY08 EPS (at full year equity of Rs 9.58) of Rs 1.82 discounts the issue price by 22x. Though the pricing looks expensive, we believe the company’s foray into the lucrative regulated and domestic retail markets would boost revenue visibility. Meaningful revenue would accrue only from FY10 onwards. Investors with a long-term perspective should subscribe to the issue.
Source: Moneycontrol.com
Wednesday, May 28, 2008
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