Emcure Pharma opens for subscription today: Should you subscribe? Know all about it here

Emcure Pharma, where Namita Thapar, of Shark Tank India fame, serves as a member of the promotor group, opens for subscription today. The company aims to raise Rs 800 crore via fresh issue of 0.79 crore shares and Rs 1,152.03 crore via offer for sale, wherein promotors will offload around 1.14 crore shares in the market.

Emcure Pharma's IPO will close for subscription on on 5th July, with allotment to be finalised by 8th June, and listing on BSE and NSE scheduled for 10th July. But should you subscribe to this IPO? What are the experts saying? Lets find out

About Emcure Pharma

With 13 manufacturing and 5 research facilities across the country, Emcure Pharma develops, manufactures and markets a wide range of pharmaceuticals, which includes orals, injectables and biotherapeutics. The company, which recorded the highest domestic sales in gynecology and human immunodeficiency virus (HIV) antivirals therapeutic areas in India in FY24, has its target market in about 70 countries.

The company's total revenue from operation, as of 31st March 2024, stood at 6,658.251 crore, up sharply from Rs
5,985.811 crore it earned as of 31st March, 2023. As of 31st March, 2024, 48.28% of its revenue stemmed from sales in India, while 51.72% of its revenue came from sales outside India. The company also holds around 220 patents, alongside having 30 pending patent applications in several countries. Emcure Pharma had generated a profit of Rs 527.57 crore in FY24, slightly down from Rs 561.84 crore in FY23. The company intends to utilise the proceedings from IPO for general corporate purposes, and repaying and prepaying some loans.
The company reported Profit After Tax margins of 11.81% in FY22, 9.31% in FY23 and 7.86% in FY24.

How much can you invest?

Retail investors can buy a minimum of 1 lot (14 shares) at Rs 14,112, or 14 lots (196 shares) at Rs 1,97,586. 50% of the issue has been allotted for QIBs (qualified institutional buyers), while 15% has been reserved for non-institutional investors, and 35% has been set aside for retail investors. The share's price band has been kept between Rs 960 and Rs 1008.

What are the risks?

Despite the company's strong bottom line performance, it is not without its fair share of risks. For starters, the company operates in the heavily regulated and scrutinised space of pharmaceutical development and manufacturing. Any failure to renew their licenses or permits, either in India or abroad, could have adverse business implications. Some other risks include:

• The company's heavy reliance on third parties for distribution and marketing of its products. A slight change in that could impact the company's supply and product pricing.
  
• Emcure has experienced negative cash flows in the past and may continue to do so in the future.
• Any manufacturing, quality control issues, or the inability to timely commercialize their research could dent their reputation and business, while opening them to strict regulatory action.
  
• The company has significant working capital needs, which is exacerbated by its negative cash flows.
  
• Emcure has issued show cause notices by the Regional Director, MCA on account of non-compliance with Companies Act. Additionally, they have some civil proceedings pending in the US as well.
• Certain therapeutic areas contribute to a more significant portion of the company’s total revenue in India, and their business may be adversely affected if their products in these therapeutic areas do not perform as expected.

What are the experts saying?

As per the IPO note of Master Capital Service Ltd, the IPO is fairly valued relative to its listed peers, and that the IPO should be subscribed to from a long-term perspective.

"The company is looking to utilize the fresh proceeds to pare down their long-term debt and bring it to zero. The company has gone from strength to strength historically with a focus on major therapeutic areas such as gynaecology and is looking to double down on its strengths to fuel its future growth and expand its
margins", it continued.

Swastika Investmart Ltd also recommends subscribing to this IPO from a long-term horizon. "Emcure Pharmaceuticals is a prominent player in the domestic and international pharmaceutical markets. The company boasts a large, diversified, and fast-growing product portfolio, coupled with proven brand-building capabilities and strong R&D infrastructure. Emcure has demonstrated consistent top-line growth, although recent profitability has seen a slight decline due to interest expenses and depreciation".

"However, some key risks require careful consideration. The pharmaceutical industry is highly regulated, and Emcure faces potential disruptions to its raw material supply chain. Additionally, the company relies on third parties for product marketing and distribution. Considering the company's strengths, growth trajectory, and the potential for debt reduction post-IPO, we view the P/E valuation of 36.6x as reasonable. We recommend applying for this IPO with a long-term view", it continued.

As stock analyst Dilip Dawda highlights, Emcure is a R & D driven pharma company that has posted continuous growth. "However, its bottom line posted declining trends with higher provisions for interest and depreciations. Based on FY24 earnings, the issue appears fully priced. Investors may park funds for the medium to long term rewards", he advises.