Company Overview
Innova Captab Limited is an integrated pharmaceutical company in India with a presence across the pharmaceuticals value chain, including research and development, manufacturing, drug distribution, marketing, and exports. Their business includes (i) contract development and manufacturing organization (“CDMO”) business providing manufacturing services to Indian pharmaceutical companies, (ii) domestic branded generics business and (iii) an international branded generics business. The company’s product portfolio includes tablets, capsules, dry syrups, dry powder injections, ointments and liquid medicines. In FY23 and the three months ended June 30, 2023, the company produced and sold more than 600 different types of generics. These products were distributed under the company’s brands in the Indian market through a network of approximately 5,000 distributors and stockists and over 150,000 retail pharmacies. In addition, Innova Captab exported its branded generic products to 16 countries at the end of the three months ended June 30, 2023. As of October 31, 2023, the company employed a team of 29 scientists and engineers in its research and development laboratory. The company has two manufacturing facilities located in Baddi, Himachal Pradesh and ranked third among peers in terms of finished tablet and capsule manufacturing capacity in India. As of October 31, 2023, the company has 200 active product registrations and 20 registrations pending renewal with international authorities. In addition, 218 new registration applications are being processed with international authorities.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Repayment and / or prepayment in part or in full, of certain outstanding loans of Company;
- Investment in our Subsidiary, UML, for repayment and / or prepayment in part or full of outstanding loans availed by UML;
- General corporate purposes
Investment Rationale:
Leading and fastest-growing CDMO player in the Indian pharmaceutical formulations market
Among the Indian formulation CDMO players considered in the CRISIL report, the company recorded the third highest operating revenue, the second highest operating profit margin, the third highest net profit margin and the second highest return on capital employed in FY22. The CDMO segment growth is expected to be driven by strong demand from outsourcing development and manufacturing of new products by big pharmaceutical companies, including Indian MNC and global companies. The company has positioned itself to benefit from the growth in the CDMO market by developing strong R&D and manufacturing operations for customers to support their domestic sales and exports to specific markets. Innova Captab’s comprehensive CDMO formulation capabilities offer customers multiple dosage forms, including oral solids, oral liquids, dry syrups and injectables, and capabilities in more complex delivery forms such as modified and sustained release forms and tablets in capsules. CDMO’s product portfolio spans both acute and chronic therapeutic areas. CDMO products sold have grown from 1,066 in FY21 to 2,467 in FY23. To maintain its market position, the company is continuously expanding its portfolio.
Diversified portfolio of product offerings across various price points
In their CDMO business, the company has developed strong relationships across the Indian pharmaceutical industry. In FY23, they had 182 CDMO customers. Some of the company’s key customers include Cipla, Glenmark Pharma, Indoco Remedies, J. B. Chemicals, Ajanta Pharma, Mankind Pharma, etc. The company believes that the increasing use of outsourcing by pharmaceutical companies has created opportunities for them to build more strategic relationships with customers. They typically enter into long-term CDMO agreements with customers ranging from two to five years, resulting in predictable and stable cash flows. Customer engagements are dependent on them to deliver quality products consistently. The company’s potential customers may require considerable time to approve them as suppliers to ensure that all their quality controls are met and that they meet all their regulatory requirements across various jurisdictions and multiple regulators. Innova Captab aims to maintain relationships with top pharmaceutical customers, build a customer base, and strengthen existing customer product baskets.
Valuation and Outlook:
The company has been engaged in the contract-based manufacturing of pharmaceutical formulations since 2005, which has led to well-established relations with customers and suppliers. The company manufactures formulations for both domestic and foreign pharmaceutical companies, including several reputed entities such as Cipla, Glenmark Pharma, Indoco Remedies, J. B. Chemicals, Ajanta Pharma, Mankind Pharma, etc. Further, Innova Captab’s strong brand recognition, long-term relationships, and ongoing active engagements with distributors have helped the company to expand its product offerings and geographic reach. The company also has a record of sustained consolidated revenue from operations, growing at a CAGR of 50.2% during FY21-23. The company’s focus on branded generic products for the domestic and international markets, strong brand presence, consistent financial performance, and R&D focus to build an increasingly complex product portfolio and customer stickiness have helped it to grow its business successfully. As we advance, the improvement in operational performance is expected to be driven by the ramping-up of operations in recently acquired Sharon Bio-Medicine Ltd. along with timely execution and commercialization of the Jammu project. The issue is valued at a P/E of 31.6x on the upper price band based on FY23 earnings, which is fairly valued. We, therefore, recommend an SUBSCRIBE rating for the issue.
