Glenmark Generics (GGL) a subsidiary of Glenmark Pharmaceuticals (GPL) and an integrated generics and API player has received CRISIL IPO Grade 4/5 for its proposed initial public offer (IPO) of around Rs 575 crore. GGL plans to utilise around Rs 480 crore to part pay the loan due to GHSA (Glenmark Holding S.A., subsidiary of parent company - GPL) for the purchase of its generics business. The rest is expected to be used for general corporate purposes.
GGL has a business presence in North America, EU and South America (Argentina) besides maintaining marketing front-ends. GGL markets APIs to more than 65 countries across the world. The manufacturing facilities of the company are situated in Goa, Ankleshwar (Gujarat), Kurkumbh and Mohol (Maharashtra) in India. The company's API plant at Ankleshwar and its formulation plant at Goa are approved by the US FDA and MHRA.
The CRISIL grade indicates that the fundamentals of the IPO are above average relative to the other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The grade is not a recommendation to buy/sell or hold the graded instrument, or a comment on the graded instrument's future market price or its suitability for a particular investor.
The IPO grade reflects the company's status as a fast growing Indian generics company. According to estimates by CRISIL Research, drugs worth an estimated USD 137 billion is scheduled to go off-patent in the US and Europe over the next 5 years, which implies significant generics opportunity for India. GGL, given its dominant position among Indian players in the global generics market, is well placed to capitalise on the emerging opportunities in generics and to consolidate its presence in the regulated markets of US and Europe. The grading takes into account the company's strong product pipeline and strategy of focusing on niche and complex molecules in the US market. The grading also takes into account the relevant experience and domain expertise of the promoter and the top management and their demonstrated capabilities in driving business growth.
The grading is, however, constrained by the stiff competition the company faces from the Indian as well as the international generic players operating in the US and European markets. Further, the grading is also affected by the fact that the company's revenues and profitability in the pharmaceutical industry will remain sensitive to the extent of competition (through the entire R&D process till the time of FDA approval). The grading is tempered by the risk associated with non-compliance of the regulatory requirements or cGMP norms and their impact on business growth.
The company's revenues amounted to Rs 10.4 billion in 2008-09, of which its US formulation business accounted for 71 per cent. During the year, the company's operating margins were at 30.4 per cent, which were relatively higher than that of its peers. The higher profitability can be attributed to the company's strategy of focusing on niche segments where the realisations are better due to relatively lower competition levels.