Akums Pharma placed at a vantage point in pharma growth

ET Intelligence Group: India’s largest domestic-focused contract development and manufacturing organisation (CDMO) Akums Drugs &Pharma is rolling out a ₹1,856-crore initial public offer (IPO) that includes a fresh issue of ₹680 crore and the rest an offer for sale. The promoter brothers Sanjeev Jain and Sandeep Jain are diluting their stake from 82.4% to 75.2%. Of the IPO proceeds, ₹387 crore will be used toward debt repayment and ₹55 crore for working capital requirements.

Business: Incorporated in 2004, Akums is a leading contract manu facturer of pharmaceutical formulations. It serves 26 out of the leading 30 players in the Indian pharma market. Akums earns 78% of its revenues from its CDMO business, 17% from branded & generic formulations and 5% from active pharma ingredients (API). Its top 10 customers contribute nearly 40% of its revenues. It has 12 manufacturing facilities and four R&D units. The company spends 2.7% of revenues on R&D. It has the widest range of dosage forms with a presence in 29 out of 34 forms.

Financials & Growth Prospects:
The company’s revenues have grown from ₹3,672 crore in FY22 to ₹4,178 crore in FY24. The company has a put option liability due to a buyback obligation that had a notional impact on its net profit. Adjusting for that impact, the net profit rose from ₹243 crore in FY22 to ₹358 crore in FY24. The company’s FY23 performance stands subdued against that of FY22, which saw high sales amidst the Covid pandemic. The operating profit (Ebitda) margin stood at 12.2% and its return on capital employed (ROCE) at 17% for FY24.

India’s addressable CDMO market is estimated to be around ₹60,000 crore. Outsourcing is steadily increasing due to the significant cost advantage with India being a preferred destination. Akums being a market leader in the India CDMO business along with a presence in API and trade generics is in a promising position in the industry.

Valuations: At an implied market cap of over ₹10,687 crore, the IPO values the company at 2.5 times its FY24 revenues and 29.8 times its adjusted earnings. This is fair pricing for the company when compared with the valuation commanded by its smaller peer Innova Captab, which is trading at a PE of 32 but has a higher Ebitda margin and ROCE. Investors interested in the pharma CDMO space can consider the IPO.