What you must know about Innova Captab IPO?

About the Innova Captab Ltd business model

Innova Captab Ltd was incorporated in the year 2005 as a pharmaceutical company operating in 3 business segments. The first business vertical of Innova Captab Ltd provides contract development and manufacturing (CDMO) services to Indian pharmaceutical companies, which is the outsourcing of manufacturing, logistics and testing operations. The second vertical of Innova Captab Ltd is the domestic pharma business dealing in branded generics, which are the formulations based on the process patent approach. The third vertical of Innova Captab Ltd is the international business that deals in branded generics and caters to the global markets. The product portfolio of Innova Captab Ltd includes tablets, capsules, dry syrups, dry powder injections, ointments, and liquid medicines. In FY23 and in the first quarter of FY24, Innova Captab Ltd manufactured and sold more than 600 different types of generics; distributed under the company's own brands. It has a network of 5,000 distributors and stockists and a retail point of presence through more than 150,000 retail pharmacies. In addition, Innova Captab Ltd also exported its branded generic products to more than 20 countries in fiscal year FY23.

Currently, Innova Captab Ltd  employs a team of 29 scientists and engineers in its research and development (R&D) laboratory; which is one of the state-of-the art laboratories in the branded generics business. The company's manufacturing facility is located in Buddi in Haryana. Innova Captab Ltd  has a marquee customer list which includes highly respected names in the pharma field like Cipla, Glenmark Pharmaceuticals, Wockhardt, Emcure Pharmaceuticals, Lupin, Intas Pharmaceuticals, Medley Pharmaceuticals, Cachet Pharmaceuticals Limited, Eris Healthcare, Indoco Remedies Limited, and JB Chemicals. The company currently has more than 200 active product registrations and 20 registrations pending for renewal with the relevant international approval authorities. In addition, 218 new registration applications (ANDAs) are under process with international authorities.

The fresh issue portion will be utilized for repayment / prepayment of loans, investing in its subsidiary (UML) for repaying their outstanding loans, and funding working capital gaps. A portion of the fresh funds will be used for general corporate purposes to. The IPO will be lead managed by ICICI Securities and JM Financial. KFIN Technologies Ltd will be the registrar to the issue.

Highlights of the IPO issue of Innova Captab Ltd

Here are some of the key highlights to the public issue of Innova Captab Ltd.

• The IPO of Innova Captab Ltd will be open from December 21, 2023 to December 26, 2023. The stock of Innova Captab Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹426 to ₹448 per share. The final price will be discovered within this price band through the book building process.
   
• The IPO of Innova Captab Ltd will be a combination of a fresh issue and an offer for sale (OFS). While the fresh issue tends to bring in fresh funds into the company, is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• Let us start with the fresh issue portion. The fresh issue portion of the IPO of Innova Captab Ltd comprises the issue of 71,42,857 shares (71.43 lakh shares approximately), which at the upper price band of ₹448 per share will translate into a fresh issue size of ₹320 crore.
   
• What about the Offer for Sale (OFS). The offer for sale portion of the IPO of Innova Captab Ltd comprises the sale of 55,80,357 shares (55.80 lakh shares approximately), which at the upper price band of ₹448 per share will translate into a total OFS size of ₹250 crore.
   
• Out of the 55.80 lakh shares offered in the offer for sale (OFS), Manoj Kumar Lohariwala and Vinay Kumar Lohariwala, 2 promoter shareholders of the company, will offer 19.53 lakh shares each. Among the Investor shareholders; Gian Prakash Aggarwal will offer 16.74 lakh shares in the offer for sale (OFS).
   
• As a result, the total issue size of the IPO of Innova Captab Ltd will comprise of the issue and sale of 1,27,23,214 shares (127.23 lakh shares approximately), which at the upper price band of ₹448 per share translates into total IPO size of ₹570 crore.

The IPO of Innova Captab Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation

The promoters of the company are Manoj Kumar Lohariwala and Vinay Kumar Lohariwala. Currently the promoters hold 66.85% stake in the company, which will get diluted post the IPO to 51.68%. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, if any. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the IPO of Innova Captab Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Innova Captab Ltd, the minimum lot size is 33 shares with upper band indicative value of ₹14,784. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Innova Captab Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Innova Captab Ltd IPO and how to apply?

The issue opens for subscription on 21st December 2023 and closes for subscription on 26th December 2023 (both days inclusive). The basis of allotment will be finalized on 27th December 2023 and the refunds will be initiated on 28th December 2023. In addition, the demat credits are expected to happen on 28th December 2023 and the stock will list on 29th December 2023 on the NSE and the BSE. Innova Captab Ltd will test the appetite for market proxies for the healthcare space the potential of the CDMO business in India. The credits to the demat account to the extent of shares allotted will happen by the close of 28th December 2023 under ISIN (INE0DUT01020). Let us now turn to the more practical issue of how to apply for the IPO of Innova Captab Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Innova Captab Ltd

The table below captures the key financials of Innova Captab Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Innova Captab Ltd which can be enumerated as under

1. While sales have shown steady growth in the last 3 years, the PAT margins have almost been constant and that is largely because the CDMO business largely operates on fixed margins based pricing and 7% is a good level for net margins in this business.
    
2. Apart from the steady PAT margins above 7%, the return on equity or ROE has also been consistently robust around the 25% mark. That should help explain the valuations better in the coming quarters.
    
3. The company has strong sweating of assets of over 1.3X, but a lot will depend on how the company can sustain margins in the long run as competition becomes intense. However, the strong ROA at around the double-digit market should make up for that.

On the latest year EPS of ₹14.16, the stock is available in the IPO at a P/E of 30-32 times. However, looking at FY24 and FY25 should make it look more realistic and should also make the valuations look more reasonable. However, other financials like ROE and PAT margins are still quite favourable for current valuations. Now, for some qualitative aspects.

• Company has a leading presence in the CDMO space, which is only going to grow as pharma companies increasingly look to focus on R&D and marketing.
   
• The company has an impressive client list and the long standing relationships should act as an effective entry barrier.
   
• The company has been on the job of building an increasingly complex product portfolio with the help of in-house R&D.

Investors must appreciate that the company is in the niche CDMO space, which has high growth potential in the coming years. Hence, the growth from here can be exponential. Investors need to take a long term perspective of the business and take a 2-3 years perspective. The returns could well outweigh the risks in the long run.