What you must know about Valiant Laboratories IPO?

Valiant Laboratories Ltd was incorporated in the year 1980, and it is a major pharmaceutical ingredient manufacturing company in India; with their primary focus on Paracetamol. The company has a production unit in Palghar near Mumbai, which is spread across 2,000 SQM. Its current total installed capacity is 9,000 MT per year. It also has a state-of-the-art R&D facility which is fully equipped with an analytical laboratory and the necessary infrastructure for developmental activities in existing products. Valiant Laboratories Ltd essentially imports Para Amino Phenol, which is the essential raw material for the manufacture of Paracetamol, from China and Cambodia. The company currently employs close to 90 personnel. Valiant Laboratories is part of the Aarti group of industries. The company’s main product is Paracetamol / Acetaminophen (API/ Bulk Drug) which has several applications like uses in treatment of headache, muscle ache, arthritis, backache, toothache, cold and fever.

Paracetamol can also be used in the case of severe pain instances such as post-surgical pain and cancer related pain. Valiant Laboratories makes paracetamol in various grades as per the specifications of customers like Powder, Fine Powder, Dense, Free Flowing etc. Valiant Laboratories Ltd manufactures paracetamol as per the required Pharmacopeia like IP/BP/USP/EU, based on the requirement of the customers. The company also has a dedicated team for carrying out various R&D projects to identify newer molecules that the company can commercialise for future growth. The Paracetamol API can be formulated further for end uses like tablets, capsules, Effervescent tablets, Oral suspension, Patch etc. The issue will be lead managed by Unistone Capital Private Ltd. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the IPO issue of Valiant Laboratories Ltd

Here are some of the key highlights to the public issue of Valiant Laboratories IPO.

• Valiant Laboratories Ltd has a face value of ₹10 per share while the price band for the book building IPO has been set in the band of ₹133 to ₹140. The final price will be discovered within this band.
   
• The IPO of Valiant Laboratories Ltd will be entirely a fresh issue with no offer for sale (OFS) component in it. The fresh issue portion comprises the issue of 1,08,90,000 shares (108.90 lakh shares), which at the upper price band of ₹140 per share will translate into fresh issue size of ₹152.46 crore.
   
• Since there is no offer for sale (OFS) component in the IPO, the overall IPO size will also comprise of the issue of 1,08,90,000 shares (108.90 lakh shares), which at the upper price band of ₹140 per share will translate into a total IPO issue size of ₹152.46 crore.

Generally, the fresh issue will be capital and EPS dilutive, while the offer for sale portion will only result in transfer of ownership and hence will be neither equity dilutive nor EPS dilutive. The current issue being totally a fresh issue, will be EPS dilutive. The proceeds of the fresh issue portion will be used to investing in its wholly owned subsidiary (Valiant Advanced Sciences) to part finance its capex; as well as to fund its working capital needs. Part of the funds will also be applied for general corporate purposes.

Promoter holdings and investor quota allocation quota

The company was promoted by Shantilal Shivji Vora, Santosh Shantilal Vora and Dhanvallabh Ventures LLP. Currently the promoters hold 100.00% of the company, which will get diluted post the IPO to 74.94%. 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 stock of Valiant Laboratories Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

Lot sizes for investing in the IPO of Valiant Laboratories 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 Valiant Laboratories Ltd, the minimum lot size is 105 shares with upper band indicative value of ₹14,700. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Valiant Laboratories 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 Valiant Laboratories Ltd IPO and how to apply?

The issue opens for subscription on 27th September 2023 and closes for subscription on 03rd October 2023 (both days inclusive). The basis of allotment will be finalized on 05th October 2023 and the refunds will be initiated on 06th October 2023. In addition, the demat credits are also expected to happen on 06th October 2023 and the stock will list on 09th October 2023 on the NSE and the BSE. The anchor allocation will be done one working day ahead of the IPO opening. Let us now turn to the more practical issue of how to apply for the IPO of Valiant Laboratories 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 Valiant Laboratories Ltd

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

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

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

1. In the last 2 years, the revenues growth has been robust showing the potential that the active pharma ingredients still have. The API sector has been under pressure globally but the things appear to have improved in the last one year as the US pharma markets are once again looking up.
    
2. The latest year net profit margins at 8.56% and the return on equity at 29% are at a fairly attractive level that can justify sustaining such margins. However, this is a business where margins can be quite volatile and a lot will still depend on how the company is able to navigate the cycles in the API market.
    
3. The company has maintained an impressive rate of sweating assets as is evident from the asset turnover ratio. It has consistently averaged above 1.5X, which is a very good sign for a capital intensive business to maintain its ROE at a high level.

While pricing of the IPO does matter here, what is more critical is the eventual PAT margins and the ROE that will sustain. For now, the signals are good. In the past, the group has shown good traction in terms of execution even in tough market conditions. The P/E ratio at a tad above 15 on historical earnings is a good bet, especially considering the growth. Investors can look at this IPO with a slightly higher risk appetite (due to API cycles) and with a longer holding frame.