Akums Drugs & Pharmaceuticals IPO: Should You Subscribe?

Akums Drugs & Pharmaceuticals Ltd (ADPL), a leading pharmaceutical CDMO player, is opening its Initial Public Offering (IPO) on July 30, 2024, and closing on August 1, 2024. With a Grey Market Premium (GMP) of 31% and a strong foothold in the market, the IPO seems promising. However, investors need a clear understanding of both potential rewards and risks before subscribing. This IPO analysis provides a comprehensive review to help make an informed decision.

Akums Drugs & Pharmaceuticals IPO Details  

• Issue Size: 1,856.74 crore
• Fresh Issue: 680 crore
• OFS: 1,176.74 crore
• Price Band: Rs 646 – Rs 679
• Market Lot: 22 shares
• Minimum Investment Value: Rs 14,938
• Listing Date: August 6, 2024

Use of Proceeds

ADPL aims to deploy the net proceeds from this fresh issue towards reducing debt, enhancing working capital, pursuing strategic acquisitions, and for general corporate purposes. These initiatives are expected to further solidify the company's market position and enhance operational efficiencies.

Akums Drugs & Pharmaceuticals IPO Subscription Status

The Akums Drugs & Pharmaceuticals IPO kicked off with a strong start, attracting a 1.39 times overall subscription on its first day of bidding on Tuesday. Investor interest varied across different categories: The retail individual investors (RIIs) part got 3.42 times subscribed while non-institutional investors (NIIs) was subscribed 1.97 times. However, Qualified Institutional Buyers (QIBs) participated modestly, subscribing 0.43 times their segment.

Overview of Akums Drugs & Pharmaceuticals Ltd 

Operating primarily as a pharmaceutical contract development and manufacturing organization (CDMO), ADPL has expanded into branded and generic formulations and recently ventured into the Active Pharmaceutical Ingredients (API) sector. With 10 manufacturing plants and 4 R&D facilities, the firm boasts an impressive production capacity of 49.2 billion units as of FY24. 

Akums Drugs & Pharmaceuticals Key Strengths 

• Strong Market Position: ADPL is a dominant force in the global CDMO sector, particularly strong in the Indian market where its share has grown from 26.7% in FY21 to 30.2% in FY24.
• Financial Growth: ADPL has demonstrated consistent financial growth, with a Compound Annual Growth Rate (CAGR) of 7% in operational revenue and 10% in EBITDA (excluding put-option liability) from FY22 to FY24. 
• Reliable Client Relationships in CDMO: ADPL has successfully retained 38 of its top 50 clients over the last five years, with 26 of these relationships extending beyond ten years, underlining the company's consistency, reliability, and expertise.
• Marquee Clientele: ADPL boasts a strong client base including major names such as Alkem Laboratories, Cipla, Sun Pharma and Dr. Reddy’s in India, and Allegens, Caferma and Olainfarm internationally. 

Akums Drugs & Pharmaceuticals Risk Factors

• Volatile Earnings: ADPL has faced significant fluctuations in its financial metrics such as EBITDA margin, PAT margin, and returns on equity and capital, mainly due to past put-option liabilities related to a buy-back obligation, which no longer exists.
• Geographical Concentration Risks: With most of its manufacturing and R&D facilities located in Haridwar, Uttarakhand, ADPL is particularly susceptible to regional disruptions, whether from social, political, civil, or economic disturbances.
• Legal Risks: Ongoing legal proceedings involving ADPL and some of its key stakeholders could, if resolved unfavourably, adversely affect the company’s operations and reputation.

Akums Drugs & Pharmaceuticals Valuation & Investment Recommendation

ADPL has previously faced financial losses affecting its operational and financial metrics, primarily due to accounting adjustments related to put option liabilities. These liabilities were linked to a buy-back obligation for exit rights granted to Ruby QC Investment. With the buyback agreement annulled in May 2024, the put-option liability is no longer applicable.

Excluding these adjustments, FY24 net profit stands at approximately Rs 358 crore. With this, the EPS for FY24 works out to approximately Rs 24, resulting in a P/E ratio of 28. Moreover, IPO proceeds are earmarked to pay off nearly Rs 387 crore of debt, which will significantly lighten the balance sheet.

Furthermore, ADPL is expanding into new therapeutic areas, which enhances its market scope and diversifies its portfolio. Considering these developments, the IPO offers a promising opportunity for long-term investors.

For a deeper dive into this IPO, explore: IPO Corner on Liquide

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