Claris Lifesciences - Avoid

DSIJ Intelligence / 23 Nov 2010

Claris is one of the largest Indian sterile injectables pharmaceutical companies with a presence in 76 countries worldwide. The company is tapping the equity market with its initial public offering to garner Rs 300 crore. The price bands have been fixed at Rs 278 to Rs 293 per equity share. The company has done well in terms of its financial performance. However, there are some issues, which if not taken care of, they may have a deterrent effect on the revenues that Claris is earning from the emerging markets. Therefore, at present, we suggest our readers stay away from the initial public offering of the company.

IPO Analysis
Claris Lifesciences - Avoid

Claris Lifesciences (Claris) is engaged in the business of manufacturing of sterile injectables. The company is tapping the equity market with its initial public offering to garner Rs 300 crore. The price bands have been fixed at Rs 278 to Rs 293 per equity share.

Claris is one of the largest Indian sterile injectables pharmaceutical companies with a presence in 76 countries worldwide. Their product offerings comprise of 128 products across multiple markets and therapeutic areas. All of their products are off-patent products, a significant majority of which are capable of being directly injected into the body and are predominantly used in the treatment of critical illnesses. Their products range across various therapeutic segments including anaesthesia, critical care, anti-infectives, renal care, infusion therapy, enteral nutrition, parenteral nutrition and oncology. They offer injectables in various delivery systems such as glass and plastic bottles, vials, ampoules, pre-filled syringes and non-PVC and PVC bags.

One of the key products in the company’s portfolio, propofol represented approximately 14.84 per cent of their total sales for the financial year ended December 31, 2009. Their regulatory team has developed capabilities and processes to file product registrations in regulated and emerging markets. As of September 30, 2010, they had obtained over 1,100 registrations worldwide and approximately 324 applications were pending approval. Their customer base primarily includes government and private hospitals, aid agencies and nursing homes.

The objects of the Issue are:

Setting up of a new plant comprising a small volume parenterals line, a PVC bag line, a non-PVC bag line and a fat emulsion line for an estimated cost of Rs 132 crore.
Setting up of a new manufacturing line for propofol and other fat emulsion products at their existing plant, Clarion IV for an estimated cost of Rs 27 crore.
Construction of a facility for research and development at their Clarion manufacturing facilities for an estimated cost of Rs 39 crore.
Prepayment of an identified term loan for an estimated cost of Rs 46 crore.
General corporate purposes.

Recent Developments

Product Recall
· The firm and some of their partners received a number of complaints in relation to a few of their products namely, ciprofloxacin, metronidazole and ondansetron that were contaminated or suspected to be contaminated. Pursuant to which, they and their partners/distributors recalled some or all of their products from the United States, Denmark, Finland, Canada, Australia and New Zealand.
· The USFDA imposed an import alert on them and their products, which is subsisting.
· The USFDA carried out an inspection of their manufacturing facilities at Ahmedabad, subsequent to which it has issued a warning letter to them.
· Additionally, the registration of the company and its products was suspended by the Drug and Food Control, Ministry of Health, State of Kuwait from June 8, 2010 till August 22, 2010.

The company has done well in terms of its financial performance. The topline stood at Rs 743 crore for the year ended December 2009 and Rs 324 crore for the five month period ending May 2010. The stock on its FY10E post-issue equity is likely to trade at 11.61 – 12.24x. The market capitalization to sales stands at 2.29 – 2.44x on its upper and lower price bands respectively on the post-issue capital. At present, a serious issue looming over the company is the warning letter from the USFDA. Thus, the firm’s supply of products to the US has been stopped till the issue is resolved. This will impact both the topline and the bottomline of the company for the current year. We believe that going forward if these problems are not taken care of, they may have a deterrent effect on the revenues that Claris is earning from the emerging markets. Therefore, at present, we suggest our readers stay away from the initial public offering of the company.

Issue Information
Issue opens on	24-Nov-10
Issue closes on	26-Nov-10
Issue Size (No. of Shares)	1.02 – 1.07 crore equity shares
Price Band (Rs.)	` 278-293
Issue Route	Book Building
Promoters	Arjun S Handa and Sarjan Financial Private Ltd
Post issue Equity	6.14-6.19 crore equity shares
Lead Managers	Enam Securities, Edelweiss Capital, JM Financial Consultants and ICICI Securities
Listing	BSE, NSE
Retail Portion	30.71 – 32.37 lakh equity shares
QIB Portion	61.4 – 64.7 lakh equity shares
Non-Institutional Portion	10.23 – 10.79 lakh equity shares

Financial Performance (`/Cr)
	May-10	Dec-09
Total Income	324.95	743.53
Operating Expenses	103.14	229.49
Operating Profit	221.82	514.04
Interest	40.96	14.88
Depreciation	44.81	18.92
Net Profit	62.73	130.38