Red Signal to GreenSignal Bio Pharma IPO

About the issue
Chennai based, GreenSignal Bio Pharma is coming up with an IPO from November 9 – November 11 ,2016 to raise around Rs 116 crore through an offer for sale. The firm’s existing shareholders will sell 14,579,560 equity shares for face value of Rs 10 each in the price band of Rs 76-80 a piece. The company’s promoters P. Sundaraparipooranan and P. Murali along with other shareholders including Avon Cycles Ltd., will be offering equity shares in this OFS. The offer will constitute up to 38 per cent of the fully diluted post-offer paid-up equity share capital of the company.

Purpose of the IPO
The purpose of this OFS is to achieve advantage of listing on BSE-NSE stock exchanges. It will help the company to enhance visibility and brand image among existing and potential customers.

Industry Outlook
Vaccination is one of the most cost-effective public health tools to prevent infectious diseases. In recent decades, the number of privately owned firms active in the sector have grown rapidly. Their success in bringing low cost vaccine solutions to public vaccine markets is an important driver behind the emergence of the sector. Biotechnology can be classified into two broad categories: R&D and discovery of new services and new products in Biological Sciences and Industrial Processes. Vaccine comes under Biotech umbrella.

The year-on-year growth of the biotech market is expected to accelerate, driven by high demand for vaccines, bio pesticides, bio fertilizers, bio diesel, bio therapeutics and medical devices in India as well as at the global level. India’s biotech sector is currently valued at over USD 7 bn, having grown at a CAGR of 20 per cent over the last decade. India is a world leader in vaccines, producing nearly 60 percent of the world’s supply.

Company Outlook
GreenSignal Bio Pharma is engaged in manufacturing of BCG vaccine and BCG-ONCO and caters to a niche product profile with global presence. Both drugs are generic drugs and do not require any patents for the same. BCG vaccine is used for immunisation against Tuberculosis. BCG-ONCO is used as a immunotherapy drug in the treatment of urinary bladder cancer. GreenSignal is WHO prequalified to supply the BCG vaccine to UNICEF. It has a long-term contract with UNICEF. It also includes other clients like Indonesia, Nepal and Ministry of Health, India.

GreenSignal Pharma business has been organised into domestic and international operations. GreenSignal's domestic and international operations accounted for 53.79 per cent and 46.20 per cent, respectively of its net revenues from operations, for FY16. The company is a low cost producer of the vaccine. India is one of the major suppliers of vaccines for UNICEF programs with the value exceeding 1 crore.  Company intends to market its product BCG-ONCO in international markets. It also plans to add a new vaccine to its product portfolio with expanding its geographies.

It has only two products in its portfolio and BCG vaccine contributes to 95 per cent of the revenue. If there is any impediment in its domestic or overseas sales, it can adversely affect its business and profits.  Company revenue cycle has witnessed ups and downs in last five years with one year in profit. Continuous losses can affect its sustainability and overall operation. It has underutilised capacity at  48.63 per cent as of FY16.  
       
Financial Performance


The company has recorded net sales growth at 13 per cent five year CAGR over FY12-16. Sales growth was down in FY14 and again paced up till FY16. It has witnessed growth in FY16 among last five years. It has maintained EBITDA margin above 22 per cent in last five years. Meanwhile PAT margin was negative over FY12-15 and posted 26 per cent in FY16.

Peer Comparison and Valuation
There is no listed peer of the company in India. Only one company i.e. Serum Institute of India Private Limited is having BCG vaccine in its portfolio but it is also not comparable as its product portfolio is bigger as compared to GreenSignal.

The company with upper price band, has EPS of 3.06 and P/E of 26.18x respectively. The company has ROCE of 15.18 per cent which has grown to double digit in FY16 in last five years. The company seems slightly overvalued and we do not see healthy revenue cycle. Considering these factors we suggest to stay away from this offer for now and wait and watch the performance of the scrip after getting listed in markets.