Parabolic Drugs IPO

Parabolic Drugs        (Avoid)
Parabolic Drugs (PDL) is a Chandigarh-based company tapping the equity market with the initial public offering (IPO) to garner around Rs 200 crore. The price band is Rs 75-85. The company is presently engaged in the business of manufacturing Active Pharmaceutical Ingredients (APIs) and API intermediates for the domestic market as well as for exports to international markets.

PDL currently produces the Semi Synthetic Penicillin (SSP) and Cephalosporin range of antibiotics in oral and sterile form, along with their intermediates. Its product portfolio presently comprises 44 APIs and 7 API intermediates which are marketed domestically and exported to approximately 45 countries. PDL owns and operates two manufacturing facilities at Derabassi, Punjab, and Panchkula, Haryana for manufacturing the oral and sterile range of Cephalosporin APIs and intermediates. PDL has intended to expand product portfolio by entering into the non-antibiotic segment with a focus on lifestyle segments such as anti-hypertensive, gastrointestinal, psychiatric, pain management, respiratory, retro-viral, dermatological and anti-diabetic segments. It has a pipeline of over 20 non-antibiotic products under development and as on December 31, 2009 the company has catered to 487 customers worldwide, including some of the leading generic companies in the world.

Objects of the Issue

Objects	Amount (Rs Cr)
Multi-purpose block III at Derabassi	20.32
Sterile cephalosporin plant at Derabassi	32.55
Establishment of Chachrauli plant	16.04
Investment in Subsidiary	46.62
Repayment / prepayment of identified loan facilities	38.84
General corporate purposes	[.]

Risks

• Operating cash flow has been negative since the last 6 years.
• PDL is dependent on its top 5 customers for 40 per cent of its sales signifying poor diversification of revenues.
• PDL is dependent on imports of raw materials, particularly from China, so that are exposed to risks including duties, fluctuations in global commodity prices, and foreign currency exchange fluctuations.
• The Company does not have long term-contracts or exclusive supply arrangements with any of vendors, which going forward might hamper sales.
• The total loan aggregating to over Rs 330 crore is on floating rate basis thus exposing the company to interest rate risk.

 

On the financial front, there has been a healthy growth in both the topline and the bottomline of the company. When compared to its peers like Nectar Lifesciences and Dishman Pharma, the company is looking for a much higher P/E for its FY10 annualised earnings in the range of 16.15x-18.31x as compared to 8.80x and 14.10x for Nectar Lifesciences and Dishman Pharma respectively. The margins enjoyed by the company are lower on both the operating and net profit levels which stand at 17.07 per cent and 5.31 per cent respectively for FY09. The issue seems a bit overvalued, hence, we advise our readers to refrain from the issue as of now.

Issue Information	Rating:
Issue Opens on	14-Jun-10
Issue closes on	17-Jun-10
Issue Size (No. of Shares)	235-267 lakh equity shares
Price Band (Rs)	Rs 75-85
Issue Route	Book Building
Promoters	Pranav Gupta & Vineet Gupta
Post issue Equity	614 lakh equity shares
Minimum Bid	80 equity shares
Lead Managers	Avendus Capital Markets, ICICI Securities and SPA Merchant Bankers
Listing	BSE, NSE
Retail Portion	82.25 – 93.45 lakh equity shares
QIB Portion	117.5 - 133.5 lakh equity shares
Non Institutional Portion	35.25 – 40.05 lakh equity shares

Financial Performance (Rs/Cr)
	9M FY10	FY09
Total Income	350.15	396.93
Operating Expenses	278.54	329.19
Operating Profit	71.61	67.74
Interest	29.56	28.33
Depreciation	4.05	3.61
Net Profit	21.41	21.09

Share Holding Pattern	Pre Issue	Post Issue
Promoter & Promoter group	63.21	38.04
Others	36.79	18.87
Public		21.54
Institution		21.54
Total	100	100