Gland Pharma IPO: Grey market premium plunges post price band announcement; should you subscribe?

India’s biggest pharma IPO, Gland Pharma, witnessed a plunge in the grey market since the company has announced the issue price band. However, the Indian stock market is mapping an upward trajectory and trading at over eight-month high levels. The Rs 6480-crore Gland Pharma initial public offer, which is set to open for subscription next week, has fixed a price band of Rs 1,490-1500. Before the price band declaration, Gland Pharma shares were trading with almost Rs 200 premium in the grey market, which has now fallen to Rs 65 per share over the issue price of Rs 1500. Before Gland Pharma, Eris Lifesciences was the biggest IPO from the Indian pharma sector, which raised Rs 1,741 crore in 2017.

Manan Doshi, an independent dealer in unlisted shares, said that the company is looking strong on the basis of its performance and growth but the price band came higher than the investors’ expectations. Doshi added that as the IPO size is pretty huge, therefore, the larger interest of investors seems to be fading. Owing to these factors, there is much less left for the investors.

Gland Pharma’s manufacturing facilities have established a consistent record of regulatory compliance with the USFDA highlighting their focus on quality assurance and quality control. Manthan Mehta, Head Unlisted & Private Equity Rurash Financial Services Pvt Ltd, told Financial Express Online, that Gland Pharma shares were trading with a Rs 75 premium over the issue price of Rs 1,490 per share in the grey market. Mehta expects 5 per cent listing gains on the stock market debut, as the company is doing well financially. The company’s diversified B2B-led model across markets is complemented by a targeted B2C model in India.

Analysts at Kotak Securities said that GPL’s primary business model is B2B, covering IP-led, technology transfer and contract manufacturing models, complemented by a B2C model in its home market of India. Gland Pharma has a track record of revenue delivery and profitability across various markets with healthy cash flows. “Its regulatory team has extensive experience in the regulatory requirements of its key markets to facilitate new product registrations,” it added. Gland Pharma would also be the country’s second-biggest this year after SBI Cards and Payment Services’ Rs 10,350 crore offering.

Should you subscribe to Gland Pharma IPO?

Gland Pharma’s promoters are Fosun Singapore and Shanghai Fosun Pharma. Vishal Wagh, Head of Research at Bonanza Portfolio told Financial Express Online, that the major problems with Gland Pharma are the China-based orientation as GPL has a major stake (74%) from China-based Fosun Pharma. Currently, due to the COVID-19 pandemic, there is an anti-China wave. Many countries are taking majors to boycott China. “So, there is uncertainty about the near term future. It is better to avoid it specifically when the second wave of Covid already started in many countries,” Wagh added.

On the contrary, research firm GEPL Capital has recommended to ‘subscribe’ to the issue as it is priced at P/E of 18.52x on annualized EPS of the quarter ended June 2020. “With a strong product pipeline and more complex products under development, focus on B2B expansion and licensing and opportunities to enter more therapy areas, the offer looks attractive,” it added.