Gland Pharma IPO gets slow response, subscribed 21% so far on day 2; grey market premium falls

India’s biggest pharma IPO, Gland Pharma attracted 21 per cent bids on the second day of the bidding process so far. Even as Indian share market is setting new records, the biggest IPO from the Indian pharmaceutical sector has received a muted response from the investors so far. The Rs 6,480-crore issue has received bids for 63.53 lakh shares against the issue size of 3.02 crore shares. Analysts are upbeat on the Shanghai Fosun Pharma-owned company as it has one of the strongest pipelines in the high entry barrier injectables segment. Moreover, the company had never received warning letters from USFDA since inception. 

Gland Pharma IPO lacked confidence from investors as the company only secured 4 per cent of subscription on the first day. “Company coming with IPO at PE levels of 30.1x at the upper end of the price band that is at a slight premium to mid-cap pharma peers as per FY 2020 numbers,” Yash Gupta, Equity Research Associate at Angel Broking Ltd, said. The company is also trading at EV/Sales of 8.1x and EV/EBITDA of 20.1, which is also higher as compared to peers.

Research and brokerage firm Nirmal Bang has recommended to subscribe to Gland Pharma for long term gains as the company is able to maintain a CAGR of 25 per cent for a medium-term with strong profitability. “The issue price commands P/E of 31.7x FY20 and 19.5x Q1FY21 annualized earnings at the upper price band of Rs 1490-1500, which is at the upper end of Industry. However, going forward, the higher revenue growth, improving profitability would make it a better choice among peers,” Nirmal Bang Securities said in its report. 

Similarly, ICICI Securities has also maintained ‘subscribe’ recommendation on the IPO as it believes Gland Pharma offers a compelling proposition with its unblemished regulatory track record and customer stickiness besides long-standing manufacturing pedigree, justifying premium valuation.

Grey market premium falls

The grey market premium of Gland Pharma has fallen to Rs 23 today from Rs 65 premium last week. The shares of Gland Pharma were trading with a Rs 200 premium before the price band of the issue was declared. Abhay Doshi, a Gujarat based independent dealer in unlisted shares, told Financial Express Online, despite enough liquidity in the market, Gland Pharma IPO does not seem to attract investors. Higher-than-expected price band and uncertainty due to Chinese promoters have hit the investor sentiment. Moreover, the recent development in COVID-19 vaccine has also led to profit booking in pharma stocks. Hence, despite solid growth, the IPO seems to be lacklustre. 

Talking about the grey market premium, Yash Gupta said that it has been falling from the day of announcement of the price band by the company. “We are not expecting any big listing gain from the IPO,” Yash Gupta added.

Ahead of the opening of the IPO, Gland Pharma had raised a total of Rs 1,943.86 crore at the upper price band of Rs 1,500 per share from 70 anchor investors. Ravi Singh, Head of Research, Karvy Stock Broking told Financial Express Online that the healthy balance sheet, strong financials add to the strength of the company. But investors believe the price band (PE valuation of 30x on FY20 basis) is on the higher side, considering that the company belongs to the midcap space. Additionally, the pharma space has been amongst the major sectoral gainers over the last 9 months. Currently, the IPO has been subscribed 0.07x times (NSE+BSE).