Sotac Pharmaceuticals coming with an IPO to raise upto Rs 33.30 crore

Sotac Pharmaceuticals

• Sotac Pharmaceuticals is coming out with a 100% book building; initial public offering (IPO) of 30,00,000 shares of Rs 10 each in a price band Rs 105-111 per equity share.
  
• The issue will open on March 29, 2023 and will close on April 03, 2023.
  
• The shares will be listed on NSE Emerge Platform.
  
• The face value of the share is Rs 10 and is priced 10.50 times of its face value on the lower side and 11.1 times on the higher side.
  
• Book running lead manager to the issue is Beeline Capital Advisors.
  
• Compliance Officer for the issue is Pooja Bagrecha.
  

Profile of the company

The company is in business of manufacturing of pharmaceutical products for different marketers on loan license or contract manufacturing basis. Its business is majorly on principle to principle basis with different marketers. The company caters to corporate clients on loan licence and/or contract manufacturing basis. The company has commenced manufacturing facility in year 2017, hence, the company has experience of more than 5 years in the current line of business of the company. In year 2017, the company’s manufacturing facility was installed with capacity to manufacture 90 crore tables / year, 14 crore Capsules / year. By focusing on its core competence, it has witnessed multi-fold growth in the installed manufacturing capacity over period of 5 years.

The company has 71% holding in SOTAC Healthcare and 100% of SOTAC Research, thus making them its Subsidiary Companies. SOTAC Healthcare is engaged in the business of manufacturing of Beta-lactam drugs. SOTAC Research is engaged in the business of pharma molecule research and development. It has recently started a new venture namely SOTAC Lifescience. The company hold 51% of total paid-up capital of SOTAC Lifescience. SOTAC Lifescience is a newly incorporated company and will be engaged in the business of Manufacturing of Nutraceuticals products and food products on contract-manufacturing basis. SOTAC Lifescience is in process of setting-up its manufacturing plant and yet not commenced commercial production. 

Proceed is being used for:

• Meeting Working Capital Requirements.
  
• Investment in Subsidiary.
  
• Upgradation / Construction of Existing /New Building in the Existing Premises.
  
• General Corporate Purpose.
  
• Meeting Public Issue Expenses.
  

Industry overview

Globally, India ranks 3rd in terms of pharmaceutical production by volume and 14th by value. The domestic pharmaceutical industry includes a network of 3,000 drug companies and 10,500 manufacturing units. According to the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade. India’s domestic pharmaceutical market stood at $ 42 billion in 2021 and likely to reach $ 65 billion by 2024 and further expand to reach $ 120 billion by 2030. The Ayurveda sector in India reached $ 4.4 billion by 2018 end and grow at 16% CAGR until 2025. In the global pharmaceuticals sector, India is a significant and rising player. India is the world's largest supplier of generic medications, accounting for 20% of the worldwide supply by volume and supplying about 60% of the global vaccination demand. The Indian pharmaceutical sector is worth $ 42 billion and ranks 3rd in terms of volume and 13th in terms of value worldwide.

India is the world’s largest provider of generic medicines; the country’s generic drugs account for 20% of global generic drug exports (in terms of volumes). Indian drugs are exported to more than 200 countries in the world, with the US as the key market. India is the 12th largest exporter of medical goods in the world. The country’s pharmaceutical sector contributes 6.6% to the total merchandise exports. Exports of Indian pharmaceuticals, including bulk drugs, intermediates, drug formulations, biologicals, AYUSH & herbal products and surgical products, reached $ 16.28 billion in FY20. India’s drugs and pharmaceuticals exports stood at $ 24.44 billion in FY21 and $ 22.2 billion Between April 2021-February 2022. In FY21, North America was the largest market for India’s pharma exports with a 34% share and exports to the U.S., Canada and Mexico recorded a growth of 12.6%, 30% and 21.4%, respectively.

Pros and strengths

Experienced Promoters and Management Team: The company’s promoters have combined experience of 59 years in pharmaceuticals manufacturing industry. Its Promoters lead the company with their vision. Majority of its core promoters have medical educational background and has vast experience in the business undertaken by the company. Encashing the expertise, they look after the strategic as well as day to day business operations. The strength and entrepreneurial vision of the company’s Promoters and management have been instrumental in driving steady growth of the company and implementing its strategies. A motivated and experienced employee base is essential for maintaining a competitive advantage. Its motivated team of management and key managerial personnel complement each other to enable it to deliver high levels of client satisfaction.

Strategic Location of Manufacturing Facilities: The company’s group’s manufacturing facilities are WHO-GMP accredited. SOTAC Pharmaceuticals is also registered in USA with DUNS number. Its manufacturing units are located at Sanand GIDC II located in the outskirts of Ahmedabad district in Gujarat. The Industrial estate is developed by GIDC and enjoys good infrastructure facilities like electricity, water, roads, easy procurement of labour, raw material suppliers and market for finished products. With this it is concentrating on expanding the production capacity and adding new products in its product portfolio. Further, state of Gujarat has highest number of contracts manufactures for Pharmaceutical products and Gujarat has good connectivity for inland and offshore transport, this gives it a locational advantage.

Scalable Business Model: The company’s business model is customer centric, and order driven. It requires optimum utilisation of its existing resources, assuring quality supply and achieving consequent economies of scale. The business scale generation is basically due to development of new markets and products both domestic and international by exploring customer needs, marketing expertise and by maintaining the consistent quality output. Its manufacturing facility at SOTAC Pharmaceuticals is installed with capacity to manufacture 360 crore tables/ year, 32.40 crore Capsules / year, 2160 Kilo Litter syrup / year and 324 Tons external preparation / year. Further its Beta-Lactam manufacturing at SOTAC Healthcare Private is installed with capacity to manufacture 32.40 crore tables / year, 21.60 crore Capsules / year, and 2.16 crore Dry Syrup bottle / year.

Risks and concerns

Highly depend on major raw materials and few key suppliers: The company is engaged in the business of manufacturing pharmaceutical products. Therefore, it is highly dependent on API, which is the primary component of its manufacturing process. Thus, if the company experience significant increase in demand, or need to replace an existing supplier, it cannot assure that it will be able to meet such demand or find suitable substitutes, in a timely manner and at reasonable costs, or at all. Further, in view of the ongoing pandemic, wherein partial or complete lockdown and various travel restrictions has been imposed in various countries, it may not be able to procure adequate amount of raw materials for its manufacturing unit. The pharmaceutical products qualify as essential commodities, therefore generally their demand has not been deterred by the ongoing pandemic and the nationwide lockdown imposed by various governments.

High volume-low margin business: The company is a high volume low margin business. Its financial operations are largely dependent on the volume of the business it generate which will add to profits in absolute terms. It needs to generate higher volume in terms of quantity to increase its profitability to make its products commercially feasible. Its inability to regularly grow its turnover and effectively execute its key business processes could lead to lower profitability and hence adversely affect its operating results, debt service capabilities and financial conditions. Due to the nature of its business, it may not be able to charge higher margins on its products. Hence, its business model is heavily reliant on its ability to effectively grow its turnover and manage its key processes including but not limited to procurement of raw material/ traded goods, timely sales / order execution and continuous cost control of non-core activities.

Face competition: The company’s products face competition from products commercialized or under development by competitors in all its product portfolios. It competes with local companies, multi-national corporations and companies from the rest of world. If its competitors gain significant market share at its expense, its business, results of operations and financial condition could be adversely affected. Many of its competitors may have better financial, manufacturing, research and development, marketing and other resources, more experience in obtaining regulatory approvals, greater geographic reach, broader product ranges and stronger sales forces. Its competitors may succeed in developing products that is more effective, more popular or cheaper than any it may develop, which may render its products obsolete or uncompetitive and adversely affect its business and financial results.

Outlook

Incorporated in 2015, Sotac Pharmaceuticals is a part of the SOTAC group, based in Gujarat. The company is in the business of manufacturing pharmaceutical products for different marketers on a loan license or contract manufacturing basis. The company's business is majorly on principle to principle basis with different marketers. SOTAC is serving over 162 corporate clients on a loan license and/or contract manufacturing basis. With their vast experience in the pharmaceutical segment, the company is growing and enlarging its scale of operations every year. It established its manufacturing facility in the year 2017. In the year, the company's manufacturing facility was installed with the capacity to manufacture 90 Crore tables/year, and 14 Crore Capsules/year. On the concern side, the company’s business requires significant working capital, part of which would be met through additional borrowings in the future. In many cases, significant amounts of working capital are required to finance the procurement of branded products before payments are received from customers.

The company is coming out with an IPO of 30,00,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 105-111 per equity share. The aggregate size of the offer is around Rs 31.50 crore to Rs 33.30 crore based on lower and upper price band respectively. On performance front, the revenue from operations for the FY2021-22 was Rs 7,315.17 lakh as compared to Rs 4,343.82 lakh during the FY 2020-21 showing an increase of 68.40%. The company’s Profit after Tax (PAT) increased from Rs 86.22 lakh in the FY 2020-21 to Rs 287.86 lakh in FY 2021-22 showing Increase of 233.85%. Meanwhile, the company intends to continue to enhance scale in existing products and introduce new products across high end and mid segment to capitalize on the opportunity to cater rising acceptance and demand of new products. Besides, the company intends to continue to grow its sales by registering more and new products in these markets. Its growth strategy will vary from country to country depending on their specific regulatory requirements.