Zenith Drugs
- Zenith Drugs is coming out with initial public offering (IPO) of 51,48,800 shares of Rs 10 each in a price band Rs 75-79 per equity share.
- The issue will open for subscription on February 19, 2024 and will close on February 22, 2024.
- The shares will be listed on NSE SME Platform.
- The face value of the share is Rs 10 and is priced 7.50 times of its face value on the lower side and 7.90 times on the higher side.
- Book running lead manager to the issue is Gretex Corporate Services.
- Compliance Officer for the issue is Sakshi Bhawsar.
Profile of the company
Zenith Drugs is a pharmaceutical manufacturing and trading company based out from Indore. It has a manufacturing unit, dedicated to ensuring the highest quality standards when it comes to manufacturing of medicines. It is specialized in manufacturing high quality and affordable Medicines to support its patients in need. The company is also into Generic Medicines and Generic Medicines are cost effective. Since its inception, the company has focused on building a strong foundation and laying the groundwork for its future growth and success. With dedication and strategic planning, it managed to establish a reputable presence in the pharmaceutical industry. The company was incorporated with the objective of the better service deliverance in field of medicine and be better premium pharmaceutical companies in India and abroad for cost effective human medicine. The company always emphasis on core strength and policies that focus on technology and great deliverance. With a passion to set high standards of services, the company has always taken all measures to scale up as and when required only to deliver the better. The company works diligently and have a wide range of products to cater to every need and to reach the client sensitivity and centricity.
The company has Certificate of Good Manufacturing Practices issued by Office of the Controller, Food and Drugs Administration, Madhya Pradesh, Idgah Hills, Bhopal, Madhya Pradesh. The quality standards of the company are based on adherence to Good Manufacturing Practices (GMP) guidelines, regulatory requirements and internal quality control processes. The Company is constantly required to adhere to the same. These measures are implemented to ensure the highest level of quality in its manufacturing operations. Building upon its commitment to excellence, it has completed two expansions within the same facility to accommodate the growing demand for its products. These expansions have allowed the company to scale its operations, increase production capacity, and introduce new formulations. Through these strategic investments and expansions, the company strives to continuously improve its manufacturing infrastructure, enhance product quality, and meet the evolving needs of healthcare professionals and patients.
Proceed is being used for:
- Purchase of machinery & equipments for setting up new unit.
- Existing manufacturing block upgradation.
- Working capital requirements.
- General corporate purposes.
Industry overview
India is the largest provider of generic drugs globally and is known for its affordable vaccines and generic medications. The Indian Pharmaceutical industry is currently ranked third in pharmaceutical production by volume after evolving over time into a thriving industry growing at a CAGR of 9.43% since the past nine years. Generic drugs, over-the-counter medications, bulk drugs, vaccines, contract research & manufacturing, biosimilars, and biologics are some of the major segments of the Indian pharma industry. India has the most number of pharmaceutical manufacturing facilities that are in compliance with the US Food and Drug Administration (USFDA) and has 500 API producers that make for around 8% of the worldwide API market. ndian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK. The domestic pharmaceutical industry includes a network of 3,000 drug companies and 10,500 manufacturing units. India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers with a potential to steer the industry ahead to greater heights.
Market size of India pharmaceuticals industry is expected to reach $65 billion by 2024, and $130 billion by 2030. According to the government data, the Indian pharmaceutical industry is worth approximately $50 billion with over $25 billion of the value coming from exports. About 20% of the global exports in generic drugs are met by India. India is among the top 12 destinations for biotechnology worldwide and 3rd largest destination for biotechnology in Asia Pacific. In 2022, India’s Biotechnology industry has crossed $80.12 billion, growing 14% from the previous year. The Indian pharmaceutical industry has seen a massive expansion over the last few years and is expected to reach about 13% of the size of the global pharma market while enhancing its quality, affordability, and innovation. The biosimilars market in India is estimated to grow at a compounded annual growth rate (CAGR) of 22% to become $12 billion by 2025. This would represent almost 20% of the total pharmaceutical market in India.
The pharmaceutical industry in India is a significant part of the nation's foreign trade and offers lucrative potential for investors. Millions of people around the world receive affordable and inexpensive generic medications from India, which also runs a sizable number of plants that adhere to Good Manufacturing Practices (GMP) standards set by the World Health Organization (WHO) and the United States Food and Drug Administration (USFDA). Among nations that produce pharmaceuticals, India has long held the top spot. Medicine spending in India is projected to grow 9-12% over the next five years, leading India to become one of the top 10 countries in terms of medicine spending. Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers, which are on the rise. The Indian Government has taken many steps to reduce costs and bring down healthcare expenses. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.
Pros and strengths
Formulations & development: The company is a technology driven organization supported by extensive F&D departments; coupled with well-equipped laboratories and best talented technical officials of the industry. Great Emphasis is laid on Upgrading process technology, Cost reduction, Pilot plant Research, Improvement in Quality, Optimum utilization of resources, Development of new products. In its essence, improving the quality of formulations and developing newer & innovative dosage forms are the ongoing jobs of the F&D departments. Zenith Laboratory is fully equipped for Physical and metallurgical testing, Micro- biological testing, Effective controls of the process, Chemical testing, Pharmacological testing, Stability Studies etc. Zenith has not only the new products that it works towards but it works on making the existing ones better.
Diversified product portfolio: A diverse and well-balanced product portfolio is another key competitive advantage for the company. The company offers a comprehensive range of products, including generic drugs, branded pharmaceuticals, over-the-counter (OTC) products, and specialized medications. This diverse portfolio allows Zenith Drugs to cater to various market segments and respond effectively to changing market demands.
Scalable business model: The company has a scalable business model as its business model is customer-centric and order driven, and requires optimum utilization of its existing resources, assuring quality supply and achieving consequent economies of scale. The business scale generation is basically due to the development of new markets and products in both domestic and international markets by exploring customer needs, marketing expertise and consistent product quality.
Risks and concerns
Maximum revenue comes from Government: The major portion of the company’s revenue for the Financial Year ended March 31, 2023, March 31, 2022 and March 31, 2021 is from only one customer i.e. Government Institutions. 43.36% of Revenue in Fiscal 2022-2023, 52.36% of Revenue in Fiscal 2021-2022 and 53.02% of Revenue in Fiscal 2020-2021 was from sales to Government institution. Such concentration of its business heightens its exposure to adverse developments related to competition, as well as economic and demographic changes in these regions which may adversely affect its business prospects, financial conditions and results of operations. Factors such as competition, culture, regulatory regimes, business practices and customs, industry needs, transportation, in other markets where it may expand, its operations may differ from those in which it is currently offering. In addition, as the company enters new markets and geographical areas, it is likely to compete not only with national players, but also local players who might have an established local presence, are more familiar with local regulations, business practices and industry needs, have stronger relationships with local distributors, dealers, relevant government authorities, and are in a stronger financial position than it, all of which may give them a competitive advantage over the company. Its inability to expand more into areas outside Bangalore market may adversely affect its business prospects, financial conditions and results of operations.
Maximum revenue comes from two products: Majority of the company’s revenue is dependent on two products i.e., ORS Powder and Liquid Orals amounting 22.28% and 39.31% respectively of the total sales of the company. The company’s continued reliance on single business segment for substantial portion of its revenue exposes it to risks, including but not limited to, reduction in the demand of the products in the particular segment in the future; increased competition from regional and national players; the invention of superior and cost-effective technology; fluctuations in the price and availability of the raw materials; changes in regulations and import duties and the general economic conditions. Any occurrences of such event could significantly reduce its revenues, thereby materially adversely affecting its results of operations and financial condition.
No agreement with suppliers for raw material: 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 it experiences 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. The company maintains a list of registered suppliers from whom it procures the materials on order basis as per its internal demand projections. It has not entered into long term contracts with its suppliers and prices for raw materials are normally based on the quotes it receives from various suppliers. Since, it has no formal arrangements with its suppliers, they are not contractually obligated to supply their products to it and may choose to sell their products to its competitors. Non-availability or inadequate quantity of raw material or use of substandard quality of the raw materials in the manufacture of its products, could have a material adverse effect on its business.
Outlook
Zenith Drugs Limited is a pharmaceutical company specialising in manufacturing and trading high-quality, affordable medicines, including generic drugs. The company adheres to WHO-GMP guidelines and has received the ISO 9001:2015 certification from a respected EuroUK certification body, demonstrating its commitment to quality. The Food & Drugs Administration has approved over 600 products, of which 325 are currently in production. The company is in the process of setting up a new manufacturing facility in Village Muradpura, Depalpur, Indore, Madhya Pradesh. On the concern side, majority of the company’s revenue is dependent on two products i.e., ORS Powder and Liquid Orals, if it is unable to anticipate or adapt to evolving upgradation of products or inability to ensure product quality or reduction in the demand of such products may adversely impact its revenue from operations and growth prospects. Moreover, the company highly depend on its major raw materials and a few key suppliers who help it to procure the same. The company has not entered into long-term agreements with its suppliers for supply of raw materials. In the event, the company is unable to procure adequate amounts of raw materials, at competitive prices its business, results of operations and financial condition may be adversely affected.
The company is coming out with IPO of 51,48,800 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 75-79 per equity share. The aggregate size of the offer is around Rs 38.62 crore to Rs 40.68 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 24.85% to Rs 11,569.65 lakh for the financial year 2022-23 from Rs 9,266.63 lakh for the financial year 2021-22. Morover, its profit after tax increased by 64.21% to Rs 515.33 lakh for the financial year 2022-23 from Rs 313.82 lakh for the financial year 2021-22, reflecting a net increase of Rs 201.51 lakh mainly due to expansion of business and increase in revenue. The company intends to pursue market expansion strategies by targeting new geographic regions and customer segments. This can involve entering untapped international markets where there is demand for pharmaceutical products. Additionally, the company intends to explore partnerships or collaborations to leverage the distribution networks and expertise of local players in those markets as part of its growth strategy, it intends to target regulated markets as well as enhance its presence in existing geographies. The company wants to obtain approvals for launching its newer products in the African and South-East Asian regions. The company’s growth strategy will vary from country to country depending on applicable regulatory norms. The commercialization of products under registration will add to the growth. It will continue to evaluate additional markets and product opportunities, including potential acquisitions and relationships which will be beneficial to increase its presence in Domestic Markets as well as Export markets.
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