Emcure Pharmaceuticals coming with IPO to raise Rs 1993.05 crore

Emcure Pharmaceuticals

• Emcure Pharmaceuticals is coming out with a 100% book building; initial public offering (IPO) of 1,97,72,381 shares of Rs 10 each in a price band Rs 960- 1008 per equity share.   
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.  
• The issue will open for subscription on July 3, 2024 and will close on July 5, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 96.00 times of its face value on the lower side and 100.80 times on the higher side.
• Book running lead managers to the issue are Kotak Mahindra Capital Company, Axis Capital, Jefferies India and J. P. Morgan India.
• Compliance Officer for the issue is Chetan Rajendra Sharma. 

Profile of the company

Emcure Pharmaceuticals is an Indian pharmaceutical company engaged in developing, manufacturing and globally marketing a broad range of pharmaceutical products across several major therapeutic areas. It is a research and development (R&D) driven company with a differentiated product portfolio that includes orals, injectables and biotherapeutics, which has enabled it to reach a range of target markets across over 70 countries, with a strong presence in India, Europe and Canada. It was ranked as (i) the 13th largest pharmaceutical company in India in terms of Domestic Sales for MAT Financial Year 2024, (ii) the 4th largest pharmaceutical company by market share in its Covered Markets in terms of Domestic Sales for MAT Financial Year 2024, and (iii) the largest pharmaceutical company in the gynecology and human immunodeficiency virus (HIV) antivirals therapeutic areas in India in terms of Domestic Sales for MAT Financial Year 2024. It is led by Promoters with significant experience in the pharmaceutical industry who are supported by a strong professional management team. It is focused towards pharmaceutical products used in chronic (including sub-chronic) therapeutic areas. 

The company also sells its portfolio of differentiated products internationally in over 70 countries. It has established its international presence by either developing its own front-end distribution capabilities or focusing on alliances with local and multi-national companies that have an established presence in the therapeutic areas of its focus. The company is an R&D driven company and its core strength lies in its ability to research, develop and manufacture inhouse specialty pharmaceutical products for high-growth therapeutic areas, for which there is limited competition and high barriers to entry.

The company has 13 manufacturing facilities across India. Its facilities are capable of producing pharmaceutical and biopharmaceutical products across a wide range of dosage forms, including oral solids, oral liquids, injectables, including liposomal and lyophilized injectables, biotherapeutics and complex APIs, including chiral molecules, iron molecules and cytotoxic products. Further, its ability to manufacture its own APIs and formulations has allowed it to attain a significant degree of vertical integration, allowing it to source products in a cost-effective manner, ensure quality and security of availability of an essential raw material and protect its intellectual property. In particular, it has in-house manufacturing capabilities for most of its specialty products, including complex injectables, iron products, photo-chemistry products, chiral molecules and biotherapeutics.

Proceed is being used for:

• Repayment and/ or prepayment of all or a portion of certain outstanding borrowings availed by the company.
• General corporate purposes.

Industry overview

The Indian pharmaceutical industry is the world’s third largest by volume and was valued at Rs 3.6-3.8 trillion (including bulk drugs and formulation exports) as of the Financial Year 2024. The industry can be broadly classified into formulations and bulk drugs. Formulations can further be divided into domestic formulations and export formulations, both having almost an equal share in the market. At present, low-value generic drugs constitute a large part of Indian exports. India accounts for approximately 3.5% of total drugs and medicines exported globally, and exports pharmaceuticals to more than 200 countries and territories, including highly regulated markets such as the US, the UK, the European Union and Canada. India has a complete ecosystem for the development and manufacturing of pharmaceuticals, with companies having state-of-the-art facilities and skilled/ technical manpower. Moreover, the country has several renowned pharmaceutical educational and research institutes and a robust ecosystem of allied industries. 

The Indian domestic formulation market has seen healthy growth in the recent times. As of the Financial Year 2024, the Indian domestic formulation market contributed to approximately 2% of the total global pharmaceutical market. Indian domestic formulations market (consumption) grew at a healthy rate at a CAGR of 8.5% from the Financial Year 2019 to the Financial Year 2024. The Indian domestic formulations segment (consumption) is expected to grow at a CAGR of 8-9% over the next five years from the Financial Year 2024 to reach approximately Rs 2.9-3.0 trillion in the Financial Year 2029, aided by strong demand because of rising incidence of chronic diseases, increased awareness and access to quality healthcare. The Indian domestic formulation industry can be categorized into the chronic therapies segment and acute therapies segment. The chronic segment mainly comprises of anti-diabetic, cardiovascular, oncology etc. The acute segment mainly comprises of anti-infectives, gastro-intestinal, pain and analgesics etc. As of the Financial Year 2024, chronic therapies and acute therapies constituted 53% and 47% of the total domestic formulation market, respectively. As of the Financial Year 2024, anti-diabetic and cardiovascular were some of the largest therapeutic segments catered by the Indian formulations industry in chronic therapies segment, together accounting for nearly one-fourth share of the Indian domestic formulation market. 

Pros and strengths

Well-placed to leverage position in domestic market: The company is focused on the domestic market, with its sales in India contributing to 48.28% of its total revenue from operations for the Financial Year 2024. It has a long standing market presence and, since it began focusing on Indian domestic branded generics in 1995, it has successfully grown its business, to become (i) the 13th largest pharmaceutical company in India in terms of Domestic Sales for MAT Financial Year 2024, (ii) the 4th largest pharmaceutical company by market share in its Covered Markets in terms of Domestic Sales for MAT Financial Year 2024, and (iii) the largest pharmaceutical company in the gynecology and HIV antivirals therapeutic areas in India in terms of Domestic Sales for MAT Financial Year 2024. Further, it has outgrown the IPM in terms of Domestic Sales between MAT Financial Year 2020 and MAT Financial Year 2024 in several of its key therapeutic areas, including gynecology, blood-related, HIV antivirals, respiratory, oncology/anti-neoplastics, hormones and anti-diabetics. It has a Covered Market presence of 52.66% of the IPM in terms of Domestic Sales for MAT Financial Year 2024. It was ranked among the five largest pharmaceutical companies by market share in its Covered Markets for the gynecology, cardiovascular, vitamins, minerals and nutrients, HIV antivirals, oncology/antineoplastics, blood-related and hormones therapeutic areas, in terms of Domestic Sales for MAT Financial Year 2024. Its ability to grow has, in part, also been supported by its relationships with global innovators, which has allowed it to in-license new technologies and products in India. 

Large, diversified and fast-growing product portfolio in international markets: The company has an established presence in international markets, which is a strong complement to its domestic business and presents strong opportunities for growth. It employs a calibrated and differentiated approach for entering and deepening its presence in each of its markets so as to address the unique characteristics of each market, such as, among other factors, its regulatory landscape, market size, competitive landscape and scope for its products. This allows it to strategically select local partners, acquire local companies or rights of pharmaceutical products, and establish subsidiaries with its own on-the-ground sales force in these markets. The company sells its portfolio of products internationally in over 70 countries, with Europe and Canada currently being its primary international markets. Its sales outside India contributed to 51.72% of its total revenue from operations for the Financial Year 2024, and no single geography outside of India, Europe and Canada accounted for more than 5.00% of its revenue from operations for each of the Financial Years 2024, 2023 and 2022. Its product portfolio in its international markets comprises a mix of specialty branded generics, injectables and generic products.

Strong R&D capabilities driving differentiated portfolio of products: The company has strong in-house R&D expertise, which has allowed it to develop a differentiated portfolio of pharmaceutical products that gives it a competitive advantage in the markets in which it operates. Its R&D efforts are focused towards (i) complex molecules, including highly complex APIs that require multi-step transformation, (ii) differentiated pharmaceutical formulations, in multiple dosage forms and novel drug delivery systems, which are capable of greater efficacy and better patient compliance, (iii) continuous product and process improvements to achieve better quality and productivity, and (iv) niche biotherapeutics formulations. As of March 31, 2024, the company had been granted 220 patents and had 30 pending patent applications in several countries, and had submitted 102 DMFs for APIs with the USFDA. As a result of its advanced research facilities, sophisticated equipment, talented R&D team and strong focus towards innovation, Savitribai Phule Pune University has accredited one of its R&D centers as a Ph.D. center for prospective students to conduct and complete their research and thesis. Its strategy for R&D is to establish differentiated technology platforms and, once established, develop multiple products on the platforms. Of its five R&D facilities, it has three facilities focused on formulations research, one facility focused on API research and one facility focused on biopharmaceuticals research.

Extensive and diversified manufacturing capacity: The company has 13 manufacturing facilities across the states of Maharashtra, Gujarat, Sikkim and Karnataka and the union territory of Jammu and Kashmir, in India. Its facilities are capable of producing pharmaceutical products of a wide range of dosage forms, including oral solids, oral liquids, injectables, including complex injectables such as liposomal and lyophilized injectables, biotherapeutics and complex APIs, including chiral molecules, iron molecules and cytotoxic products. The company started as a contract development and manufacturing organization (CDMO) business catering to multi-national corporations. Its beginnings as a CDMO have helped it develop the ability to handle complex manufacturing processes at scale, such as lyophilization and complete isolation technology for cytotoxic products. In its manufacturing of biotherapeutics products, it has successfully developed and deployed its microbial and mammalian based platforms. It utilizes continuous biomanufacturing facilities and perfusion-based technology in India, which require lower capital expenditure to construct, occupy a smaller footprint, require lower operating expenditure and have relatively higher yield.

Risks and concerns

Significant working capital requirements: The company’s business requires significant working capital including to finance the purchase of raw materials and the development and manufacturing of products before payment is received from customers. Its working capital requirements are funded by working capital borrowings, which are short-term borrowings, and internal accruals. Its high working capital cycle days are primarily attributable to its high inventory levels, which are due to the long lead times and complex supply chain in its industry, and high debtor days (which refers to the average number of days between when it invoices its customers and when it receives payment) for its customers in its international markets. Its working capital requirements may change if the payment terms in its agreements include reduced advance payments or longer payment schedules. In addition, the actual amount of its future capital requirements may differ from estimates as a result of, among other factors, unforeseen delays, cost overruns, unanticipated expenses, regulatory changes, economic conditions, technological changes, additional market developments and new opportunities in the pharmaceutical industry. These factors may result in increases in the amount of its trade receivables and/or write-offs of trade receivables, and may result in increases in any future short-term borrowings. Continued increases in its working capital requirements may have an adverse effect on its business, results of operations, cash flows and financial condition.

Depend on third parties: In many of the markets in which the company has a presence, it generally enters into agreements with third-party entities to import, register, market, sell and distribute its products. It also enters into arrangements with other pharmaceutical companies to market, sell and distribute its products in international markets on its behalf. Individually, none of such agreements contributed materially to its revenues from operations for the past three Financial Years. In India, its marketing and distribution network was supported by a field force of over 5,000 personnel as of March 31, 2024. In Canada, it generally sells to hospitals, retail channels and third parties through its own frontend sales team. In Europe, where it primarily engages in the sale of generics, it sells to large distributors and compete in tender markets. In the rest of the world, its sales model varies from market to market depending on the dynamics of the geography, and it either sell its products through its own front-end sales team or through distributors. It engages its distributors either on an exclusive basis for a particular territory or a non-exclusive basis, depending on the geography. It has limited control over the operations and businesses of such third-party entities.

International operations expose to complex management: The company generates a significant part of its total revenue from its international markets, primarily Canada and Europe. It has also established subsidiaries, including in Italy, Dubai, South Africa, Peru, Mexico, Germany, Brazil, the Philippines, Kenya, Nigeria, the United Kingdom, Spain, Malta, France, Chile, Australia and the Dominican Republic, which play an important role in liaising and managing its operations in these markets. It also relies on co-marketing arrangements with companies located in such jurisdictions to enable it to accelerate the licensing of its products in these markets and to provide additional marketing opportunities for its products. As a result, it is subject to risks related to its international expansion strategy, including those related to complying with a wide variety of local laws and restrictions on the import and export of certain intermediates, formulations and technologies, anti-competitive practices, multiple tax and cost structures, and cultural and language factors. 

Depend on third-party transportation providers: The company depends on third-party transportation providers for the transportation of most of its raw materials and outsourced finished products and delivery of its products to domestic and overseas customers. Its agreements with its third-party transportation providers are on standard or market terms and conditions. In relation to such transportation services provided by third parties, it maintains marine transit insurance, which covers loss of or damage to goods in transit that are transported by third-party service providers or carriers. Factors such as increased transportation costs and transportation strikes could adversely affect the supply of raw materials that it requires and the delivery of its products. In addition, products may be lost, delayed or damaged in transit for various reasons, including accidents and natural disasters. While it has not had to seek alternate sources or make alternate arrangements for transportation services due to disruptions in the transportation services that it relies on, or faced a sudden increase in transportation costs in the past three Financial Years, it cannot assure that such incidents will not occur in the future.

Outlook

Emcure Pharmaceuticals is one of the leading Indian pharmaceutical companies engaged in developing, manufacturing and globally marketing a broad range of pharmaceutical products across several major therapeutic areas. The company’s core strength and competitive advantage lie in its established presence in all major therapeutic areas including Gynaecology, cardiology, blood-related, oncology, respiratory, CNS & HIV among others. Emcure has launched 6 Biologics in the Domestic Market & RoW markets & they are the domestic leader in three biologics. With 350+ brands, five R&D centers and 13 manufacturing facilities established across the country, it has ensured a strong presence not just in India but also outside India with a wide network across 70+ countries. Its API facilities ensures that its supply chain is vertically integrated providing flexibility over control of manufacturing. On the concern side, the company faces competition from manufacturers of patented brand products who do not face any significant regulatory approvals or barriers to enter into the generics market for the territories where the brand is already approved. Besides, the company uses highly flammable and hazardous materials, such as acetone, ethanol, methanol and toluene, in its R&D and manufacturing processes. The improper handling or storage of these materials could result in fire, industrial accidents, injuries to its personnel, property and damage to the environment.

The company is coming out with an IPO of 1,97,72,381 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 960-1008 per equity share. The aggregate size of the offer is around Rs 1898.14 crore to Rs 1993.05 crore based on lower and upper price band respectively. On performance front, total income increased by 11.33% to Rs 67,152.41 million for the Financial Year 2024 from Rs 60,317.16 million for the Financial Year 2023. The company’s profit for the year decreased by 6.10% to Rs 5,275.75 million for the Financial Year 2024 from Rs 5,618.45 million for the Financial Year 2023. Meanwhile, the company intends to continue to enhance its position by leveraging its leadership position in key therapeutic areas, to increase its market share in certain of its other therapeutic areas, such as neurology, anti-diabetics, respiratory and gastrointestinal. Further, in tandem with increasing the penetration of its key brands in its established markets, it also intends to continue to increase its penetration across the domestic market with an increased focus on hospitals and pharmacy chains as well as in rural and semi-rural parts of India where there is significant growth potential for its products.