Akums Drugs and Pharmaceuticals coming with IPO to raise upto Rs 1893.21 crore

Akums Drugs and Pharmaceuticals 

• Akums Drugs and Pharmaceuticals is coming out with a 100% book building; initial public offering (IPO) of 2,78,82,283 shares of Rs 2 each in a price band Rs 646- 679 per equity share.   
• Not less than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors. 
• The issue will open for subscription on July 30, 2024 and will close on August 1, 2024.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 2 and is priced 323.00 times of its face value on the lower side and 339.50 times on the higher side.
• Book running lead managers to the issue are ICICI Securities, Axis Capital, Citigroup Global Markets India and Ambit.
• Compliance Officer for the issue is Dharamvir Malik.

Profile of the company

Established in 2004, the company is a pharmaceutical contract development and manufacturing organization (CDMO) offering a comprehensive range of pharmaceutical products and services in India and overseas. As one of the leading CDMOs in India, the company owns the intellectual property for the manufacturing processes of several of its formulations, and its core business is focused on providing end-to-end product development and manufacturing solutions to its clients. Some of its other services include formulation research and development (R&D), preparation and filing of regulatory dossiers in the Indian and global markets, and other testing services. In addition to its core CDMO business, it is also engaged in the manufacturing and sale of branded pharmaceutical formulations and active pharmaceutical ingredients (APIs).

The company is the largest India-focused CDMO in terms of revenue, production capacity and clients served during the Financial Year 2023 (among CDMOs assessed by F&S). As a CDMO, it produces an extensive range of dosage forms including tablets, capsules, liquid orals, vials, ampoules, blow-filled seals, topical preparations, eye drops, dry powder injections, and gummies, among others. It also engages in the marketing of trade generic and products under its own brand through distributors and alternative channels across India.

Proceed is being used for:

• Repayment/ prepayment of indebtedness of the company.
• Repayment/ prepayment of indebtedness of its Subsidiaries namely, Maxcure Nutravedics and Pure and Cure Healthcare.
• Funding incremental working capital requirements of the company.
• Pursuing inorganic growth initiatives through acquisitions.
• General corporate purposes.

Industry overview

India's prowess in pharmaceutical manufacturing lies in its ability to produce vast quantities of affordable generic drugs. The country possesses extensive manufacturing capabilities, aligning with international regulatory standards. Furthermore, India, as the world's most populous nation with a burgeoning working-age population, offers access to a substantial labor force. India boasts the highest number of FDA-approved manufacturing facilities outside the United States. Notably, India demonstrated remarkable performance during the pandemic, showcasing its robust contract manufacturing capabilities and unwavering dedication by fulfilling domestic and global requirements for vaccines and COVID-19 medications. These achievements are attributed to India's domestic contract services, which play a crucial role in forming strategic partnerships and expanding the capacities of Indian and global pharmaceutical companies to meet growing demands. More notably, Indian pharmaceutical companies have undergone a substantial transformation in their approach to outsourcing, marking a noteworthy departure from historical hesitations. They increasingly turn to home-grown Indian CDMOs as strategic partners, reflecting a growing confidence in the value and benefits of such collaborations. This shift underscores the evolving dynamics within the pharmaceutical industry, where Indian CDMOs have become trusted allies in drug development, manufacturing, and research, facilitating a more streamlined and efficient pharmaceutical landscape. Moreover, with the explosive growth expected in the IPM and the need to bridge the demand-supply gap rapidly and urgently, pharma companies will increasingly resort to CDMO for reliable capacity expansion.

In addition to gaining immediate access to high capacities, Indian pharma companies are also benefitting from outsourcing to Indian CDMO by achieving cost reductions and economies of scale, gaining access to highly skilled in multiple innovative dosage and API forms, and solving the growing challenge of quality. A surge in domestic demand, at times surpassing existing manufacturing capacities, coupled with the integration of global formulation advancements and the imperative for cost-effectiveness, is propelling Indian pharmaceutical companies towards an unprecedented rise in outsourcing activities. Indian domestic CDMO market is fairly nascent in comparison to export-driven markets since IPM recently started outsourcing large-scale manufacturing to CDMOs. It has come in response to growth in volume demand in the market for traditional and novel formulations, high penalties for poor quality-related performance, diversification of sales channels in the form of trade generics requiring a specialized commercialization approach, and the need to improve profitability by achieving cost efficiencies.

Pros and strengths

Largest CDMO serving the Indian pharmaceutical industry: The company is the largest India-focused CDMO in terms of revenue, production capacity and clients served during the Financial Year 2023 (among CDMOs assessed by F&S). Since the commencement of its operations in 2004, it offers a comprehensive range of pharmaceutical products and services. Along with its Subsidiaries, as of March 31, 2024, it operates 12 manufacturing units with a cumulative formulations manufacturing capacity aggregating to 49.23 billion units annually, to produce a wide range of dosage forms including tablets, hard and soft gelatin capsules, liquid orals, sachets, vials, ampoules, form fill seals, topical preparations, eye drops, dry powder injections, rotacaps and gummies, among others. Since its inception, it has manufactured 4,146 commercialised formulations across over 60 dosage forms. During the Financial Years 2024, 2023 and 2022, it manufactured 18,874, 18,159, and 15,441 SKUs, respectively. During Financial Year 2024, it had a market share of 30.2% by value in the Indian domestic CDMO market.

Large and rapidly growing R&D capabilities across product portfolio: As part of the company’s CDMO operations, it offers differentiated products and services. Its in-house product strategy team is responsible for conceptualizing new formulations based on emerging epidemiological trends, global product approvals and opportunities within the pharmaceutical, wellness, and nutraceutical sectors. As part of the product conceptualisation process, each prospective product undergoes rigorous clinical and stability studies, scale-up procedures, and a meticulous regulatory clearance process before launch. Its commitment to innovation and continuous improvement has enabled it to remain at the forefront of pharmaceutical advancement in the CDMO sector in India and globally. Its R&D capabilities extend across a diverse range of dosage types, encompassing oral solids, oral liquids, injectables, sterile products, topicals. Furthermore, its R&D efforts span various product categories including pharmaceuticals, cosmeceuticals, nutraceuticals and ayurvedic products, among others, within and outside India. 

Strategic presence across the pharmaceutical value chain: The company carry out its operations across the pharmaceutical value chain, operating as a CDMO as well as a marketer of formulations and manufacturer of APIs. While this approach provides it with multiple levers of growth, it also helps it mitigate business risks inherent in the industry. Its presence in the Indian pharmaceutical landscape is augmented by its strong domestic CDMO presence and amplified through its global export initiatives. This provides it with a competitive edge in the industry, allowing it to navigate growth opportunities across multiple markets. Moreover, its adherence to global regulatory standards reinforces its ability to contribute to global healthcare solutions, expanding its footprint in overseas markets. In addition to its core CDMO business, it is also engaged in the manufacturing and sale of branded pharmaceutical formulations in India and overseas markets. Domestically, through its strategic initiatives and targeted marketing campaigns, it is a comprehensive healthcare solutions provider with diversification across a range of therapeutic areas. 

Diverse client base with longstanding CDMO relationships: As of March 31, 2024, the company’s client base for its CDMO business comprised 1,524 Indian and multinational pharmaceutical and wellness companies, increasing from 1,386 as of March 31, 2022. Its client base includes a diverse range of clients such as pharmaceutical companies, nutraceutical companies, cosmo-derma companies, wellness companies, e-commerce companies, healthcare providers and central and state government entities. During the Financial Year 2024, it manufactured formulations for 26 of the leading 30 pharmaceutical companies in terms of sales in India. Furthermore, it has benefitted from repeat orders in the past five years from 38 of its 50 largest clients in terms of revenue for its CDMO business, as of March 31, 2024. Its client relationships have strengthened over the years, exemplifying its reliability, expertise and cost efficiencies it brings to its clients.

Risks and concerns

Rely on domestic and international third-party suppliers: The company is dependent on domestic and international third-party suppliers for the supply of a majority of its raw materials. Its success depends on the uninterrupted supply of raw materials required for its manufacturing activities. It does not have long-term contractual arrangements with its suppliers and procure raw materials through purchase orders entered into with its suppliers. Raw materials, including packaging materials, are susceptible to supply disruptions and price volatility influenced by a range of factors including fluctuations in commodity markets, the quality and availability of raw materials, currency fluctuations, consumer demand, and changes in government policies and regulatory sanctions. Furthermore, it also depends on third-party transportation providers for the delivery of raw materials and logistics services, and does not have long-term contractual arrangements with such providers. Any disruptions in these services could impede its ability to secure raw materials and deliver products on time. Although it has not encountered any major disruptions in the supply of raw materials in the past, it cannot assure that it may not encounter any delay, interruption or reduction in the supply of raw materials in the future. Any such instance could adversely affect its business, results of operations, financial condition and cash flows. 

Business requires significant capital expenditure: The company’s business requires significant capital expenditure. For instance, it requires a significant amount of capital for establishing manufacturing units, including in relation to procurement of land and requisite equipment. Any delays in procurement of the capital required for its operations may lead to delay in its operations such as, among others, setting up of new manufacturing units, upgrading the equipment at its manufacturing units, product diversification, and enhancement of research and development initiatives, which may lead to losses on account of cost viability and loss of market opportunities. Its future capital requirements may differ from estimates due to a number of factors including, unforeseen delays or cost overruns, unanticipated expenses, regulatory changes, economic conditions, technological changes, and additional market developments, pursuant to which, it may have to avail additional financing through incurrence of debt, issuance of equity securities or a combination of both. If it decides to raise additional funds through the incurrence of debt, its interest and debt repayment obligations will increase, which may have a significant effect on its profitability and cash flows. 

Depends on sale of products to limited number of clients: The company’s business is dependent on the sale of products to a limited number of clients for a significant portion of its revenues. A majority of its CDMO business is conducted through purchase orders that are placed with it by its clients from time to time. Prior to the issuance of purchase orders, it enters into agreements with its clients to set out the broad parameters of its arrangement, including but not limited to the term of the agreement, the products to be manufactured and provisions relating to inspection and audit of its manufacturing units. It does not have exclusive arrangements with a majority its clients, including its key clients, and its clients may discontinue their relationship with it. For instance, in the past, one of its key clients reduced their business with it due to commencing its own in-house manufacturing operations. The company receives complaints from its CDMO and API clients from time to time primarily in relation to packaging, quantity, transportation, and storage conditions of the products.

Export products to regulated and semi-regulated markets: The company exports its products to regulated as well as semi-regulated markets. Semi-regulated markets are defined as all markets other than South Korea, Australia, the U.S., Europe, Canada and Japan, and includes unregulated markets. The company is required to comply with the regulatory requirements applicable in the regulated and semi-regulated markets to which it export its products, which continue to evolve and it subject to changes and as a result may, at times, be unclear or inconsistent. Consequently, it may inadvertently fail to comply with such regulations, which could lead to enforced shutdowns and other sanctions imposed by the relevant authorities, as well as the withholding or delay in receipt of regulatory approvals for its formulations, which may increase its costs for complying with applicable laws, rules and other requirements. While it has not faced any such instances during the Financial Years 2024, 2023 and 2022, it cannot assure that it may not be subject to regulatory actions due to its inability to comply with the applicable regulatory requirements in jurisdictions outside India in the future.  

Outlook

Akums Drugs and Pharmaceuticals is a pharmaceutical contract development and manufacturing organization (CDMO) offering a comprehensive range of pharmaceutical products and services in India and overseas. As one of the leading CDMOs in India, it owns the intellectual property for the manufacturing processes of several of its formulations, and its core business is focused on providing end-to-end product development and manufacturing solutions to its clients. Some of its other services include formulation research and development (R&D), preparation and filing of regulatory dossiers in the Indian and global markets, and other testing services. The company meets the escalating demand for health and wellness products with expertise and precision. By translating nutraceutical concepts into tangible products, Akums empowers businesses to cater to the health-conscious consumer base. Its state-of-the-art manufacturing facilities and unwavering commitment to maintaining the highest quality standards ensure that the nutraceutical products produced are safe, effective, and aligned with consumer expectations. This vital role strengthens the health and wellness industry in India, fostering a culture of well-being and balanced living. On the concern side, the company utilises flammable and hazardous materials in its manufacturing and R&D processes. The improper handling or storage of these materials could result in fire, industrial accidents, property damage and damage to the environment. Besides, the company is dependent on third-party transportation providers for supply of its branded and generic formulations to distributors. It does not have long-term contractual arrangements with such third-party transportation providers. 

The company is coming out with an IPO of 2,78,82,283 equity shares of face value of Rs 2 each. The issue has been offered in a price band of Rs 646-679 per equity share. The aggregate size of the offer is around Rs 1801.20 crore to Rs 1893.21crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 13.81% to Rs 42,122.07 million for the Financial Year 2024 from Rs 37,009.25 million for the Financial Year 2023. The company has incurred a profit of Rs 7.90 million during the Financial Year 2024, as compared to a profit of Rs 978.17 million during the Financial Year 2023. Meanwhile, the company aims to streamline its production lines and enhance quality control measures, ensuring that it maintain high-quality standards. By proactively identifying areas where automation can be effectively integrated into its operations, it aims to reduce production costs, decrease lead times, and provide a quicker response to its clients’ needs. It aims to continue to prioritize R&D for product development across diverse therapy areas and dosage forms. It also intends to expand its CDMO offering to include additional formulation development services, manufacturing for global supply chains, dossier development, and additional regulatory assistance.  By focusing on R&D as a service, it aims to undertake contract manufacturing in global markets, and leverage its existing expertise in product development to forge manufacturing collaborations across a range of therapies.