Onyx Biotec coming with IPO to raise Rs 29.34 crore

Onyx Biotec

• Onyx Biotec is coming out with an initial public offering (IPO) of 48,10,000 equity shares in a price band Rs 58-61 per equity share.
• The issue will open on November 13, 2024 and will close on November 18, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 5.80 times of its face value on the lower side and 6.10 times on the higher side.
• Book running lead manager to the issue is Horizon Management.
• Compliance Officer for the issue is Harsh Jhunjhunwala.

Profile of the company

Onyx Biotec started its operation in pharmaceutical industry with sterile water for injections in the year 2010. Since then, the company has been associated with the healthcare segment and offering Sterile Pharmaceutical products and has become a prominent supplier of sterile products to major corporations, which includes the top pharma companies at pan India level. The company is committed to provide high-quality products at affordable price. Presently, the company manufactures Sterile Water for Injections, and acts as a pharmaceutical contract manufacturer offering a comprehensive range of Dry Powder Injections and Dry Syrup for India and overseas. 

Its products are being processed and manufactured in accordance with best FDA practices available globally. Its system and product is tested constantly at each level to ensure international standards of quality in-house and FDA Certified Laboratories. Its core business is focused on providing end-to-end product development and manufacturing solutions to its clients. Its service also include preparation and filing of regulatory dossiers in the Indian and global markets.

The company has two manufacturing facilities in Himachal Pradesh. Its manufacturing facility Unit I is having production capacity of 6,38,889 units of Sterile Water for Injections per day and Unit II is having a capacity of 40,000 units of dry Powder injection per day and 26,667 units of dry syrup per day in a single shift. Its manufacturing units are equipped with Modern Equipment, ensures Quality Control and follows Sustainable Practices. Its manufacturing units have been accredited by global regulatory agency i.e. World Health Organization Good Manufacturing Practice (WHO-GMP). During the Financial Years 2024, 2023 and 2022, its manufacturing units were subject to 8 (eight) audits in Unit I and 7 (seven) audits in Unit II by its clients and 3 (three) inspections by its regulators.

Proceed is being used for:

• Upgradation of existing manufacturing Unit I to manufacture large volume parentals for intravenous use
• Setting up a high-speed cartooning packaging line at existing manufacturing Unit II for Dry Powder Injections
• Prepayment or repayment of all or a portion of certain loans availed by the company
• General corporate purposes

Industry Overview

India’s drugs and pharmaceuticals exports stood at $27.82 billion in FY24 (April- March). The Indian pharmaceutical industry is worth approximately US$ 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. During FY18 to FY23, the Indian pharmaceutical industry logged a compound annual growth rate (CAGR) of 6-8%, primarily driven by an 8% increase in exports and a 6% rise in the domestic market. 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. Indian pharmaceutical sector is expected to grow at a CAGR of 22.4% in the near future. The government has set ambitious target to boost the medical devices industry in India, aiming to elevate it from its current $11 billion valuations to $50 billion by 2030. India is the second-largest contributor of global biotech and pharmaceutical workforce. Exports of drugs and pharmaceuticals recorded a strong y-o-y growth of 9.7% during April-March FY24.

The Indian healthcare industry reached over $370 billion in 2022 and is expected to reach over $610 billion by 2026. Indian hospital market valued at $98.98 billion in FY23 and projected to grow by 8% CAGR and reached to $193.59 billion by FY32. India is among the top 12 destinations for biotechnology worldwide and third largest in Asia Pacific. The country holds 3-5% of the global biotechnology industry pie. In 2022, India’s bio economy was valued at $137 billion, and aims to achieve $300 billion mark by 2030. India has emerged as the medial tourism hub of the world providing cost-effective treatments with the latest technology enabled by several path breaking reforms and provisions in healthcare sector. Access to affordable HIV treatment from India is one of the greatest success stories in medicine. India is one of the biggest suppliers of low- cost vaccines in the world, thereby rightly making it the ‘Pharmacy of the World’.

India is among the leaders in the clinical trial market. Due to a genetically diverse population and availability of skilled doctors, India has the potential to attract huge investments to its clinical trial market. Due to increasing population and income levels, demand for high- end drugs is expected to rise. Growing demand could open up the market for production of high- end drugs in India. With 70% of India’s population residing in rural areas, pharma companies have immense opportunities to tap this market. Demand for generic medicines in rural markets has seen a sharp growth. Various companies are investing in the distribution network in rural areas. Contract research and manufacturing services (CRAMS) is one of the fastest growing segments in the pharmaceutical and biotechnology industry. The pharmaceutical market uses outsourcing services from providers in the form of contract research organizations (CROs) and contract manufacturing organizations (CMOs). 

Pros and strengths

One of the prominent contract manufacturers in sterile manufacturing: The company is well known through its brand named ‘Onyx’ in the sterile manufacturing industry. Its brand and the company’s experience has helped it to earn the trust and goodwill of its clients which further has an influence on the prospective client’s decision. It currently manufactures comprehensive range of Sterile Water for Injections, Dry Powder Injections and Dry Syrups for Indian and overseas market. Its well established and recognizable brand and the reputation built by it has and will enable it to increase its clientele list in the future. With a rich history spanning over a decade, the company has emerged as a prominent force in the in sterile manufacturing.

Quality assurance and quality control of its products: At the core of its operations is an unwavering commitment to quality assurance and control. Its customers demand rigorous quality checks at various stages before dispatch, and it has established dedicated quality assurance and control teams to meet these demands. It employs experienced chemist and microbiologist in its manufacturing and quality control process to ensure its product undergo meticulous inspections to prevent rejections and maintain highest quality standard as specified by its clients. The company’s quality control measures extend from thorough checks of raw materials to the final inspection of finished goods. An in-house laboratory equipped with automatic/mechanical machines, operated by skilled personnel, supplements these efforts.

Cost effective production and timely fulfilment of orders: Timely fulfilment of the work orders is a prerequisite in its industry. The company has taken various steps in order to ensure adherence to timely fulfilment of orders and to achieve greater cost efficiency at its existing manufacturing units. These steps include sourcing of quality raw materials, quality control, smooth labour relations, use of an efficient production system and strong relationship with raw material suppliers. These steps enable it to meet large and varied orders.

Risks and concerns  

Maximum revenue comes from limited 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. The company garnered 71.16%, 94.48% and 93.98% of its revenue from top 10 customers in FY24, FY23 and FY22 respectively. The company does not have exclusive arrangements with some of its clients, including its key clients, and its clients may discontinue their relationship with it. If its largest clients or a number of its clients cease to purchase products from it, its business, results of operations and financial condition could be adversely affected.

Geographical constrain: The company operates two manufacturing units, in Solan, Himachal Pradesh. The geographic concentration of its manufacturing units heightens its exposure to adverse developments and economic shifts within this region. Any significant social, political, civil or economic disruptions, or instances of internal or external aggression or changes in the policies of state or local governments, in Solan, Himachal Pradesh in general, could have an adverse effect on its business, results of operations and financial condition. Furthermore, the rocky terrains of Himachal Pradesh are prone to natural disasters including landslides, cloud bursts, earthquakes and floods. While it has not faced any significant impact of such natural disasters during the preceding three years, it cannot assure that it will not face any natural disasters in the future. Any such instances of natural disasters could adversely affect its business, results of operations and financial condition.

Procure significant amount of raw material from limited 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. The company procured 59.42%, 61.45% and 71.80% of its raw material from top 5 customers in FY24, FY23 and FY22 respectively. 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. The company 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.

Outlook

Onyx Biotec is a pharmaceutical company providing sterile water for injections. The company currently manufactures Sterile Water for Injections and serves as a pharmaceutical contract manufacturer, offering a comprehensive range of Dry Powder Injections and Dry Syrups for both the Indian and overseas markets. The company had a client base of more than 100 Indian and multinational pharmaceutical companies. It has received certificates for the management system, ISO 9001:2015, and ISO 14001:2015 from ROHS Certification Private Limited. On the concern side, the company’s business is dependent on sale of products to a limited number of clients for a significant portion of its revenues. The loss of one or more such clients or the deterioration of their financial condition or prospects could adversely affect its business, results of operations and financial condition. The company’s manufacturing units are concentrated in Solan, Himachal Pradesh, and it is exposed to risks originating from economic, regulatory, political and other changes in this region, including natural disasters, which could adversely affect its business, results of operations and financial condition.

The company is coming out with a maiden IPO of 48,10,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 58-61 per equity share. The aggregate size of the offer is around Rs 27.90 crore to Rs 29.34 crore based on lower and upper price band respectively. On performance front, total revenue has increased 36.10% from Rs 3,949.19 lakh in the fiscal year ended March 31, 2023 to Rs 5,374.88 lakh in the fiscal year ended March 31, 2024. Moreover, Net Profit has increased 64.36% from Rs 184.46 lakh in the fiscal year ended March 31, 2023 to Rs 303.16 lakh in the fiscal year ended March 31, 2024. Net Profit After Tax was increased due to increase in production and sale of finish product with the commencement of Unit II.

The company is engaged in manufacturing of Sterile Water for Injections, Dry Powder Injections and Dry Syrups for India and overseas. It is focussed on enhancing its presence in the geographies where it already operates by strengthening relationships with existing customers. The domestic market offers various opportunities in term of sub-geographic penetration and product/market diversification which it intends to seize and increase its market reach domestically to explore untapped markets and segments as part of its strategy to mitigate market risk and widen growth prospects.