Valiant Laboratories Limited IPO

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i.  Valiant Laboratories is an Active Pharmaceutical Ingredient (“API”) / Bulk Drug manufacturing company having focus on manufacturing of Paracetamol. Bulk drugs/Active Pharmaceutical Ingredients (API) serve as raw materials for manufacturing finished dosage forms or formulations. Paracetamol (Scientific name: Acetaminophen or para-hydroxyacetanilide – C8H9NO2), is one of the most commonly taken analgesic worldwide and is recommended as the first-line therapy in pain conditions by the World Health Organization (WHO). Paracetamol has several applications such as usage in treatment of headaches, muscle aches, arthritis, back aches, toothaches, cold and fever. They manufacture Paracetamol in various grades such as IP/BP/EP/USP, as per the pharmacopeia requirements of our customers.

ii. Paracetamol was initially approved by the U.S. Food and Drug Administration (“US FDA”) in 1951 and is available in a variety of forms including syrup form, regular tablets, effervescent tablets, injection, suppository, and other forms. Paracetamol is often found combined with other drugs in many over the counter (“OTC”) allergy medications, cold medications, sleep medications, pain relievers, and other products. (Source: CRISIL Report)

iii. The pharmaceutical API industry in India is ranked third-largest globally in terms of volume, behind China and Italy – About 35 per cent of API and intermediaries produced in India are exported and the remaining API and intermediaries are sold in the domestic market, including captive consumption by several large formulation players. India is the largest provider of generic drugs, globally contributing to ~20% in global supply by volume of generics drugs. The overall API industry in India grew from Rs. 781 billion in Fiscal 2017 to Rs. 1,179 billion in Fiscal 2022 registering a CAGR of 8.5% in rupee terms. Going forward the API industry is expected to clock a growth rate of 9-11% between Fiscal 2022 and Fiscal 2027, largely driven by growth in API exports, which is expected to deliver a healthy growth during the period under consideration. The paracetamol API industry (Domestic consumption+ exports) grew from Rs. 22 billion in Fiscal 2017 to Rs. 39 billion in Fiscal 2023. The paracetamol API market growth was mainly supported by growth in pain and analgesics therapy area which focuses on treatment of common fever, cough and cold as well as volume rise coupled with strong realization levels for players.

iv. Their manufacturing facility is located at Maharashtra, India which is spread over an aggregate parcel of land admeasuring about 2,000 sq. mts. (“Manufacturing Facility”) with an aggregate annual total installed capacity of 9,000 MT per annum. Their Manufacturing Facility employs modern machinery and equipment to ensure smooth flow of operations.

Competitive Strengths

i. Experienced promoters and strong management team
ii. Strong financial performance
iii. Reducing dependence on import of raw materials

Objects of the Valiant Laboratories Limited IPO:

The company intends to utilize the net proceeds from the issue towards the funding of the following objects: i. Investment in its wholly-owned subsidiary, Valiant Advanced Sciences Private Limited (VASPL) for part-financing its capital expenditure requirements in relation to the setting up of a manufacturing facility for specialty chemicals at Saykha Industrial Area, Bharuch, Bharuch, Gujarat (Proposed Facility). ii. Investment in VASPL for funding its working capital requirements. iii. General corporate purposes.
DRHP of Valiant Laboratories Limited IPO
RHP of Valiant Laboratories Limited IPO

Valiant Laboratories Limited IPO Details:

Open Date: Sep 27 2023
Close Date: Oct 03 2023
Total Shares: 10,890,000
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Built Issue IPO
Issue Size: 152.46 Cr.
Lot Size: 105 Shares
Issue Price: ₹ 133 - 140 Per Equity Share
Listing At: NSE,BSE
Listing Date: Oct 05 2023

Promoters And Management:

i. Velji Karamshi Gogri aged 71 years, is the Independent and Non-Executive Director of the Company. He holds a Bachelor of Technology in Chemical Engineering from Indian Institute of Technology, Bombay (IIT Mumbai). He has experience of more than 45 years in the Chemical Industry involved in setting up and operating bulk drugs intermediates and fine chemicals manufacturing units and handling different chemical processes and equipment. He has been on the Board since February 06, 2022 to guide the Board inter alia on manufacturing and business strategies ii. Santosh Shantilal Vora aged 29 years, is the Managing Director of the Company. He holds a Bachelor’s degree in Commerce from University of Mumbai. He has also successfully completed the Post Graduate Programme in Management for Family Business from The Indian School of Business, Hyderabad. He has experience of over 7 years in the chemical industry. He has been associated with us since 2016 (as partner of M/s. Bharat Chemicals) and subsequently, became the first director of the Company on August 16, 2021 post conversion of M/s. Bharat Chemicals into Valiant Laboratories Limited. He is one of the founding members of the Company and looks after the day-to-day affairs of the Company. He handles the responsibility of looking after new product development, infusion and upgradation of technology in operations and production process of the Company. iii. Shantilal Shivji Vora, aged 71 years, is the Non-Executive Director of the Company. He has completed his secondary education from Maharashtra State Board and has been associated with the Company since 1998 (as partner of M/s. Bharat Chemicals) and is acting as the Non-Executive Director. He has a rich experience in the chemical and pharma industry. He is a member one of the founding families of the Company and a director on the Board since the incorporation.

Financials of Valiant Laboratories Limited IPO:

A. Balance Sheet
Particular (In Million) Mar-21 Mar-22 Mar-23
Equity Share Capital 105.00 162.80 325.60
Reserves 781 552 679
Borrowings 4 607 594
Trade Payables 123 464 473
Other Liabilities 51 32 56
Total Liabilities 177 1,104 1,123
Net Block 196 218 291
Capital Work in Progress 0 14 0.5
Investments 0 0 0.1
Other Assets 9 18 16
Total NC Assets 204 250 308
Receivables 425 1,108 886
Inventory 61 158 130
Cash & Bank 189 201 5
Other Assets 184 101 799
Face value 10 10 10
B. Profit & Loss Statement
Particular (In Million) Mar-21 Mar-22 Mar-23
Sales 1,824 2,915 3,339
Raw Material Cost 1,209 2,364 2,773
Purchases of Stock In Trade 0.1 4 3
Change in Inventory -1 -20 -2
Employee Cost 27 31 46
Other Expenses 89 113 169
Other Income 14 19 49
EBITDA 514 443 400
EBITDA Margin 28.19% 15.19% 11.97%
Depreciation 26 25 16
Interest 18 0.7 3
Profit before tax 470 417 381
Tax 164 142 91
Net profit 306 275 290
NPM (%) 16.65% 9.37% 8.56%
C. Cash Flow Statement
Particular (In Million) Mar-21 Mar-22 Mar-23
Cash From Operating Activity
Profit From Operation 514 448 400
Receivable -207 -683 222
Inventory -22 -97 28
Payable 14 353 68
Other WC Items -44 146 -400
Working Capital Changes -258 -281 -82
Direct Taxes -165 -145 -88
Net Cash Inflow from Operating Activity 91 23 230
Cash from Investing Activity
Fixed assets purchased -17 -69 -71
Fixed assets sold 0 0.4 0
Investments purchased 0 -4 -340
Other investing items -150 -50 199
Net cash inflow from investing activities -167 -122 -212
Cash from Financing Activity
Proceeds from shares 0 489 0
Proceeds from borrowings 132 0 0
Repayment of borrowings 0 -421 -13
Intrest paid fin -18 -6 -3
Other financing items 0 -0.3 0
Net Cash Flow 39 -38 2

Comparison With Peers:

Name of the Company Revenue (In Crore) PAT (In Crore) EPS ( in Rs) P/E CMP Mcap (In Crore)
Valiant Laboratories Limited 334 29 6.67 20.97 140 608
Granules India Ltd 4512 517 20.81 19 335 8,322
Jagsonpal Pharmaceuticals Limited 237 27 10.20 35 418 1,094
Alkyl Amines Chemicals Ltd 1,682 229 44.75 61.2 2,352 12,018
Laxmi Organic Industries Limited 2,797 125 4.70 77.1 286 7,590
* All the data is as per FY23.

Recommendation on Valiant Laboratories Limited IPO:

Review and Recommendation of Valiant Laboratories IPO is 5/10

Business Overview

Valiant Laboratories specializes in the manufacturing of Paracetamol, a widely-used analgesic. The company produces various grades, catering to different pharmacopeia requirements, which gives it a diversified product line. This is a positive aspect as it allows the company to cater to a broader market.

Industry Outlook

The pharmaceutical API industry in India has been growing steadily. With India being the third-largest API producer globally and the largest provider of generic drugs, the industry has strong fundamentals. The expected growth rate of 9-11% between Fiscal 2022 and Fiscal 2027 also indicates a positive trajectory. This backdrop could offer Valiant Laboratories a conducive environment for growth, particularly in the export sector.

Manufacturing Facility

The company’s manufacturing facility in Maharashtra appears to be well-equipped and has a sizable production capacity. This is essential for scaling the business and meeting increased demand in both domestic and export markets.

Competitive Strengths

1. Experienced Leadership: The promoters and management team bring significant experience in chemical and pharma industries, which is a positive sign for sound governance and strategic planning. 2. Strong Financial Performance: The company has demonstrated robust financial growth, although there are some signs of increasing operational expenses as indicated by EBITDA Margin. 3. Reduced Dependence on Raw Material Imports: This is a key strength, as it potentially makes the company less vulnerable to international trade fluctuations and supply chain issues.

Financials

1. Revenue has increased from INR 182 Cr in Fy21 to INR 333 Cr in FY23. 2. EBITDA margins has gone down from 28% in Fy21 to INR 12% Cr in FY23 due to pressure on raw material cost. 3. PAT has remained flat from at INR 30 Cr. So, no growth in PAT in the last 3 years.

IPO Details and Use of Proceeds

The IPO aims to raise funds for expanding its subsidiary’s manufacturing facility and other corporate purposes. The IPO pricing seems to be in line with the industry peers based on P/E ratios.

Peer Comparison

The IPO is coming at P/E of 20x and Mcap of 600 Cr which looks fully priced in as compared to peers.

Risks

1. The industry is highly regulated, and any changes in regulations can impact the business. 2. Increasing operational costs is putting pressure on margins. 3. The high level of borrowings and trade payables needs to be managed effectively to maintain financial health.

Conclusion

Valiant Laboratories appears to be a robust player in the API industry with strong growth potential. However, due to pressure of high raw material cost the profitability is flat in the last 3 years and valuation seems to be on the higher side.

Lead Manager of Valiant Laboratories Limited IPO:

  1. Unistone Capital Pvt Ltd

Registrar of Valiant Laboratories Limited IPO:

  1. Link Intime India Private Limited

Company Address:

Valiant Laboratories Limited 104,Udyog Kshetra, Mulund Goregaon Link Road, Mulund West, Mumbai -400080 Phone: +91 2249712001 Email: complianceofficer@valiantlabs.in Website: https://valiantlabs.in/

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