The bulk drug or active pharmaceutical ingredient (API) industry clocks the highest revenues for the Indian pharmaceutical industry, with a production of about Rs 12,000 crore and export of close to Rs 10,000 crore.
Major bulk drug manufacturers are making investments in ramping up capacities as high-value drug exports to the US and the EU markets grow. These high value exports consist of lifestyle drugs like anti-cancer, anti-Alzheimer, anti-depressant, cardiovascular drugs and HIV drugs among others.
Along with bulk drug manufacturing, contract research and manufacturing too have gained significant momentum, since these activities do not require large investments to set up manufacturing facilities and even the working capital requirements are low.
SMS Pharmaceuticals, a Hyderabad-based manufacturer of APIs and pharmaceutical intermediates is coming out with an initial public offering (IPO) comprising of 2.58 million shares, aggregating between Rs 92.8 crore and Rs 97.9 crore.
The issue will constitute 25.8 per cent of the fully diluted post-issue capital of 10 million shares of the face value of Rs 10 each. After the issue, the promoter and promoter group holding in the company would reduce to 53.68 per cent.
SMS has interests in manufacturing and sale of APIs and pharmaceutical intermediates, contract manufacturing and contract research, and neutraceuticals, which are over-the-counter nutritional supplements.
The company is one of the largest manufacturers of ranitidine, an anti-ulcer and anti-acidity API.
Apart from that, its key products are sumatriptan, an anti-migraine drug, gemcitabine, which is used to treat pancreatic cancer and itraconozole which is used to treat fungal infections.
The company also boasts of a strong client-base, with the likes of Ranbaxy, Cadila, Torrent, Dabur Pharma, Dr Reddy's and Neuland Laboratories in India, and Albion Laboratories, Helm De Mexico and Teva Pharmaceuticals overseas.
In addition, the company has an exclusive contract manufacturing agreement with Swiss fine-chemical company Sochinaz for an anti-hypertensive drug trandalopril.
Due to growing exports, the company plans to expand capacity, and enter newer product segments. For this, SMS is setting up a new manufacturing facility in Andhra Pradesh.
The object of the public issue is to raise the required capital to set up this plant, as well as to fund the increased working capital requirements of the company.
The company has filed six process patents and one product patent under Patent Cooperation Treaty (PCT) and 10 process patents with Indian patent office.
"The company has a product line consisting of formulations which are yet to go off-patent in the next couple of years in the US, and therefore, there is substantial potential growth waiting to be achieved," says Veebha Salvi of KR Choksey Research.
The issue is priced at 11 times the company's estimated FY08 earnings at the lower band of Rs 360, and 12 times at the upper band of Rs 380, which appears reasonable.