Concord Biotech IPO (Subscribe)

Highlights

Concord Biotech Limited, incorporated in 1984, is an India-based R&D-driven biopharma business. In terms of market share, based on volume, the company is placed among the top global developers and manufacturers of certain fermentation-based APIs in immunosuppressants and oncology in 2022. Concord Biotech has a global footprint. They sell their products in over 70 countries, including the United States, India, Europe, and Japan.

The company manufactures Active Pharmaceutical Ingredients (API) and completed formulations through fermentation and semi-synthetic processes. It began with a single product and has expanded to become a full-service solution supplier.

Concord manufactures fermentation and semi-synthetic-based products in therapeutic areas such as (i) immunosuppressants (ii) antibacterial agents (iii) oncology agents (iv) antifungals (vi) others.

Key Highlights

• Concord manufactures fermentation and semi-synthetic-based products in therapeutic segments such as Immunosuppressants, Anti-bacterial, Oncology, Antifungals & others. As of June’23, Concord had a portfolio of 57 brands and 77 products which includes 23 APIs and 53 formulations. They had 80+ out-licensed formulations which they distributed in India under their brands. The wide range of products has attracted customers across the globe and the company also has a robust pipeline of products under development. As of March’23, the company had 6 fermentation-based immunosuppressant APIs, including tacrolimus, mycophenolate mofetil, mycophenolate sodium, cyclosporine, sirolimus and pimecrolimus.
• The company has a strong global footprint and supplies its products to 70 countries. In 2016, they launched their formulation business in India as well as emerging markets, including Nepal, Mexico, Indonesia, Thailand, Ecuador, Kenya, Singapore, and Paraguay, and have further expanded to the United States. As of Mar’23, they had a total installed fermentation capacity of 1,250 m³. In India, they have a presence across 20 states and 5 union territories, through their sales team. They also have a B2B contract development manufacturing organization (CDMO) business where they supply immunosuppressants to the domestic market.

• The five largest customer contributes 33.47 pct of sales and the ten largest customers contributes 44.28 pct of sales. While the company has not had any instances of purchase discontinuance from their ten largest customers by revenue in the last three fiscal years.
• Concord Biotech derives a substantial percentage of its revenue from the sale of immunosuppressive APIs, with APIs accounting for 89.23 pct of total revenue and Formulation accounting for 10.77 pct. 
• In 2022, the company held a market share of more than 20 pct by volume across identified fermentation-based API products such as mupirocin, sirolimus, tacrolimus, mycophenolate sodium, and cyclosporine. The company had a total installed fermentation capacity of 1,250 m3 as of March 31, 2023.
• During the last 3 years company is able to maintain an EBITDA margin above 35 pct. Net Profit margin above 20 pct. ROE and ROCE above 15 pct and 20 pct respectively. The company has consistently distributed dividends of more than 30 pct of its net profit to our equity shareholders over the last eight years.
•  The potential of the Indian API industry, there are numerous players, and the market remains fragmented. The API manufacturing business in India is fragmented, with around 200 enterprises serving the US market alone.

Risk and Concerns

• A general slowdown in the global economic activities 
• Poor pick-up in the sales of anti-infective and oncology drug APIs 
• Difficulty in ramping-up production at the Limbasi facility 
• Volatility/unfavourable in the forex rates 
• Competition

Valuation

Concord has an established presence in the therapeutic areas and is well poised to benefit from the industry growth tailwinds. The immunosuppressant API portfolio is expected to remain one of the key contributors to the API business in the near future. At the higher price band, Concord is demanding a P/E multiple of 32.3x (to its FY23 earning). Due to its strong global footprint, diversified product portfolio, and robust in-house R&D capabilities, we recommend a SUBSCRIBE to the issue.

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Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.