Aanjaneya Lifecare is entering the capital market on 9^th May 2011 with a public issue of 50 lakh equity shares of Rs.10 each, priced between Rs. 228-240 per share, aiming to mop Rs. 120 crore at the upper price band. The issue, constituting 39.76% of post issue paid-up capital of the company, closes on May 12.

Aanjaneya Lifecare is a pharma player manufacturing anti-malarial active pharmaceutical ingredients (APIs), niche APIs and finished dosage forms (FDFs) at 2 manufacturing facilities at Raigad and Pune in Maharashtra. Operating both on contract basis and having own branded generic products, it exports to semi-regulated and emerging markets.

It is a 73.25% subsidiary of a BSE-listed shell company Finaventure Capital Limited (name changed to Aasda Life Care Limited) whose promoter Dr. Kannan Vishwanath is the same as the promoter of Aanjaneya. While the company undertook the share swap arrangement with a listed company, as above, in August 2009, it has failed to file basic compliance documents with RoC since 2007, which continued as recently as September 2010, which only goes to reflect its casual approach towards dealing in statutory requirements and compliances.

For FY10, company reported sales of Rs. 162 crore with PAT of Rs. 15 crore. For 10mFY11, sales increased to Rs. 280 crore while PAT shot up to Rs. 31 crore. However, on comparing the above results with Finaventure Capital’s consolidated results as submitted to the exchanges, the financial position of this company appears fishy:

^ as per statement submitted to BSE

*as per RHP

Note: As Aanjaneya Lifecare is Finaventure’s only subsidiary and since the latter does not have any other business operations (as confirmed by nil turnover during 9mFY11), above-mentioned results are comparable.

As can be derived from above, Aanjaneeya Lifecare posted quarterly turnover of Rs. 75-80 crore for Q1 and Q2 of FY11 with quarterly PAT of about Rs. 7-8 crore each. Although there was contraction in sales in Q3Y11 to Rs. 66 crore, PAT was maintained at Rs. 7 crore level. This aggregates to Rs. 221 crore topline and Rs. 22 crore bottomline for 9mFY11 for Aanjaneya Lifecare. On a separate note, it is surprising to note that Finaventure Capital, holding 73.25% in Aanjaneya, has omitted to deduct share of minority interest (for balance 26.75% not held by it) from the profits presented in its financial results which have been signed by its Managing Director Dr. Kannan Vishwanath, again wrong disclosure to exchange and highlighting casual attitude towards corporate governance measures.  

Coming back to Aanjaneya’s financial disclosures - In the RHP, it has presented financial statements for 10 months period between 1^st April 2010 to 31^st January 2011, during which sales and PAT were reported as Rs. 280 crore and Rs. 31 crore respectively. With simple arithmetic, one can derive financial results for the month of January 2011, which comes to Rs. 59 crore sales and Rs. 9 crore PAT for January 2011 alone. This is astonishing since what the company has been earning in each quarter for the last 3 quarters, was suddenly earned in just one month, in its earnings. Since the company’s business is not seasonal to justify this sudden spurt, only question what one can ask is how much can these financial statements then be relied upon?

Another point worth drawing attention to is that the shareholding pattern of Finaventures Capital includes Raigad-based garment maker Sudar Garments, a newly listed company on BSE, which is a pure operator driven stock, as been highlighted by us on several occasions in the past. This link between the companies is another dark cloud of this IPO.

Of the funds raised in the IPO, about Rs. 92 crore will meet capacity expansion, including setting-up of anti cancer API facility, R&D centre and quality control unit. Another Rs. 10 crore will be marketing budget and balance for general corporate purposes. The new capacity is likely to go on-stream by April 2012, hence not much improvement is seen in FY12.

Since the company’s debt is also quite high at Rs. 118 crore, as of 31^st Jan 2011, on net worth of Rs. 129 crore, and the company has not factored in increased working capital demand due to added capacity in objects of the IPO, additional borrowing will be resorted to, for meeting rising net current assets, only increasing its debt levels. To point out, company’s current ratio, as on 31^st Jan 2011, stood at Rs. 4.6:1, as against 3.6:1, as on 31^st March 2010, only indicating the working capital intensive nature of its business, which will continue, if not worsen, going forward. 

On listing, company is expecting a market cap of Rs. 300 crore and EV of Rs. 416 crore (at Rs. 240 per share), which is aggressive given a a peer comparable such as Indoco Remedies, having annual sales of about Rs. 500 crore, PAT of Rs. 52 crore, strong presence in regulated markets with a portfolio of 135 brands, of which, 14 brands are in top 3 of respective categories, as also being debt-free. Plethico Pharma is also much bigger in the size is ruling at much a lower valuations on the bourses.

You definitely don’t want to be trusting your money with company and promoters whose disclosure standards are poor and financial reporting is weak, let alone how much reliance can be placed on those financial results! On poor corporate governance, unconvincing financial statements and steep pricing, this IPO is an avoid.