Anu's Laboratories is entering the capital market on 12th May 08 with a public issue of 38.20 lakh equity shares of Rs.10 each in the band of Rs.200 to Rs.210 per share.
The company is basically manufacturer of Basic and Advanced Intermediates and Fine Chemicals. The product range is being enlarges and a new plant for manufacturing drug intermediates including Active Pharmaceuticals Ingredients (API) is being set up, on which, about 70% of fund is being spent. A pilot plant for Contract Research and Manufacturing (CRAM) is also being set up. All these facilities would be operational only by April 09 and hence current year (FY 09) would be operating with the existing manufacturing capacities.
For FY 07 the total income of the company was at Rs.120 crores with PAT of Rs.13.60 crores on an equity of Rs.8 crores, resulting in an EPS of Rs.17. For FY 05, FY 06 and FY 07, PAT of the company grew by over 100% every year. However, growth seems to have slowed in FY 08, looking to its performance for 9 months ending 31-12-07, during which, total income was at Rs.118 crores with PAT of Rs.13.10 crores. Either stagnation or slightly drop in the operating margin in this period.
Whole of FY 09 would not be having benefit of expansion and existing performance would only be servicing expanded equity of Rs.12 crores which may see an income of Rs.240 crore with expected PAT of Rs.26 crores, which may translates into an EPS of Rs.22 on expanded equity base. This implies issue of shares at a PE multiple of about 9 to 10 times at the issue price.
Many prominent API manufacturers with topline of close to Rs.400 crores and EPS being more than 2 times of face value are ruling at a PE multiple of 5 to 8 times. Some of such companies are Aurobindo Pharma, Alembic, Ind Swift, Indoco Remedies, Natco Pharma, Surya Pharma and Nectar Life Sciences.
Nectar Life having expected turnover of Rs.700 crores for FY 08 and PAT of Rs.75 crores with an EPS of Rs.50 is ruling at Rs.250 at a PE of 5. Aurobindo Pharma with topline of Rs.2,000 crores and EPS of Rs.40 is ruling at Rs.330. Surya Pharma, for FY 08 had total income of Rs.500 crores and EPS of Rs.32 is ruling at Rs.112 with a PE of less than 4 times.
Considering all these, there is no justification for subscribing to the share of this company at a PE of 9 times based on its FY 09 earnings. The operations of the company can also be termed as mediocre and hence would be having another negative on listing.
Share is definitely expensive, even at the lower band of Rs.20,0 as much better stocks are available in the secondary markets. It is advised to remain away from this expensive prescription.