Glenmark Pharma hits 23-month high on Glenmark Life Sciences IPO plan

ICICI Securities believe this is a positive development for the company and will lead to value unlocking for the shareholder

Shares of Glenmark Pharmaceuticals hit a 23-month high of Rs 587.50, up 3 per cent, on the BSE in intra-day trade on Monday after the company announced that its API (Active Pharmaceutical Ingredient) division, Glenmark Life Sciences, is planning to raise fund via an initial public offer (IPO).

The stock of the drugmaker is trading at its highest level since May 2019. It recovered 9 per cent from its intra-day low of Rs 539 touched on the BSE. At 02:15 pm, the stock was quoting 1 per cent higher at Rs 577 as compared to a 1.9 per cent decline in the S&P BSE Sensex. The trading volumes on the counter almost doubled with a combined around 12 million equity shares changing hands on the NSE and BSE.

Glenmark Life Sciences, a wholly-owned subsidiary of Glenmark Pharmaceuticals, on April 16, 2021, filed a draft red herring prospectus (DHRP) with the Securities and Exchange Board of India (SEBI) for an IPO, comprising of a fresh issue of up to Rs 1,160 crore and an offer for sale of up to 7.3 million equity shares of Rs 2 each of Glenmark Life Sciences, by Glenmark Pharmaceuticals, the company said in an exchange filing.

The board of directors of Glenmark Pharmaceuticals, at its meeting held on April 16, 2021, approved the offer for sale of up to 7.3 million equity shares of Rs 2, in the offer. The IPO will be subject to market conditions, receipt of applicable approvals and other considerations, it said.

The fresh issue proceeds will be utilised for payment of outstanding purchase consideration to the promoter for the API spin-off (Rs 900 crore), funding capex (Rs 153 crore) and general corporate purposes.

ICICI Securities believes this is a positive development for the company which will lead to value unlocking for the shareholder. The proceeds will also help reduce Glenmark’s (parent) net debt (Rs 3,614 crore as of Q3FY21), which has been a key monitorable.

In addition to that, the pure-play API story also has gained traction recently amid increased demand and visibility. With a turnover of Rs 1,537 crore, around 30 per cent EBITDA, 20 per cent profit after tax, 30 per cent ROCE and 2.8x asset turnover, we expect better valuation and strong investor interest for the stock, the brokerage firm said in a note.