Brooks Laboratories - Brooks Laboratories is coming up with a 100% book building; Initial Public Offering (IPO) of equity shares of face value of Rs 10 each in a price band of Rs 90-100 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open on August 16, 2011 and will close on August 18, 2011.
- The shares will be listed on BSE and NSE.
- The face value of the share is Rs 10 and is priced 9 times of its face value on the lower side and 10 times on the higher side.
- Book running lead managers to the issue is D&A Financial Services
- Company Secretary and Compliance Officer for the issue is Parvinder Kaur.
Profile of the Company:
The Company was originally incorporated as Brooks Laboratories Limited on January 23, 2002. Company was initially promoted for manufacturing of latest molecules in Injectables, tablets and dry syrups for the domestic customers. The Company set up a facility for manufacturing Tablets, Dry Syrup and Injectables, which was supported by a research and development centre at Baddi, Himachal Pradesh. The Company started its commercial production in the month of June 2006 and became profitable from the very first year of its production.
The company has set up a well equipped manufacturing unit at Baddi, Himachal Pradesh in the year 2006 and has been awarded a G.M.P Certification for following Good Manufacturing Practices under “Revised Schedule M” of Drugs & Cosmetics Rules, 1945 in respect of various categories of Tablets, Capsules, Liquid Orals, Dry Syrups, SVP (Liquid & Dry) and Ophthalmic Section by The Health & Family Welfare Department, Himachal.
Company’s manufacturing facility at Baddi is capable of manufacturing products confirming to TRS 908 of 2003 (WHO GMP) standards. Its Quality Management System at the factory at Baddi is certified as complying to ISO 9001:2008.
IPO Grading:
ICRA has assigned an IPO Grade 2 to Brooks Laboratories IPO, indicating below average fundamentals of the issue.
Proceed is being used for:
1. To set up its new manufacturing unit at JB SEZ Pvt Ltd, Panoli, Gujarat for manufacturing of various pharmaceuticals formulations.2. To meet Long Term Working Capital requirement3. To meet General Corporate Purpose: and to meet Issue Expenses and Listing of Shares on Stock Exchanges
Industry Overview:
The Indian pharmaceuticals industry is significantly developed in terms of infrastructure, technology and product range. It meets most of the country’s pharmaceuticals requirements. Approximately 80% of domestic industry production consists of formulations, with the remainder consisting of bulk drugs. Internationally, India is well recognised as a high-quality, low-cost, skilled producer of pharmaceuticals. The top twenty destinations for Indian Pharmaceuticals are the US, Russia, Germany, Austria, the UK, South Africa, Canada, Brazil, Nigeria, Ukraine, Israel, Netherlands, Spain, Turkey, China, Kenya, Vietnam, Belgium, Italy and Mexico.Overall, the country now ranks among the top four, worldwide, accounting for 8% to 10% of world’s production by volume and 1.5% to 2% by value. India exports pharmaceutical products to more than 200 countries around the globe including the highly regulated markets of US, Europe, Japan and Australia as well as the unregulated markets of Africa and the Middle-East. According to the Department of Pharmaceuticals, the domestic market was valued at about Rs. 554.5 billion (US$ 11.8 billion) in 2008-09. Imports were about Rs. 85.5 billion (US$1.8 billion).
As the demand for pharmaceutical products is directly related to medical care, the pharmaceuticals industry, globally, is relatively less impacted by economic cycles and the industry maintains a minimum growth rate. India’s pharmaceutical industry has been one among the fastest growing segments of the Indian economy and has not been significantly affected by economic cycles. The industry is not recession-proof, but it is more insulated than other industries with discretionary spending patterns.
Asia-Pacific region is emerging as the fastest growing pharmaceuticals industry in the world. The reasons include good quality but lower-cost production base and favourable regulatory environment. The region has had significant growth in terms of contract manufacturing, especially, in the generics segment. Increased research and development (R&D) activities have helped the regional industry achieve an estimated market size of around US$ 187 billion in 2009. It is expected to grow at a CAGR of around 12.6% during the period 2010-12. There is rapid market growth in India, China, Malaysia, South Korea and Indonesia because of reasons including increasing disposable incomes, growing health insurance market (ensures sales of branded drugs), better healthcare delivery and infrastructure, and intense industry competition leading to competitively-priced drugs.
Pros and Strength:
In house Research Facility – The company is a research driven company with continuous efforts focused on developing latest molecules and achieving process improvements and production cost efficiencies. It is having a team of 16 scientists working under the guidance of Dr. D.S.Maity a Ph.D in Analytical Chemistry, who leads the research efforts with expertise in a wide range of areas. Its laboratory is fully equipped to conduct pre formulation studies, prototype development, scale-up, optimization and technology transfer of oral solid dosage form as well as injectable dosage form.
Variety of products in Formulation segment - The company manufacture a wide range of products in the formulation segment encompassing Beta Lactam, Cephalosporin & General Injectables & Beta Lactam Tablets & Dry Syrups. It continuously focus on developing new products within its existing segments, with specific applications or taking customer specifications in view. Its current product portfolio comprises Dry Powder Injectables, 31 Liquid Injectable, 5 Tablets and 2 Dry Syrups which are marketed domestically.
Quality Infrastructure – The company’s manufacturing facilities are designed to manufacture a variety of products in the formulation segment using a combination of processes. Its facility at Baddi, Himachal Pradesh is a WHO-GMP and ISO-9001:2008 certified, which allow it to market its products in markets upon registration and approval of the products with the relevant authorities. Its proposed facility at JB SEZ, Panoli, Gujarat is being set up in compliance with EU GMP Standards to cater to high end market of Europe, CIS & South Africa.Locational Advantage and Incentives.
Locational advantage- The company’s Unit at Baddi, Himachal Pradesh is around 40 KM from International Airport of Chandigarh and is well connected by Road. Its existing plant avails the advantage of Excise exemption for a period of 10 years and also 100% exemption from Income Tax for a period of 5 years and 30% exemption of Income Tax for a subsequent period of 5 years.
Weakness:
Legal issues- The Company is accused/defendants in lots of legal proceedings incidental to its business and operations. These legal proceedings are pending at different levels of adjudication before various courts and tribunals. In the event of rulings against the company by courts or tribunals in these proceedings or levy of penalties by any statutory authorities, it needs to make payment to others or book provisions against probable future payments, which could increase its expenses and the current liabilities.
Yet to conduct evaluation of the demand for products complying with EU-GMP standards- The company has not appointed any external agency and/or any technical expert to assess the demand for the products it propose to manufacture at its new facility at JB SEZ at Panoli, Gujarat complying with EUGMP Standards. Its decision to increase the manufacturing capacity is purely based on the fact that growth potential and margins are better in case of EU-GMP compliant products and also the general increasing trend observed in exports for the pharmaceutical industry as a whole. Further any incorrect assessment of the demand for EU-GMP compliant products may adversely affect the business, financial conditions and result of operations.
Dependence on few top customers- The top ten customers of the company accounted for more than 50% of its turnover in the past and loss of any one or more of clients could adversely affect its business and financial operations. Revenues derived from Company's top customers is more than 50% for last three years, in 2010-11 top10 Customers contributed 70.99%, in 2009-10 65.53% and in 2008-09 64.08%. The Company has not entered into any contracts with its customers. Loss of any one or more of these clientele for any reason whatsoever, could adversely affect the financial operations.
Price volatility of API- The Active Pharmaceutical Ingredients (APIs) consumed by the Company are susceptible to price volatility. The volatility in prices of the major API's viz. Ceftriaxone Sodium, Amoxycillin Trihydrate, Clavulanate Potassium, Cefoperazone, Hydrocortisone Sodium Succinate Pantoprazole etc can fluctuate in future, depending upon, among other factors, the number of producers and their production volumes and changes in demand in the principal drug markets. Price & availability of APIs have significant impact on profitability of the Company and there are factors affecting API prices which are beyond its control. The company is not having any agreement with suppliers to supply of raw materials purchased from them. It is exposed to and will have to absorb any fluctuations in the prices of APIs, which may adversely affect the financials of the Company.
Outlook
Brooks Laboratories is a Pharmaceutical Contract Research & Manufacturing Services company having wide range of products catering to critical care segment in Parental Section like Beta Lactam, Cephalosporin & General Dry powder Injectables, Ampoules and Liquid vials, Dry Syrups and Tablets etc. Its manufacturing facility at Baddi is capable of manufacturing products confirming to TRS 908 of 2003 (WHO GMP) standards. Also the company is having established client relationships in domestic markets from whom it get orders for Manufacturing on a continuous basis. The total number of its domestic customers has increased from 76 in fiscal 2007 to 158 during fiscal 2011.
On the concern side, the company is subject to a wide variety of Drugs related laws and regulations and is supervised by a large number of regulatory and enforcement authorities in the jurisdictions in which it operates. It has to comply with the regulations under the Drug and Cosmetics Act, 1940; Drugs and Cosmetics Act Rules, 1945; The Drugs (Prices Control) Order, 1995, Drugs and Magic Remedies Act, 1954; Patent Regulation etc.. Further, its business operations are subject to strict regulations by environmental regulations, Trade Mark Act, Factories Act, etc. and it incur costs to comply with requirements of above laws and regulations. Many of these approvals require regular renewal. Further its business is dependent on the decisions and actions of its customers, and there are number of factors which are outside company’s control.
Brooks Laboratories has came with a public issue and is planning to raise Rs 63 crore from the issue. It has fixed price band at Rs 90-100 per equity share. Based on the basic EPS of Rs 7.00 for the year ended March 31, 2011 the P/E at the lower price band comes at 12.86x while at the higher price band it comes at 14.29x. In the year ended March 2011, Brooks reported a 17% growth in revenues to Rs 53.20 crore over the previous year. The net profit was up 32.6% to Rs 6.9 crore. Its product portfolio comprises of 28 injectables, 19 tablets and 2 dry syrups which are marketed domestically. Brooks plans to set up a new manufacturing unit at JB SEZ Pvt Ltd, Panoli, Gujarat for manufacturing various pharmaceuticals formulations. The plant will have a combined capacity of 500 million tables, 60 million dry syrup bottles and 60 million injectibles. However, the unit is Greenfield the project will require substantial time for stabilisation of the manufacturing processes hence the project execution risks remain high. On the other hand the company has been ably attracted clients in order to achieve sufficient orders in a highly competitive market. It has been consistently increasing its client numbers and is currently having 158 domestic clients. Overall our view will be neutral for issue and it can be opted only with a long term outlook.
