Incorporated in 1981, Emcure is an Indian pharmaceutical company developing, manufacturing, and marketing worldwide a diverse range of pharmaceutical products across several therapeutic areas.

Emcure has established presence in major therapeutic areas including gynecology, cardiovascular, vitamins, minerals and nutrients, HIV antivirals, blood-related and oncology and anti-neoplastics. Gynecology contributed 24.09%, cardiovascular 15.7%, anti-infectives 10.97%, vitamins, minerals and nutrients 8.97%, HIV antivirals 6.85%, respiratory 6.35%, gastrointestinal 6.35%, pain and analgesics 5.48%, blood-related 3.84%, oncology and anti-neoplastics 4.46%, anti-diabetic 2.58%, hormones 1.77%, neurology/CNS 1.27%, and others 1.5% to domestic sales in FY 2024.

Two types of products are offered: formulations and APIs. A substantial portion of its revenue was attributable to sales of formulations in FY 2024, FY 2023, and FY 2022. The differentiated product portfolio includes orals, injectables and biotherapeutics, enabling reaching a range of target markets across over 70 countries.

Emcure intends to expand its robust international presence by either developing its own front-end distribution capabilities or focusing on alliances with local and multinational companies. India sales contributed 48.28% and sales outside India 51.72% to total sales in FY 2024. Europe represented 21.38% and North America 13.94%.

Sales of iron, chiral, biotherapeutics, injectables and photo-chemistry products, most of which are developed and manufactured in-house, contributed 52.97% to revenue from India and 29.70% to revenue outside India in FY2024.

Emcure had a team of 548 qualified scientists and five dedicated R&D facilities in India end March 2024. The company had filed over 1,800 dossiers globally including 209 in the European Union and 142 in Canada. As many as 220 patents have been granted and 30 were pending approval in several countries. It had submitted 102 drug master files (DMFs) for active pharmaceutical ingredients (APIs) with the US Food and Drug Administration (FDA) by end March 2024.

There are 13 manufacturing facilities across India. Its facilities produce pharmaceutical and biopharmaceutical products across a wide range of dosage forms, including oral solids, oral liquids, injectables, including liposomal and lyophilized injectables, biotherapeutics and complex APIs, including chiral molecules, iron molecules and cytotoxic products. Further, there are in-house manufacturing capabilities for most of its specialty products, including complex injectables, iron products, photo-chemistry products, chiral molecules and biotherapeutics.

Emcure had a marketing and distribution network in India, supported by a field force of over 5,000 personnel interacting regularly with doctors and other healthcare providers to promote pharmaceutical products end March 2024. Moreover, the company has entered agreements with Sanofi India and Sanofi Healthcare India to exclusively distribute and promote their products, which include brands such as Cardace, Clexane, Targocid, Lasix, Lasilactone, Cordarone, Plavix and Synvisc, in India.

Emcure was ranked 13th in domestic sales among pharmaceutical companies in India and fourth in market share in its covered markets for Mat FY2024. Additionally, it was the largest pharmaceutical company in the gynecology and human immunodeficiency virus (HIV) antivirals therapeutic areas in India in terms of domestic sales for Mat FY2024.

Across the gynecology, vitamins, minerals and nutrients, HIV antivirals, blood-related and oncology and antineoplastics therapeutic areas, Emcure is ranked among the 10 largest pharmaceutical companies in India in terms of domestic sales for MAT FY2024.

Emcure is focused on pharmaceutical products used in chronic (including sub-chronic) therapeutic areas. Moreover, its efforts are maximized towards complex molecules, including highly complex APIs requiring multi-step transformation, differentiated pharmaceutical formulations, in multiple dosage forms, and novel drug delivery systems capable of greater efficacy and better patient compliance.

Emcure intends to increase its domestic market share and expand its international presence. The company has a market presence of 52.66% of the Indian pharmaceutical market (IPM) in terms of domestic sales for Mat FY2024.

Emcure incurred total capital expenditure of Rs 1148.73 crore in the past three financial years.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 800 crore and an offer for sale (OFS) of 1,14,28,839 equity shares, aggregating up to Rs 1152.03 crore by the existing shareholders.

The price band for the IPO is Rs 960 to Rs 1008 per equity share of face value Rs 10 each.

The objectives of the fresh issue include Rs 600 crore for repayment and prepayment of certain outstanding borrowings. The remaining amount is to be used for general corporate purposes.

The promoters are Satish Ramanlal Mehta, Sunil Rajanikant Mehta, Namita Vikas Thapar, and Samit Satish Mehta. The promoters and promoter group hold an aggregate of 15,07,30,468 equity shares, aggregating 83% of the pre-offer issued and paid-up equity share capital. The post-IPO shareholding is expected to be around 78%.

The issue, through the book-building process, will open on 3 July 2024 and will close on 5 July 2024.

Strengths

A track record of surpassing IPM market growth. Between Mat FY2020 and MAT FY2024, domestic sales registered a CAGR of 9.73%, outperforming the IPM’s CAGR of 8.19%. Similarly, its exports recorded a CAGR of 19.51%, outperforming the overall IPM, with a CAGR of 12.21%.

Stands to gain from the increased emphasis on chronic (including sub-chronic) therapeutic fields. Chronic therapeutic areas within the IPM are projected to experience greater growth compared to acute therapeutic areas over the next five FYs. The chronic therapeutic areas contributed 46.22% to total domestic sales for Mat FY2024.

Strong capabilities and a successful record of building brands. Six brands were ranked among the 300 highest selling brands in the IPM for Mat FY 2024. Moreover, there were 26 brands, with domestic sales of over Rs 50 crore for Mat FY2024.

A wide array of products and global reach create a business model minimizing risk and enhancing resilience by diversifying revenue streams.

The capacity to produce own APIs and formulations has facilitated a substantial vertical integration, enabling of cost-effective sourcing of products, and ensuring the quality and security of essential raw materials.

Ranked 1^st, with a market share of over 50% for several molecules across therapeutic areas. The leading position allows launch of related products and penetration of adjacent therapeutic areas. For example, the brand strength of Orofer-XT and leadership positions in the treatment of anemia with gynecologists was leveraged to launch related products such as Dydrofem.

Produces specialized pharmaceutical products to target high-growth therapeutic areas characterized by limited competition and significant barriers to entry.

A reliable record of successfully entering and growing presence in new markets through inorganic expansion. For instance, in the past, made strategic acquisitions of Marcan Pharmaceuticals in Canada in 2015 and Tillomed Laboratories in the United Kingdom in 2014. This allowed leveraging the R&D and manufacturing capabilities in India and, at the same time, quickly and cost-efficiently establish distribution channels for its products in Canada and Europe, respectively.

Led by strong promoters alongside a qualified and experienced management team. Satish Ramanlal Mehta, the Promoter, Managing Director and Chief Executive Officer, has been associated since incorporation and has significant experience in the pharmaceutical industry.

Weaknesses

Operates in a highly regulated industry. Any failure to obtain, maintain or renew statutory and regulatory licenses permits and approvals could adversely affect business.

The operating profit margin shows a continuous decline, decreasing from 22.71% in FY2022 to 18.47% in FY2024.

A significant portion of revenue comes from exports. Fluctuations in exchange rates, geopolitical tensions, or non-compliance with export regulations could affect financials. Sales outside India contributed 51.72% to revenue in FY2024.

There are outstanding legal proceedings (including criminal) involving the company, its directors, promoters, and subsidiaries. Any adverse outcome may subject it to significant losses and liabilities.

Currently entitled to certain grants, tax incentives and export promotion schemes. Any decrease or discontinuation of policies relating to grants, tax, duties or other such levies applicable may affect results.

Along with two subsidiaries Zuventus and Gennova, have been subjected to search and seizure operations conducted by the Income Tax Department. Any such actions by authorities could have an adverse impact on reputation and business.

Developing new drugs involves significant investment in research and clinical trials, with no guarantee of success.

Depends on third-party suppliers of raw materials as well as for the manufacturing of certain finished products. Raw material shortages, manufacturing delays, or distribution challenges can disrupt product availability. As much as 26.3% of the raw materials and finished goods were imported in FY2024.

Valuation

Consolidated sales were up by 11.23% to Rs 6658.25 crore in FY 2024 as compared to FY2023. The OPM decreased 123 bps to 18.47%, leading to a 4.11% increase in OP to Rs 1229.72 crore. OI rose 24.15% to Rs 56.99 crore. Interest cost increased 11.02% to Rs 237.15 crore. Depreciation was up 20.1% to Rs 312.41 crore. PBT before EO fell 2.15% to Rs 737.16 crore. Tax expenses were Rs 199.65 crore as compared to tax expense of Rs 185.37 crore in FY2023. Minority interest was Rs 29.39 crore as compared to 29.83 crore. Net profit fell 6.36% to Rs 498.18 crore.

The FY2024 EPS excluding extraordinary items and relevant tax on post-issue equity works out to Rs 26.73. At the upper price band of Rs 1008, the P/E works out to 38.

Emcure will be repaying 29% of its debt from the issue proceeds. This will bring down its interest costs substantially and boost profits. The FY2024 EPS works out to Rs 30.34 if 29% of its interest cost is removed, keeping all other items, including tax rate same. Re-worked P/E, at the upper price band, moderates to 33.

The focus on chronic therapies aligns with a growing global trend of rapid increase in chronic diseases. Higher rates of conditions like cancer, cardiovascular diseases, obesity, and diabetes are expected to boost demand for pharmaceuticals and chronic treatments.

As of 1 July 2024, listed peers such as Dr. Reddy‘s Laboratories traded at TTM P/E of 19, Cipla at TTM P/E of 28, Alkem Laboratories at TTM P/E of 33, and Abbott India at TTM P/E of 49. For FY2024, Emcure OPM and ROE stood at 18.47% and 16.9%, respectively, compared to 28.32% and 19.74% for Dr. Reddy‘s Laboratories, 24.41% and 15.43% for Cipla, 17.73% and 17.41% for Alkem Laboratories, and 24.84% and 32.47% for Abbott India, respectively.