ET Intelligence Group: Unlike its name, Windlas Biotech (WBL) is not a biotech company. The Dehradun-based company is a contract manufacturer for over 200 formulation companies and is engaged in trade generics and over-the-counter products of nutraceuticals and health supplements.WBL is rolling out a Rs 402-crore IPO comprising Rs 165 crore of fresh issue and an offer-for-sale in which one of the promoters is selling and the PE fund Tano India is offloading its entire 22% stake in WBL. From the IPO proceeds, Rs 50 crore is to be used for capex, Rs 48 crore for working capital and Rs 20 crore for debt repayment.Business and FinancialsThe CDMO (contract development and manufacturing organisation) business in India is highly fragmented, competitive, low margin and capital-intensive. Despite catering to a large base of customers, the top 10 customers of WBL contribute 58% of the revenues. The company’s capacity utilisation stands at 39% due to the relative under-utilisation of two of its plants — providing scope for scaling up in oral solids. It received a setback in 2020 when one of its facilities received an import alert from USFDA. Consequently, Cadila Healthcare, which had picked up a stake in the business, exited swiftly at a loss. The company now caters to Indian as well as non-US export markets.Its net sales have grown at a compound annual growth rate (CAGR) of 19% between FY19 and FY21. The trend in net profit has been more volatile due to exceptional items every year. For FY21, its Ebitda margin stood at 12.4%, return on capital employed 27% and return on equity 19%. While WBL is among the top five CDMOs in India and the first one to get listed, it doesn’t necessarily have the best financial metrics. Its unlisted peers such as Synokem Pharma and Innova Captab have better returns.84988139Growth Prospects & ValuationsBesides the promising prospects of CDMO business, WBL is also bullish about its trade generics and OTC segment. Trade generics are lower-priced drugs sold through distributors especially in rural areas and get pushed through the government’s Jan Aushadhi Yojana. Foraying into the manufacturing of injectables is going to open another stream of growth for the company.Based on the absolute net profit for FY21, the post-issue valuations are steep at 64 times its earnings. Excluding the exceptional item of impairment of goodwill, the valuations reduce to a realistic 26.8, making it attractive for investors to consider the IPO in an industry that is likely to be in vogue in the near to medium term.
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