Akums Drugs and Pharmaceuticals Company is coming up with its IPO fresh issue of Rs. 680 crores and offer for sale worth Rs. 1,176.74 crores totalling Rs. 1,856.74 crores, which will open on 30^th July 2024. The issue will close on 1^st August 2024 and be listed on the exchange on 6^th August 2024. In this article, we will look at Akums Drugs and Pharmaceuticals IPO Review and analyze its strengths and weaknesses. Keep reading to understand about the company.

Akums Drugs and Pharmaceuticals IPO – About the Company

The company was incorporated in 2004. Akums Drugs and Pharmaceuticals is a pharmaceutical contract development and manufacturing organisation (CDMO) for Pharma companies in India and overseas. Their focus is on providing end-to-end product development and manufacturing solutions for its customers. The services include R&D formulations, filing and preparation of regulatory dossiers, and other testing services. 

The CDMO manufactures a variety of products, including capsules, tablets, vials, liquid orals, blow-filled seals, ampoules, topical preparations, dry powder injections, gummies, and eye drops.

As of March 31, 2024, the company operated ten manufacturing units for the CDMO business, with a total combined manufacturing capacity of 49.23 billion units per year.

Their prominent clients include Alembic, Alkem Pharma, Cipla, Dabur, Dr. Reddy’s Laboratories, Hetero Healthcare, Ipca Labs, Mankind Pharma, Medplus, Micro Labs, Mylan, Natco Pharma, Sun Pharma, Blue Cross and others.

Akums Drugs and Pharmaceuticals IPO – About the Industry

The Indian pharmaceutical market is growing rapidly, with value projected to reach INR 2,852.6 billion by FY28. India is leading in global generic medicine supply, providing 20% of volume across 60,000 brands in 60 therapeutic categories. 

Pharmaceutical companies increasingly adopt asset-light models, focusing on core competencies. Rising costs and complexities of technology upgrades push firms to reduce operating and capital expenses.

Now with high competition, Indian pharma companies face growing demand for new products and complex formulations. In-house development strains budgets and timelines. Outsourcing to CDMOs allows companies to leverage existing capabilities for new product launches and dosage forms.

CDMOs offer 35%-70% savings through experience, expertise, and economies of scale in drug development and manufacturing. Choosing the right outsourcing location further impacts cost savings.

This shift enables pharmaceutical companies to stay competitive, innovate rapidly, and manage costs effectively. CDMOs are playing a crucial role in supporting the industry’s growth while providing specialised services that allow companies to focus on their strategies while they invest more into R&D to be competitive.

Akums Drugs and Pharmaceuticals IPO – Financial Highlights

Akums Drugs and Pharmaceuticals reported revenue from operations of Rs. 4,178.18 crores in FY24, up 14.31% from Rs. 3,654.82 crores in FY23. Net profits in FY24 were Rs. 0.79 crore, a decrease of 99% from Rs. 97.81 crore in FY23. The increase in the purchase of stock, employee benefit expense, finance cost, and fair value changes to financial instruments have contributed to its downfall in profits.

The Akum’s borrowings have more than 1 times its equity. It projects the need for working capital for operations as the industry is a capital-intensive business. The RoE stood at 0.11% in FY24 and declined from 13.52% in FY23. With high operational costs, according to their business operations looking at RoCE is relevant, in FY24, the ratio was at 3.37% down from 24.60% in FY23.

Akums Drugs and Pharmaceuticals generates most of its operational revenue from CDMO. Their net CDMO contributed around 78.17%, API contributed 5.08% and Branded and generic formulations contributed the remaining 16.73% in FY24.

The company earned its revenue from operations of 84.72% from the Sale of manufactured products, 10.32% from goods trading, and the remaining 4.95% from Other Operating revenues which mainly comprises testing charges in FY24.

Akums Drugs and Pharmaceuticals IPO – Key Players 

Akums Drugs and Pharmaceuticals listed peers are Divi Labs, Suven Pharma, Gland Pharma, Torrent Pharma, Alkem Labs, Eris Lifesciences, JB Chemicals, Mankind Pharma, and Innova Captab.

Compared to its peers, the debt to equity is around 0.69 compared to its peers which is the range of 0.02-1.06 in FY24. Akums Drugs and Eris Lifesciences are on the higher side of the ratio. As Akum is more into capital-intensive business, the higher ratio is compatible with their operations.     

The EBITDA margin of Akums Drugs is around 3.73% in FY24, compared to its peers which is in the range of 15% to 42%. Akums Drugs and Pharmaceuticals margins are way below its peers. Most of their listed peers might be in different operations in the Pharma industry. However, Suven Pharma among its peers has outperformed based on its superior margins.

Akums Drugs and Pharmaceuticals’s return on equity is around 0.11%, which is a wide low margin to its peers. Their RoE has been impacted due to lower profits and high operational costs. The RoE of Torrent Pharma is higher than its peers. However, the RoE differs due to the company’s strategies and other aspects. Akums has underperformed its peers despite having a revenue nearly in the range of its peers.

Strengths of the Company

1. Market Leadership: Akums Drugs in the Indian CDMO market has a 30.2% market share by value in FY24. They operate 12 manufacturing units including subsidiaries with a 49.23 billion unit annual capacity, producing 4,146 formulations across 60+ dosage forms.
2. Diverse Client Base: The company serves 1,524 Indian and multinational pharmaceutical companies as of March 2024. They manufacture formulations for 26 of India’s top 30 pharmaceutical companies and maintain long-term relationships with 38 of their 50 largest clients.
3. Strong R&D Capabilities: Akums operates four R&D units employing 406 scientists. They hold 1,448 trademarks, 927 DCGI approvals, five patents, and 923 FSSAI-approved formulations. Their R&D expenses reached ₹112.35 crore in FY24, which represents 2.69% of operational revenue.
4. Vertical Integration: Akums operates across the pharmaceutical value chain as a CDMO, formulation marketer, and API manufacturer. They export to 65 countries and maintain an R&D center focused on global markets, with 289 dossiers under registration.
5. Experienced Management: Akums benefits from an experienced management team led by co-founders with extensive pharma industry knowledge. Key personnel possess 25-30 years of experience in their respective fields.

Weaknesses of the Company

1. Raw Material Dependency: Akums imports raw materials, including APIs, from China and other countries. This exposes them to supply chain disruptions due to international factors, potentially affecting their business operations and financial performance.
2. History of Losses: The company incurred significant losses of ₹250.87 crore in FY22, primarily due to accounting adjustments. This history of losses shows the potential vulnerability and may impact investor confidence.
3. Negative Cash Flows: They experienced negative cash flows from investing activities in FY24. Continued negative cash flows could impact their ability to operate effectively and implement their plans.
4. Capital-Intensive Business: Operating in Pharma is a huge capital-intensive business. Especially for a CDMO, their substantial capital expenditure is for establishing and upgrading manufacturing units. Any delays in capital management may lead to operational setbacks and loss of market opportunities.
5. Geographic Concentration: Akums Drugs concentrates most of its manufacturing units and R&D centers in Haridwar, Uttarakhand. Lack of diversification might expose them to regional risks, including natural disasters, regulatory changes, and economic shifts specifically related to that area.

Akums Drugs and Pharmaceuticals IPO – GMP

The shares of Akums Drugs and Pharmaceuticals Ltd’s price in the grey market were trading at a 28.72% premium as of July 29^th, 2024. The shares in Grey Market traded at Rs.874. This gives it a premium of Rs.195  per share over the cap price of Rs 679.

Akums Drugs and Pharmaceuticals IPO – Key IPO Information

Promoters: Sanjeev Jain, Sandeep Jain and Akums Master Trust.

Book Running Lead Manager: Axis Capital Limited, ICICI Securities Limited, Citigroup Global Markets India Private Limited and Ambit Private Limited.

Registrar to the Offer: Link Intime India Pvt Ltd.

The Objective of the Issue

1. Repayment or/and pre-payment of certain borrowed by the Company
2. Repayment or/and pre-payment of certain borrows of its subsidiaries- Pure and Cure Healthcare Private Limited and Maxcure Nutravedics Limited.
3. Funding the working capital of the company.
4. Inorganic growth from acquisitions.
5. General Corporate Purposes.

Conclusion

Akums Drugs and Pharmaceuticals Limited can improve its margins by attaining better operational efficiency. They can gain their market share and higher R&D spending can improve the company to be more competitive. However, with many established players the increase in competition can hinder their prospects as their margins are thin. 

So what do you make of this company? Will it be able to increase its market share based on its competition with peers? What is your view? Let us know in the comments below.

Written by Santhosh

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