Eris LifeSciences IPO
Eris Lifesciences IPO which opens on Friday 16th June 2017, comprises  an offer for sale (OFS) by PE firm ChrysCapital  promoters and other shareholders. The issue will be raising Rs. 1740 crores (at the upper end of price band) and corresponds to 21% of the  paid-up share capital of the company,. Eris LifeSciences is a Ahmedabad based domestic branded formulations focused pharmaceutical company with emphasis on fast growing lifestyle related specialized therapeutic areas such as: cardiovascular, anti–diabetes, vitamins; gastroenterology and gynecology. 

Eris LifeSciences IPO Issue Details
Issue PeriodFriday,June 16, 2017  to Tuesday, June 20, 2017
Price BandRs. 600- 603
Minimum Bid Lot55 Equity Shares 
Issue Size Offer for Sale of 289 Lac  Equity Shares  of Rs. 1 each
Total Issue Size ( Rs.)Rs. 1740 crores (at upper end of Price Band)
Issue Structure : 
QIB75% of the Net Offer Rs. 1229 crore 
NIB15% of the Net Offer Rs. 260 crore 
Retail10% of the Net Offer Rs. 173 crore
Lead ManagerAxis Capital, Citigroup Global Markets, Edelweiss Financial, Nomura Financial
RegistrarLink Intime India Pvt. Ltd.
Eris LifeSciences: Salient Points
  • Eris Lifesciences Limited (“Eris”) was incorporated on January 25, 2007. Eris is developing, manufacturing and commercializing branded pharmaceutical products in select Therapeutic areas within the Chronic and Acute Categories of the Indian Pharmaceutical Market (“IPM”), such as: Cardiovascular; Anti-Diabetics; Vitamins; Gastroenterology; and Anti-Infectives.
  • The Company was started by Shri Indubhushan Bakshi  who has a very humble background. He is currently  the Chairman and Managing Director of the company and recognized as an ‘Entrepreneur of the Year, 2013’ by Ernst & Young.
  • Company’s focus has been on developing, manufacturing and marketing products, which are linked to lifestyle related disorders, that are chronic in nature, and to a target population which primarily consults specialists and superspecialists. Sales in metro cities and class 1 towns, together accounted for 76.8% of the revenues in Fiscal 2017. 
  • Eris is the fastest growing company, in the Chronic category, among the top 25 companies in terms of revenues, with revenue growth at CAGR of 28.9%, between Fiscals 2013 and 2017. The Chronic category of the IPM contributed 65.6% of their revenues and Acute Category of the IPM contributed 34.4% in fiscal 2017.
  • Top 35 players accounted for ~78% of IPM ( Indian Pharmaceutical  Market).  Eris LifeSciences stands at position 32 with 0.7% share of the IPM. Eris LifeSciences has been growing at 1.8x of average growth rate of these top 35 players
Eris LifeSciences IPO growth

 

  • Eris owns and operate a manufacturing facility in Guwahati, Assam. They also outsource the manufacturing of certainof their products, and currently use approximately 20 third party manufacturers
Objects of the Offer:

The objects of the Eris LifeSciences IPO are to achieve the benefits of listing the Equity Shares on the Stock Exchanges and for the sale of up to 28,875,000 Equity Shares by the Selling Shareholders. Further, the Company expects that listing of the Equity Shares will enhance its visibility and brand image and provide liquidity to  shareholders.

Eris LifeSciences IPO: Financials: 
Financials  in brief ( Rs.  In Crores)   
20172016201520142013
Net Revenue from Operations749.5614.78554.49508.82393.06
Revenue Growth (%)21.91%10.87%8.98%29.45%
EBITDA 287.75174.92124.95103.3487.34
EBITDA Margin (%)38.39%28.45%22.53%20.31%22.22%
Profit Before Tax263.77154.44109.4298.3383.14
Net Profit 242.08133.5789.2370.7958.2
Net Profit  Margin32.30%21.73%16.09%13.91%14.81%
Face Value1   
Share Capital13.750.140.140.140.14
Reserves526.17299.11265.53176.37105.95
Net worth539.92299.25265.67176.51106.09
RoNW (%)44.84%44.63%33.59%40.11%54.86%
NAV Per Equity share (Rs.)39.2721.7619.3212.847.72
EPS (Rs.) 17.619.716.495.154.23
IPO Price  in Rs.603
PE ratio34.25
P/BV ratio6.16
CAGR Sales (2013-17)17.51%
CAGR Net Profit (2013-17)42.81%
Market Cap in Rs. Crore8291.25
Market Cap/Sales Ratio11.06
Eris LifeSciences IPO: Pros
  • Focus on branded prescription based pharmaceutical products catering to lifestyle related disorders which are chronic in nature. 
  • Share of the chronic segment in company’s business has gone up from 52% in FY13 to 66% in  FY17.
  • EBITDA margins have show marked improvement from 22% in 2013 to 38% in year ending 2017.
  • he company has delivered revenue growth of 17% CAGR during FY13-17. 
  • in FY17, the company made two acquisitions (Kinedex Healthcare and Amay Pharma’s 40 brands and Aprica Pharma) which partly aided company’s growth.
  • Revenues have grown much faster than overall growth in Indian Pharma market. ( 1.8 x times the average growth rate of top 35 pharma companies).
  • The improvement in profitability has been aided by  a change in product mix, strong growth exhibited  in chronic segment and coming up of it manufacturing facility at  Guwahati facility with consequent lower outsourcing and also tax breaks.
  • Eris LifeSciences enjoys  Income tax exemption till FY2024 and Excise duty exemption till FY2025 for its sole manufacturing facility at  Guwahati 
Eris LifeSciences IPO: Cons
  • Uncertainty associated with Government control over  pricing of pharma pricing through DPCO .
  • Any reduction of tax incentives
  • Dependence on single plant operating from Guwahati
  • Dependence on suppliers : for Fiscal 2017 Eris LifeSciences sourced 52.46% of its APIs, 68.42% of our excipients and 72.63% of its packaging materials from top five suppliers
  • Possible Quality control problems at its manufacturing facility or those of its third party manufacturers may damage its reputation and expose the company to litigation or other liabilities, which could adversely affect its results.
  • Any Change in domestic regulations in future, favouring use of  generic drugs may have adverse impact on branded generic companies like Eris LifeSciences.
Eris Lifesciences IPO: Overall Assessment
  • Growth in revenues of Eris LifeSciences, at a CAGR of 17%, between Fiscals 2013 and 2017 has outperformed overall Indian Pharmaceutical Market growth, at a CAGR of 11.8%.
  • During the same period, the company’s PAT has grown at 43% CAGR.
  • Sustainable business model with high margins,
  • Consistency in cash-flows and profitability.
  • Eris Lifesciences has been consciously changing its product portfolio to focus on it chronic sector in the pharma space and this has along with some inorganic growth by means of acquisition has aided revenues and profitability.
  • Eris LifeSciences presently has  100% domestic focus which insulates it from FDA concerns.
  • At the upper band of Rs. 603, the stock is being offered at 34.3x its FY17 EPS of  Rs.17.6.  While Eris LifeSciences IPO cannot be considered cheap by any means, the growth exhibited by company in the past coupled with good financial performance, strong cash flows and debt free status soothe these concerns to some extent.
  • I may likely to subscribe to Eris LifeSciences IPO due to reasons detailed above though it is not as risk free as CDSL. (Please watch for updates) 
  • 16/06/17: CAUTION: Tejas Networks IPO got  lukewarm response today . Subscribed 1.88x and  HNI portion unsubscribed. Sentiment which got spoiled from S chand followed by IRB Invit persisting and this poor performance of Tejas Networks IPO may impact ERIS too. Already Eris LifeSciences Grey Market Premium is down to 30-40 range.
  • In my opinion even though Eris LifeSciences IPO has been priced steeply, the rate at which Eris LifeSciences has been growing will take care of it. After another  30-40% improvement in profitability (What Eris has been able to do in the past), the ratios including PE  will look aligned with others. Rarely one come across a business delivering 49% Return on capital employed. The key risk is any Government decision to give preference to unbranded drugs over branded drugs. I intend to apply in this IPO with a long term perspective. Number of applications  from my side may get reduced if IPO response looks weak. 
  • Response to Eris LifeSciences IPO in final hours of Day 3 looks muted. subscribed fully at 1:30pm on Day3. QIB and HNI demand quite muted till now. Grey Market Premium Rs. 17/-. Putting 2 or 3 applications.
  • Watch this space for any further  update on the IPO.
Standard disclaimer: I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.