GreenSignal Bio Pharma IPO (GSBPL IPO) will open for subscription on 9 November as the 25th mainboard IPO in India this year. The upcoming IPO will involve sale of 14,579,560 shares through an offer for sale (OFS). Price band for the share sale has been fixed at INR76 – 80 per share and all the shares will be offered by promoter and promoter group companies. Through GreenSignal Bio Pharma IPO review, we try to find out if the public offer is good enough for investors to subscribe. Indian Overseas Bank is the Book Running Lead Manager (BRLM) to the offer while Bigshare Services Private Limited is the registrar to the offer.
Starting off, there is no doubt that the Chennai-based company is little known. This is understandable as it is neither a very big corporation nor it offers blockbuster products. In fact, there are only two products it sells and has high activity levels in international markets.
Secondly, the timing of GreenSignal Bio Pharma IPO is very unusual with extreme stock market movements being the norm than exception. Investment banks tend to avoid situations which can be potentially harmful to IPO subscription levels. More on these later, here are some details about the upcoming IPO:
GreenSignal Bio Pharma IPO details
|Subscription Dates||9 – 11 November 2016|
|Price Band||INR76 – 80 per share|
|Offer For Sale||14,579,560 shares (INR116.63 crore at upper price band)|
|Total IPO size||14,579,560 shares (INR116.63 crore at upper price band)|
|Minimum bid (lot size)||175 shares|
|Face Value||INR10 per share|
|Listing On||BSE, NSE|
GreenSignal Bio Pharma IPO Review: All OFS
GreenSignal Bio Pharma is largely owned by promoters P Sundaraparipooranan and P Murali and members of promoter group. Promoter & Promoter Group owns nearly 83.5% equity stake in the company while public shareholding is at 16.4%. Since majority of the share capital is with promoter, it is natural that these shareholders are among the major sellers. Interestingly, Avon Cycles is a major shareholder with 16.29% stake and will be selling some of these shares through the IPO.
GreenSignal Bio Pharma IPO Review: Two-products and two contracts
Established in November 2005, it was only four years later in 2009 that GreenSignal Bio Pharma started commercial production. Nevertheless, the company has an extremely narrow product range of just two products – BCG Vaccine and BCG – ONCO. While BCG Vaccine is used for immunization against Tuberculosis, the BCG – ONCO is used for the treatment of urinary bladder cancer. BCG Vaccine is the biggest product for the company and it generated 82.7% of GreenSignal Bio Pharma’s revenues in FY2016.
GreenSignal Bio Pharma is primarily a vaccine manufacturer and relies on the distribution capabilities of its partners or clients. It had a five-year marketing agreement with Cadila Healthcare for BCG – ONCO which expired in June 2016. Currently, it has two noteworthy contracts from UNICEF and the Ministry of Health, Government of India to supply BCG vaccines. The contract with UNICEF is valid till 2018 under which the company will supply 28 lakh (2.8 million) vials of BCG vaccine to UNICEF. Similarly, the contract with the Ministry of Health calls for supply of 25 lakh vials every year in FY2017 and FY2018. It is one of the only four companies globally which have been selected to supply BCG vaccines to UNICEF. Interestingly, it rubs shoulders with the celebrated Serum Institute of India by supplying the vaccines.
GreenSignal Bio Pharma IPO Review: Financial performance
Despite its impressive performance in winning supply contracts from UNICEF and the Government of India, GreenSignal Bio Pharma falls flat in terms of financial performance. Although GreenSignal Bio Pharma has witnessed revenues increasing from INR11.26 crore in FY2012 to INR20.49 crore in FY2016, the growth has largely come in the last year as shipments to UNICEF and the Indian government started. Intermediate years even saw a dip in annual revenues to just INR3.52 crore in FY2014 as it failed to obtain tenders from the Ministry of Health.
The direct impact of this volatility in revenues and excessive dependence on key clients is seen on the company’s profitability. FY2016 was the first and only year of the company posting positive earnings in the last five years.
GreenSignal Bio Pharma’s consolidated financial performance (in INR crore)
|Profit after tax||-0.48||-0.50||-1.29||-0.21||5.30|
|Net margin (%)||-4.3||-4.3||-36.6||-3.2||25.9|
GreenSignal Bio Pharma IPO Review: Should you subscribe?
GreenSignal Bio Pharma IPO is the kind of public offer which can easily divide investors into opposing camps. First off, there are number of issues with this company. It has limited operating history and has very high dependence on just two clients. Product portfolio is also limited to just two products. Past financial performance also does not offer any help in making investment rationale.
The company posted earnings per share (EPS) of INR1.45 in FY2016 which means the IPO is offered at a price to earnings (P/E) ratio of 55.1 at the upper end of the price band. This is quite high for a small company with inconsistent operating history. In terms of valuations, it is hardly appealing.
However, past performance serves little purpose beyond establishing the legitimacy of a company. Stock market is largely a forward looking tool and this is where GreenSignal Bio Pharma scores with a strong pipeline. For 2017 and 2018, the company has orders which can easily take its annual revenues beyond the levels seen in FY2016. In calendar year 2017, it will supply 10 lakh vials to UNICEF at the rate of USD1.5 per vial, indicating annual revenue of nearly INR9.75 crore. Similarly, it will ship 25 lakh vials to the Government of India at the rate of INR39.5 per vial during FY2018 which results in annual revenue of approximately INR9.87 crore. In addition, it generated sales of INR5 crore in FY2015 and FY2016 each by supplying to Bionet Asia Company. GreenSignal Bio Pharma has not indicated if Bionet Asia will continue to procure vaccines in future also but if it does, production shouldn’t be an issue as the company has capacity to produce 1.08 crore vials every year.
An example of the upshot was seen in the first quarter of FY2017 during which GreenSignal Bio Pharma posted EPS of INR0.76. This indicates to annualized EPS of nearly INR3, which brings down the forward PE ratio to a much better level of 26.7. Although one quarter is too small a timeframe to extrapolate and we are no fans of this approach, it serves the purpose of highlighting the potential.
A key advantage the company has got is WHO – prequalification which enables the company to participate in tenders of UNICEF, PAHO (Pan American Health Organization) and other global agencies which are among the largest buyer of BCG vaccine. In addition, export opportunities to other countries including non-UNICEF countries may emerge. This is something the company has done in the past by supplying vaccines to Nepal and Indonesia.
Read Also: GreenSignal Bio Pharma IPO Discussion
In total, GreenSignal Bio Pharma IPO Review reveals that the offer is a mix of positives and negatives and thus, it qualifies as a high risk investment. If everything goes right, it can emerge as a multibagger in a few years. However, as of now, GreenSignal Bio Pharma IPO is something for investors who have high risk appetite. This also needs to be seen with the ‘no longer rare’ possibility of Donald Trump becoming the next US President and a Federal Reserve rate hike. We have already seen that the markets are on a shaky ground and both these events will be seen as negative.