Valiant Laboratories Limited IPO is open for subscription: All you need to know

The third IPO that opens for subscription this week is Valiant Laboratories Limited (VLL). We have already covered JSW Infrastructure and Updater Services Limited IPO.

In today's article, we will discuss the Valiant Laboratories IPO in detail, which opens for subscription on 27th September and closes on 3rd October. We will cover various aspects related to the company, which will help you decide whether to subscribe or invest in the IPO for the long term.

Valiant Laboratories Limited IPO: Key Details

Below are the key details related to the VLL IPO:

• Issue Size: Rs 152.46 crore
• Price Band: Rs 133 - Rs 140
• Issue Details: Rs 152.46 crore Fresh Issue, no Offer For Sale
• Market Cap: At the upper price band, Rs 608.3 crore
• Minimum Investment: Rs 14,700

Valiant Laboratories Limited IPO: About the business

VLL is an Active Pharmaceutical Ingredient (API) / Bulk Drug manufacturing company with a focus on the manufacturing of Paracetamol. Bulk drugs/Active Pharmaceutical Ingredients (API) serve as raw materials for manufacturing finished dosage forms or formulations. Paracetamol is one of the most commonly taken analgesics worldwide and is recommended as the first-line therapy in pain conditions by the World Health Organization.

Paracetamol has several applications such as usage in the treatment of headaches, muscle aches, arthritis, backaches, toothaches, colds, and fever. They manufacture Paracetamol in various grades, such as IP/BP/EP/USP, as per the pharmacopeia requirements of their customers.  

VLL's manufacturing facility is located in Tarapur Industrial Area, Boisar, Palghar in the state of Maharashtra, which is spread over an aggregate parcel of land admeasuring about 2,000 sq. mts. with an aggregate annual total installed capacity of 9,000 MT per annum. 

Within their Manufacturing Facility located at Palghar, Maharashtra, they also have an in-house R&D infrastructure. The R&D Facility is equipped with an analytical laboratory and infrastructure for developmental activities in existing products. Their focus on R&D, compliance with regulatory standards, quality systems, and continuous process improvement has positioned them as a long-standing supplier to their customers.  

Valiant Laboratories Limited IPO: Industry Outlook

The pharmaceutical API industry in India is ranked third-largest globally in terms of volume, behind China and Italy. About 35% of API and intermediaries produced in India are exported, and the remaining API and intermediaries are sold in the domestic market, including captive consumption by several large formulation players. India is the largest provider of generic drugs globally contributing to ~20% of global supply by volume of generic drugs.  

The overall API industry in India grew from Rs 781 billion in FY17 to Rs 1,179 billion in FY22, registering a CAGR of 8.5% in rupee terms. Growth in the industry was supported by growth in formulation manufacturing in India. The API industry is expected to clock a CAGR of 9-11% between FY22 and FY27, largely driven by growth in API exports, which is expected to deliver healthy growth during the period under consideration. 

The paracetamol API industry (Domestic consumption exports) grew from Rs 22 billion in FY17 to Rs 39 billion in FY23. The paracetamol API industry is expected to clock a CAGR of 5-7% between FY23 and FY27, largely driven by the demand from domestic formulation manufacturers and export markets. 

Valiant Laboratories Limited IPO: Listed Peers

The company has four listed peers which include names like Granules India, Jagsonpal Pharmaceuticals, Alkyl Amines Chemicals, and Laxmi Organic Industries. We will compare the financials of VLL with the listed peers to see how the company stands compared to peers. Below is the comparison of VLL with listed peers for FY23:

• In terms of revenue, Granules India is the largest player, followed by Alkyl Amines and Laxmi Organics. VLL is second last on the list, only above Jagsonpal.
• The Earning Per Share (EPS) is highest for Alkyl Amines and lowest for Laxmi Organics. VLL again is in the 4th position among five players.
• Return on Net Worth (RoNW) is highest for VLL at 28.90% followed by Alkyl Amines at 19.56%.

Valiant Laboratories Limited IPO: Financials

Let us now look at the most crucial part investors need to consider while evaluating a new company - the company's financials. Below are the financial numbers of Valiant Laboratories over the last three financial years:

• The company has reported a revenue of Rs 182.37 crore, Rs 291.52 crore, and Rs 333.91 crore for FY21, FY22, and FY23, respectively. Revenue has grown at a healthy 35.40% CAGR in this period. For FY21, FY22, and FY23, the revenue from sales outside India contributed 0.39%, 0.60%, and 0.33%, respectively of their total revenue from operations.
• The contribution of the top 10 customers towards VLL's revenue from operations for FY21, FY22, and FY23 was 48.01%, 36.87%, and 42.61%, respectively.
• Valiant Laboratories has reported an EBITDA of Rs 50.00 crore, Rs 42.32 crore, and Rs 35.09 crore for FY21, FY22, and FY23, respectively. In the same period, the EBITDA margins were 27.42%, 14.52%, and 10.51%, respectively. The margins have more than halved in this period.
• VLL has reported a profit of Rs 30.59 crore, Rs 27.50 crore, and Rs 29.00 crore for FY21, FY22, and FY23, respectively. The profits have declined in this period.
• For the last three financial years, VLL has reported an average EPS of Rs 9.77 and an average RoNW of 33.96%.
• The debt to equity ratio reported by the company for FY21, FY22, and FY23 is 0, 0.85, and 0.59, respectively. The ratio has increased from zero to 0.59 in FY23.
• If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up equity capital, then, the asking price is at a P/E of 15.71.
• Return of Capital Employed (ROCE) has decreased from 70.86% to 22.76%. On the other hand, ROE has reduced from 48.10% in FY21 to 33.73% in FY23. However, both percentages are still looking strong.

What are the competitive strengths of Valiant Laboratories Limited?

As per the company, their competitive strength is as below:

• The company has an experienced promoter and strong management team.
• VLL has a strong balance sheet, high ROCE, positive operating cash flows, and shorter debtor holding periods which enable them to fund their strategic initiatives, pursue growth opportunities, and better manage unanticipated cash flow variations.  
• The company has continuously reduced dependency on the import of raw materials.
• They have a strategically located manufacturing facility.

Risks associated with Valiant Laboratories Limited

Below are the risks associated with VLL:

• They have a single product manufacturing company, and any changes to the paracetamol API industry or their product demand will impact the business.
• The company is subject to strict quality requirements, regular inspections, and audits by customers and any failure to comply with quality standards may lead to cancellation of existing and future orders.
• VLL has a limited number of suppliers for their raw materials, which are highly concentrated in the western region of India. 

The majority of their operative income is derived from the domestic market, and any adverse developments in this market could adversely affect our business.