Should You Invest In Eris Lifesciences Ltd IPO?
Hey there.
All you bright investors out there!!! Welcome to today’s article. It’s raining
IPOs here and we are meeting yet another
IPO which is open from 17th June 2017 to 21st June 2017. Yes
friends the IPO we are gonna discuss today is Eris Lifesciences Ltd.
So let’s see if it’s a thumps up or a thumps down!!!
About the
Company!!!
Eris is a
company venturing in Pharma products of select therapeutic areas within
the chronic and acute categories of the IPM, such as: cardiovascular;
anti-diabetics; vitamins; gastroenterology; and anti-invectives’. It’s focusing
on developing products in the chronic and acute category which are linked to
lifestyle related disorders. The company had around 56 mother brand groups as
on 31.03.2016. It has its owned manufacturing facility in Assam. However some
of the products are outsourced.
Utilization of Funds!!!
Since it’s a sale from of the shareholders stake, no
proceeds will be received by the company.
Financials!!!
Now let’s
dive into the most important factor. The financials!
1. The company has a good amount of
reserves making its networth to Rs 418.52 Crs as on 30.09.2016
2. Eris is a zero debt company as on
30.09.2016.
3. Its revenue base is Rs 605.48 Crs
for the FY 2015-16 of which profit works out to Rs 123.54 which is approx 21%
of sales.
4. Now the networth as on 31.03.2016
was Rs 305.73 Crs. Isn’t it awesome that the shareholders funds is earning more
than 41% return. So the growth of this company seems to be exponential.
5. As on 30.09.2016 the company has a
good asset base with a net block of Rs 98.43 Crs.
6. Now not to discourage the company’s
strategies but the company has a market exposure in the form of mutual funds
for more than 256 Crs. Well I personally would say it’s a very good strategy. But
that’s just me.
7. The company’s inventory turnover
ratio is more than 12 times and its debtor turnover ratio is more than 23
times. Now that’s called working capital management.
Another very
important aspect to consider is that more than 60% of its revenue comes from
domestic markets. So not much worries about FDA.
Valuation!!!
The offer
is at a price band of Rs 600 to 603 for shares with a face value of Rs 1/-. A
single lot would consist of 24 Shares. As per the weighted average EPS for past
3 years which works out to be Rs 7.83 on standalone basis. This implies that
the PE is 77 which is heavily overvalued. Now looking into only 6 month ended on Sep 2016 the company is claiming the EPS to be 9.20 thereby implying the annualised EPS to be at 18.40 and thereby the PE to be at 33. I am not sure if the second half year will have the same returns as the first one. Even if it was I would say the valuation is not at a discount but at par with it intrinsic value. Now had the proceeds gone to the
company it would have been sure buy. However since the proceeds are not going
to the company the price is pretty much high.
Let’s see
another IPO that came before Eris from the same sector. Laural Labs had EPS of
Rs 17.92 basic on standalone basis. Its price band was Rs 426 to Rs 428. That’s
PE of around 24 times. Now its trading at Rs 603 which is a PE of around 34.
Therefore
considering these facts there are some other pharma companies which are worth
investing and having a very low PE compared to Eris. Some suggestions are Divis
Labs, Aurobindo Pharma, Piramal Enterprises and Glenmark Pharma.
Therefore
as of now I would say avoid Eris. Had the price been reasonable the company was
a sure buy.
Thanks for
joining us friends.
Keep reading !!!! Enjoy investing!!!!
-
- RicherInvestor
-Written by
Roger Vins (CA, MCom)
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