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Review By Dilip Davda on April 30, 2024

•    Indegene is a unique player in digital-led commercialization services and Life Science Industry.
•    It enjoys virtual monopoly and has posted steady growth in its top and bottom lines. 
•    Based on FY24 annualized earnings, though the issue appears fully priced, its niche place in the segment makes it a reasonably priced issue. 
•    The segments in which this company is operating is poised for bright prospects ahead. 
•    Investors may lap it up for the medium to long term rewards. 

ABOUT COMPANY:
Indegene Ltd. (IL) is providing digital-led commercialization services for the life sciences industry, including biopharmaceutical, emerging biotech and medical devices companies, that assist them with drug development and clinical trials, regulatory submissions, pharmacovigilance and complaints management, and the sales and marketing of their products. Its solutions enable life sciences companies to develop products, launch them in the market, and drive sales through their life cycle in a more effective, efficient and modern manner. 

The company achieves this by combining over two decades of healthcare domain expertise and fit-for-purpose technology. Its portfolio of solutions covers all aspects of commercial, medical, regulatory and R&D operations of life sciences companies. It has established client relationships with each of the 20 largest biopharmaceutical companies in the world by revenue for the Financial Year 2023 (Source: Everest Report), having earned more than 69.00% of its total revenue from operations for each of the nine months ended December 31, 2023 and 2022 and the Financial Years 2023, 2022 and 2021 from these 20 customers. As of December 31, 2023, it had a total of 65 active clients 

It had 27 clients from whom the company earned between US$1 million and US$10 million in revenues, five clients from whom it earned between US$10 million and US$25 million in revenues, and three clients from whom it earned more than US$25 million in revenues, during the 12 months ended December 31, 2023.

Life sciences enterprises require a talent pool with in-depth domain expertise on the journey of a drug from the research lab to the market to organize and analyze scientific and clinical data, navigate the regulatory landscape and the ethical guidelines within which the industry operates, and to develop the requisite medical content for healthcare professionals, patients, and payers (Source: Everest Report). Despite these evolving needs, life sciences enterprises continue to struggle from a lack of a qualified in-house talent pool (Source: Everest Report). 

At the same time, drug pricing caps create margin pressures on biopharmaceutical companies, thus risking the overall profitability of the industry and consequently, operations spend (Source: Everest Report). Such margin pressures have been further compounded by the loss of exclusivity of drugs due to patent cliffs, leading to loss of revenue in high value drugs (Source: Everest Report). While there are such talent gaps and margin pressures, life sciences companies are placing greater emphasis on digital innovation and enterprise-wide transformation initiatives to improve operational efficiencies (Source: Everest Report). The growing maturity of technology tools is also leading to requirements of domain-centric digital expertise (Source: Everest Report). Life sciences companies are embracing technological partners with the requisite domain expertise to aid them in this digital journey (Source: Everest Report), and this is where IL's role lies.

Positioned at the intersection of healthcare and technology, its solutions span across different stages of the commercialization lifecycle of drugs and medical devices. IL's Enterprise Commercial Solutions and Omni channel Activation solutions cater to the commercial functions of life sciences companies while its Enterprise Medical Solutions and Enterprise Clinical Solutions cater to their medical and R&D functions. Its clients include biopharmaceutical companies, medical devices companies and emerging biotech companies. As of December 31, 2023, it had 65 active clients and had 5181 employees on its payroll.

The company is doing unique business with nearly 98% global revenue and has created a niche place in the verticals it is operating, and that are set for 6.5% average CAGR for coming few years. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo IPO of fresh equity shares issue worth Rs. 760 cr. (approx. 16814160 shares at the upper cap), and an offer for sale (OFS) of 23932732 shares (worth Rs. 1081.76 cr. at the upper cap). Thus, on an overall basis, the company is coming out with an IPO of 239249251 shares to mobilize Rs. 1841.76 cr. at the upper price band. The company has announced a price band of Rs. 430 - Rs. 452 per equity share of Rs. 2 each. The issue opens for subscription on May 06, 2024, and will close on May 08, 2024. The minimum application to be made is for 33 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 17.03% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 391.34 cr. for repayment/prepayment of certain borrowings of its subsidiary, Rs. 102.92 cr. for capex for the company and its material subsidiary, and the rest for general corporate purposes. 

The company has reserved approx. 276540 shares (worth Rs. 12.50 cr.) for its eligible employees and offering them a discount of Rs. 30 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs, and not less than 35% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., Citigroup Global Markets India Pvt. Ltd., J. P. Morgan India Pvt. Ltd., land Nomura Financial Advisory and Securities (India) Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue.

Having issued initial equity shares at par, it raised/based on Rs. 2 FV) between December 2004 and November 2022. It has also issued bonus shares in the ratio of 125 for 1 in July 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. Negligible, Rs. 0.05, Rs. 0.11, Rs. 93.71, and Rs. 201.48 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 44.49 cr. will stand enhanced to Rs. 47.85 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 10814.07 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company (on a consolidated basis) has posted a total income/net profit of Rs. 996.92 cr. / Rs. 185.68 cr. (FY21), Rs. 1690.50 cr. / Rs. 162.82 cr. (FY22), and Rs. 2364.10 cr. / Rs. 266.10 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 241.90 cr. on a total income of Rs. 1969.75 cr. 

For the last three fiscals, the company has reported an average EPS of Rs. 9.64, and an average RoNW of 27.37%. The issue is priced at a P/BV of 7.55 based on its NAV of Rs. 59.86 as of December 31, 2023, and at a P/BV of 5.19 based on its post-IPO NAV of Rs. 87.06 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 33.53. Thus prima facie the issue appears fully priced. But considering its unique business model and virtual monopoly, the IPO is reasonably priced. 

For the reported periods, the company posted a PAT margins of 19.22% (FY21), 9.78% (FY22), 11.54% (FY23), 12.62% (9M-FY24). There is no mention of RoCE margins in the offer documents.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in December 2022, based on its financial performance and the future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The four BRLMs associated with this issue have handled 26 issues in the last three fiscals, out of which 5 issues closed below the issue price on listing date.

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