Tuesday, August 9, 2011

IPO ANALYSIS : BROOKS LABORATORIES LIMITED - COSTLY PRESCRIPTION - AVOID.

ISSUE OPENS / CLOSES ON 16-08-11 / 18-08-11

ISSUE SIZE Rs 63cr

PRICE BAND Rs 90-100

IPO GRADE 2 BY ICRA.

This issue is being managed by D & A Financial Services, who recently managed Shilpi Cable Technologies. As against the issue price of Rs 69, the shares now are trading at Rs14. BRLM is not known for bringing quality issues.

Brooks is a pharmaceutical formulation company undertaking Contract Research &Manufacturing Services (popularly known as CRAMS). The product range includes Beta Lactam, Cephalosporin & General Dry powder Injectables, Ampoules and Liquid vials, Dry Syrups and Tablets. The product portfolio comprises of 26 Dry Powder Injections, 31 Liquid Injections, 5Tablets and 2 Dry Syrups which are marketed domestically.


The manufacturing unit is located at Baddi, Himachal Pradesh, which is WHO-GMP approved plant. The company is promoted by Atul Ranchal and Mr.Rajesh Mahajan.

The company’s major clients are Zydus, Cadila, Aristo Pharmaceuticals, Nectar Life sciences, Sanat Products, Hetero Healthcare, Medley Pharmaceuticals, Wockhardt, Parental Drugs and Alembic Ltd, among others.

The company proposes to setup new manufacturing unit at Panoli, Gujarat. However this project has not been appraised by any bank / financial institutions. The IPO funds are partly intended to be used for this purpose.

FINANCIALS:

Brooks reported a net profit of Rs 5.2 crore in FY 2010 and revenue of Rs 45.1 crore as compared to a net profit of Rs 3 crore in the previous year on the revenue of Rs 45 crore. For the six months ended 30th September 2010, the company reported a net profit of Rs 3.2 crore on the revenue of Rs 25.1 crore.

MATTERS OF CONCERN:

1. According to ICRA which has graded the IPO, the small scale of operations having a single manufacturing facility and the highly competitive domestic contract manufacturing industry characterized by presence of numerous similar sized smaller players as well as large established players puts pressure on pricing.

2. The proposed new unit requires substantial time for stabilization of the manufacturing processes; hence the project execution risks remain high.

3. The company’s ability to attract and partner clients in order to achieve sufficient orders in a highly competitive market and timely receipt of necessary approvals are critical in attaining a strong revenue growth.

4. There are no supply agreements for the raw materials required for manufacturing of the products.

5. The name and logo of ‘Brooks’ are not registered trademarks in the name of the Company.

VALUATION AND RECOMMENDATIONS:

The company will have a post issue capital of Rs 16.20cr. Assuming that the company earns net profit of Rs 8cr, in FY12 , the IPO looks very expensive at 20 PE. Family owned (some senior executives are also related to directors) small time company. The expansion is funded entirely by IPO proceeds. The project carries high execution risk. The IPO is very aggressively priced.

A MUST AVOID ISSUE.



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