Syncom Healthcare coming with an IPO of 75,00,000 equity shares

Syncom Healthcare

Syncom Healthcare Limited is coming with a 100% book building; initial public offering (IPO) of 75,00,000 shares. The equity shares of Rs 10 each are being offered in a price band of Rs 65-75 per equity share.

At least 50% of the issue will be allocated to Qualified Institutional Buyers (QIB), including the 5% to mutual funds. Further, 15% would be available for non-institutional bidders and remaining 35% for the retail investors.

The issue opens on January 27 and will close on January 29, 2010. The shares will be listed on BSE as well as NSE. The face value of the share is Rs 10 and is priced 6.5 times of its face value on the lower side and 7.5 times on the higher side. Minimum order quantity for bidding has been fixed at 90 shares and thereafter in multiple of 90 shares.

Book running lead manager to the issue is Chartered Capital and Investment. Company Secretary and Compliance Officer for the issue is Jagdish Chandra Paliwal.

Syncom Healthcare Company Profile

The Company was originally incorporated as Syncom Healthcare Limited on July 29, 2002. It was formed for manufacturing, marketing & trading of pharmaceuticals formulations under its own brands in Ethical, OTC, Generic and Herbal market segment.

The company manufactures a range of products such as Ethical drugs, Generic drugs, over the counter drugs (OTC) and Herbal formulations in various dosage forms and markets them under the trade mark ‘Syncom’ which is a registered trademark in the name of Syncom Healthcare Limited. The company also undertakes contract manufacturing for large variety of pharmaceutical formulations for a number of other pharmaceutical companies of national and international repute such as Lupin Limited, Nicholas Piramal India Ltd, Galpha Laboratories Limited, Percos India Pvt. Ltd etc. (under their own brands) located in India.

The company manufactures various dosage forms, which include tablets, capsules, eye/ear drops, ointment and creams and dry syrups. The company has an established product-marketing network covering both metro and minimetro cities, which enable it to reach the existing and potential customers through the network of distributors and dealers spread across the country. For the purpose of marketing the various products, the Company’s business has been categorized as Branded Generic Division, Over the Counter (OTC), Ethical division and Contract Manufacturing Division.

Apart form Generic, the Company has developed presence in OTC Segment. The Company is producing more than 40 products in this segment which includes Fastac, Q-coril, Triple action, Pandrop, Syncom Gripe Water, etc.

Syncom is also having presence in Herbal segment with around 25 products which includes Patton, Attom, Narisudha, Salony Cream, etc.

Syncom Healthcare IPO Grading

CARE has assigned an IPO Grade 2, indicating below average fundamentals, to the initial public issue of the company.

Proceeds is being used for

• To set up the new manufacturing unit at Indore SEZ for manufacturing of various pharmaceuticals formulations
• To undertake the upgradation/modernization of manufacturing facilities at Dehradun Plant
• To meet working capital requirements
• To set up an Export Office at Mumbai
• To undertake ‘Brand & Product Registration and Approval’; and
• To meet general corporate purpose:

Industry Overview

The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously.

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control.

The pharmaceutical industry in India meets around 70% of the country’s demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India. These units produce the complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of pharmaceutical formulations.

India’s pharmaceutical industry has been in transition for several years now. This is the result mainly of the changes to drug patent legislation in 2005. Prior to the Patent Amendment Bill, not the substance itself but merely the manufacturing process was protected for a period of seven years. India’s patent legislation had frequently been the reason for legal disputes with large western drug firms, especially from the US. In line with international standards, the sector is now subject to product and process patents valid for a period of 20 years. Indian companies seeking to copy drugs before the patent expires are forced to pay high licence fees. This became necessary following the signing by India’s government of the TRIPS Agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights). So Indian drug firms could no longer simply copy medicines with foreign patents by using alternative manufacturing processes and offer them on the domestic market.

As a result of the new patent legislation, the country’s pharmaceutical industry is reorienting itself and focussing on self-developed medicines and/or contract research and production for western drugs companies. Also the expansion of Indian firms abroad looks set to continue as preferred target markets are the US and European countries.

Syncom Healthcare IPO : Pros and strengths:

Multi-product capability and large product mix- The company is having approvals to manufacture various formulations. It routinely manufactures 200 to 250 types of formulations based on market demand and limited formulation lines. However, it has versatile manufacturing facilities, which can produce multiple products using a combination of processes. The flexible manufacturing infrastructure helps it in changing the product mix in response to changes in market demand. It has complete infrastructure of formulation development, pilot plant and validation studies and are able to develop efficient and cost effective specialized processes at short notice. Apart from this the company is having a fairly large product mix with Anti-biotics, Anti-inflammatory-analgesics, Anti-allergics, Anti-cold, Anti-cough, Anti-fungal, Anti-diarrhocals, Anti-oxidants, Vitamins, Proteins etc.

Locational advantage- The company’s unit is situated at Selaqui, Dehradun which has lots of the locational advantages. The unit is well connected with road being situated in Selaqui at Dehradun- Chandigarh State Highway. Also the skilled manpower is easily available in and around the area where the plant is situated thereby fulfilling human resource requirements. Water is one of the basic requirements of pharmaceutical companies. The water is easily available in the valley. Above all the the existing plant is located in the State of Uttrakhand and availing advantage of Excise exemption for a period of 10 years and also 100% exemption of Income Tax for a period of 5 years and 30% exemption of Income Tax for a subsequent period of 5 years.

Established client relationship- The company holds established client relationships in domestic markets from whom it get orders on a continuous basis. The company’s existing relationship with its clients represents a competitive advantage in gaining new clients and growing the business.

Nationwide marketing network- The Company is selling its formulations under its own brand name through a nationwide marketing network spread over 20 states through a chain of distributors, which in turn sells the goods to stockiest and retailers. The products of the Company are sold in the domestic market in all the four segments of Formulations market i.e. OTC, GENERIC, ETHICAL and HERBAL. The Company is marketing its OTC & Generic products through 203 Medical Representatives /Sales staff and its Ethical products through 33 Medical Representatives /Sales staff. The sales administration is coordinated and supported by the staff sitting at the corporate office.

Syncom Healthcare IPO : Risks and concerns:

Dependence of few customers- The top 10 customers of the company constituted 68.95% of sales during the fiscal2009, the dependence on few customers has been increasing for last couple of years right from 2005. The percentage of revenues derived from the Company’s top 10 customers constituted 68.95%, of sales during the fiscal 2009. Loss of any one or more of these clientele for any reason whatsoever, could adversely affect the financial operations of the company.

Dependency on few suppliers- The company is having dependence on few suppliers and during the FY 2008-09, top 5 suppliers constituted 57.95% of the total purchases. While the top one supplier constituted 22.65% of the total purchases. Company’s dependency on few suppliers could affect the financial position and operations of the company if these suppliers fail to provide the raw materials of specified quality and quantity at proper time at reasonable rates to the company.

No firm supply agreement- The company has no supply agreements for the raw materials required for manufacturing of its products. The prices of raw materials may fluctuate, depending on among other factors, the number of producers / suppliers and their production volumes or prices and changes in demand in the principal drug markets. The prices of the raw materials have impact on profitability of the Company and there are factors affecting raw material prices which are beyond its control. Though it covers purchases to a certain extent in anticipation of any price increases, but still is exposed to and will have to absorb any fluctuations in the prices of these raw materials, which may adversely affect financials of the Company.

Regulation bund industry- Company’s business is subject to regulation by several authorities and the company has to comply with the regulations under the Drug and Cosmetics Act, 1940; Drugs and Cosmetics Act Rules, 1945; The Drugs (Prices Control) Order, 1995, Drugs and Magic Remedies Act, 1954; Patent Regulation. Further, the business operations are subject to strict regulations by environmental regulations, Trade Mark Act, Factories Act, etc. the company incur costs to comply with requirements of environmental laws and regulations. Any lapses or non-compliance of any laws or regulations or rules or acts or policies by it may adversely affect the business and / or financial operations.

Conditions & restrictions imposed by the financing institutions-The company has entered into agreements with the Bank of India for short term loans and long term borrowings. As per the terms of the loan agreement, it requires prior written consent from the Bank, for certain activities, amongst others, including to dispose off the assets as declared in the net worth statement during the currency of the Banks loan, to pay dividend, to disinvest the Promoters equity in the Company till the currency of the banks loan, to divert short term funds for long term uses, change in management or expansion, to effect any scheme or amalgamation or reconstitution, to implement a new scheme of expansion or take up an allied line of business or manufacture and various other conditions. These conditions & restrictions imposed by the financing and other agreements could adversely affect ability of the Company to conduct business and operations.

Syncom Healthcare IPO Outlook:

Syncom Healthcare is engaged in the manufacturing of Ethical, OTC, Generic and Herbal pharmaceuticals. The company manufactures a range of products such as Ethical drugs, Generic drugs, over the counter drugs (OTC) and Herbal formulations in various dosage forms and market them under the trade mark ‘Syncom’ which is a registered trademark in the name of Syncom Healthcare Limited. The company also undertakes contract manufacturing for large variety of pharmaceutical formulations for a number of other pharmaceutical companies. The company is having multi product capability and holds a large product mix. The company’s manufacturing facility is located in Uttrakhand and availing advantage of Excise exemption apart from this the company is having an established clientele and a good marketing network. The Company has plan to set up a Pharmaceutical Formulation Unit in 2010-11 at Indore SEZ, which will be a MHRA, USFDA & WHO-cGMP approved plant, the Company expects to commence the commercial production in the year 2010-11 in this unit

On the concern side – The Company’s revenue generation is dependent on little number of clients and in the last fiscal 69% of revenue was generated by top 10 clients of the company; so much of dependence can put the company under financial threat. Also the company is dependent on limited number of suppliers and holds no firm agreement for the supply. Above all the company is in a business that is highly regulated and various norms and conditions have to be obeyed, any discrepancy from the practiced norm could put the operations of the company under risk.

The scrips are being offered in a price band of Rs 65-75, the issue would 2.86% of the fully diluted post issue paid up capital of the company. Basic EPS of the company stands at 3.85 for the year ended march 31, 2009 and hence the issue is priced 16-19 times of its present earning more than 22 times of its current fiscal expected earnings which sounds a bit expensive. The company has reported income of Rs 60.56 crore for the passing fiscal but the business of the company falls in a very competitive segment and revenue growth cannot be guaranteed with so much of rules and regulation to adhere. We will suggest to avoid the issue or to opt at lower price band only.

Source : Live Mint

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Tags: IPO Updates, Pharma Sector, Syncom Healthcare, syncom otc, www.syncomhealthcare.com attom caps in mumbai location

Category: IPO