Pharma firm envisages Rs2.8b IPO at PSX

As the Pakistan stock market continues to outperform many regional and global markets despite the challenges posed by Covid-19, a host of local firms have expressed the intention of listing at the bourse.

Among these, Citi Pharma Limited has shared plans to raise up to Rs2.8 billion by offering its 35% stake to institutional and ordinary investors through initial public offering (IPO) at the Pakistan Stock Exchange (PSX).

According to a statement released by the firm on Friday, the book building phase of the IPO will be held on June 15-16 and high-net-worth individuals and financial institutions will participate in the process.

The company will issue all new shares through book building at the floor price of Rs28 per share, which includes a premium of Rs18 per share.

Although the pharmaceutical company hopes to raise at least Rs2 billion through the IPO, the strike price can go up by 40% (Rs39.20 a share) depending on the interest of investors during the book building. In such a case, the company will be able to collect Rs2.8 billion from the listing.

Following the book building process, successful bidders will be provisionally allotted 75% (54.5 million shares) of the issue size.

The remaining 25% (18.1 million shares) will be offered to retail investors at the strike price.

“This IPO is a relatively cheaper offering in the pharmaceutical segment,” said AL Habib Capital Markets Head of Research Syed Fawad Basir while talking to The Express Tribune.

“Even if we assign a discounted price-to-earnings (PE) ratio to the sector, we feel that the IPO is very attractively priced.”

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Given that Covid-19 has pushed renewed focus on health, the demand for active pharmaceutical ingredients (APIs) has never been stronger.

He was of the view that it would be the new norm and would bode well for the company, which would strengthen and consolidate its position after the IPO.

Citi Pharma is raising fresh funds for three major reasons.

First, the company is planning to expand its existing capacity of 3,600 tons of Paracetamol per annum to 6,000 tons per annum. This is partly because the demand for Paracetamol has surged in the wake of Covid-19.

In addition, the company plans to add new APIs as well as pharmaceutical formulations (final products) to its existing product line.

Another reason for raising capital is that the company intends to build three manufacturing facilities, which will raise its total capacity to 200,000 vials or injectables per day, 60,000 bottles of dry powder/suspension per day and 4.2 million capsules per day.

These include dedicated manufacturing lines for penicillin, cephalosporin and psychotropic and narcotics drugs.

Third, the firm plans to establish synergies and forward integration by building a 50-bed healthcare facility in Lahore. The hospital will cater to the outpatient department, consultancy clinics, general operation and diagnostic services.

The total worth of the pharmaceutical sector in Pakistan stands at Rs501 billion. The segment grew at an annualised rate of 11.4% between 2016 and 2020.

Out of 650 pharmaceutical companies in the country, just 31 are multinational. Local firms enjoy a collective share of 60% while the remaining share is held by multinationals.

Although Citi Pharma makes many drugs for consumers, its major source of revenue is the manufacturing and sale of APIs — key substances that make a finished pharmaceutical product.

Major drug-makers including GlaxoSmithKline, The Searle Company, Barret Hodgson and Martin Dow buy APIs from Citi Pharma.