Tuesday, 20 June 2017

ERIS Lifesciences IPO: A Quick Take

I just missed this IPO and didn't do any study at all. But my friend Piyush reminded me about this today due to its complete focus on indian market and superior balance sheet. Mr. Naman has done some digging for important points (shared in the comment section) and it looks like a good investment opportunity.

As i always feel India is going to be big market in the future for pharma along with Africa and middle east. Eris is debt free having around 300 cr current investments. Capacity utilization is low at 55% so the future growth will provide high operating leverage.

it is focused on specialty pharma business like diabetes and hypertension which are chronic in nature and require long time therapy which is great for a business. It is now focusing on Ayurvedic medicines and medical devices business. Actually it has big distribution clout which it can use for other products also.

On a turnover of around 800 cr their profit is staggering 250 cr (EPS of 18) and at upper price band of 603, it is at a PE of 34 which looks high but keeping in view the high future growth and current low base, high ROE/ROCE of more than 45%,  unused capacity, tax exemption up to 2024, debt free cash positive balance sheet, no threat of USFDA, 100% domestic turnover, growth potential of Indian market...all these factors make it investment worthy. other India focus player Alkem is available at PE of 25 (fallen from 30) but it is due to lower relative growth, latest focus on export market. Laurus is also available at pe of 30 due to its focus on specialty care. So we can put Eris into the same league.

Its operating leverage can be gauged from the results of 2016-17. Its turnover has been increased from 600 cr to 750 cr...a growth of 25% but its NP are grown from 138 cr to 241 cr...a growth of 90%!!!

Also although IPO money is not going into the company but promoters are not selling much of their stake (some 3-4%)...it is mainly PE players exiting...so this is a sort of unexciting but still not bad as promoters are not looking opportunistic.

As shared earlier also listing gains depend upon market expectations, views of analysts etc. so as some market analysts are giving avoid recommendations citing expensive valuations may impact its listing performance. But for investors like us any such fall is an opportunity. I have just applied for this and will be buying more at every fall after listing.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post).


  1. ----- Forwarded message ----------
    From: Naman Jain
    Date: 20 June 2017 at 11:57
    Subject: Eris Life sciences : Some points
    To: Gurpreet Singh

    1.The drug maker, figures among the top six companies in diabetes and hypertension segments and has a revenue of Rs 800 crore and slightly over Rs 200 crore in net profit .

    2.Eris claims one of the best financial metrics, including return on capital employed and EBITDA , and the second best field staff productivity ratio after Sun Pharmaceuticals,

    3. In less than a decade, Bakshi built an enterprise valued at over $1 billion, riding on the changing disease profile in a prospering economy, also making strides in healthcare services.

    India's chronic treatment market has outpaced the larger acute therapies in recent years, making Eris the youngest among the top 25 companies in the branded formulations market.

    Bakshi's business model centered on a portfolio of brands in untapped super-specialty niches.The company's 25 brands account for 92% of the annual turnover, according to IMS-ORG data, which runs against the narrative of Indian pharma companies operating a lengthy list of brands and a long tail.


    4. A foot inside a doctor’s clinic is tougher than ever before. But if a drug maker can identify holes in the prescription, and fill them, it can hit a sweet spot. Add to that Eris’ sound execution: The annual per person productivity of its field-force at Rs 25 lakh beats the industry average of Rs 70,000 to Rs 20 lakh. It has grown 145 percent in the last four years, and is among the top 35 firms for branded formulations. In 2008-2009, it was ranked 29 and 224 by IMS ORG in cardiology and ENT respectively. By June 2012, it was No. 1 in both categories.

    5. Eris Lifesciences entered this space with a strategy to identify gaps in super specialties in select categories, such as cardiology, gastroenterology, pediatrics, orthopedics—in the process creating new market segments. For instance, Vitamin D. New research shows it can keep liver and thyroid disorders, and even cancer, at bay. The Vitamin D market was Rs 18 to Rs 20 crore three years ago. In 2012, it added Rs 94 crore to Eris’ revenue of Rs 296 crore. The company has launched diagnostics for Vitamin D deficiency, and has eight such products in its portfolio, including suppositories.


    6. All the shares offered in Eris Lifesciences IPO will be sold by existing shareholders through an Offer for Sale (OFS). As a result, the company will not get any money from the IPO.

    7.Rarely one comes across business delivering 49% RoCE and 45% RoE, which is definitely unheard of in the pharma sector. Since Eris earns zero revenue from exports, it is immune from US FDA issues plaguing Indian pharma currently. This is a big distinguishing factor vis-a-vis peers. Moreover, it enjoys tax break (under Income Tax Act, which will continue post GST) till FY24 on its sole manufacturing facility at Guwahati, Assam, which accounts for 78% of sales. Balance 22% of sales is outsourced to contract manufacturers. Hence, effective tax rate for company was very low at 8.3% in FY17 and 12.7% in FY16.

    8. As on 31-3-17, on net worth of Rs. 540 crore, company has a debt free balance sheet. Surplus cash and equivalents are Rs. 261 crore, translating into cash per share of Rs. 19.

  2. Sir, your views on Indian Metals & Ferro Alloys [IMFA]

    1. Dear Sir, never studied it...also i generally don't invest in commodity stocks unless there is something special like strong entry barrier.