Windlas Biotech, the fifth largest contract development and manufacturing organisation (CDMO) in India, had a poor debut on the stock exchanges, listing at ₹439 per share — a 4.5 per cent discount to its issue price of ₹460. The stock has continued to decline post listing, and at the time of writing this was trading at ₹413 per share, down 10 per cent from its issue price. The IPO was oversubscribed by around 24 times.

The issue raised around ₹400 crore which included a stake sale by PE investor Tano India in the OFS portion (₹237 crore). The IPO valued the company at a PE ratio of 32 times FY21 earnings (adjusted for impairment), which is closer to the higher end of listed API manufacturers (peers in CDMO are unlisted). We had recommended investors to avoid subscribing to the IPO and wait for evidence of sustained revenue and earnings growth before investing. We continue to recommend a similar wait and watch approach.

Business

Windlas provides CDMO services to Indian generic formulation manufacturers, serving 7 of the top 10 in India including MNCs. The company operates from four plants in Dehradun and is also developing an injectables plant, supported by the fresh IPO proceeds. Windlas reported revenue and adjusted earnings growth of 19 per cent and 26 per cent in the period FY19-21.

The revenue growth in FY21 also gained from Covid-19 related sales, adjusted for which growth would be similar to industry level growth rates of 13 per cent. The bottom line grew faster, aided primarily by deleveraging, as EBITDA margins remained flat at 12.5 per cent in the period. The current price indicated a PE multiple (at current price of ₹413 per share) of 28-29 times FY21 adjusted earnings seems to have discounted most of the future growth, further impacted by dissipating Covid related sales.

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