Citi Pharma Limited (CPL) is all set to conduct book building for its Initial Public Offering (IPO), selling 72.7 million shares — or 35pc of post-IPO capital — to the public in a new stock issuance to dredge up Rs2-2.8 billion to finance the planned expansion of its existing API (active pharmaceutical ingredient) production capacity, a new plant for manufacturing consumable medicines and a 50-bed hospital in Lahore.

The entire issue will be offered through Book Building on June 15-16 right after the announcement of the next year’s budget at a floor price of Rs28 per share, which includes a premium of Rs18. The maximum price — up to 40pc of the floor price — a prospective bidder is willing to pay for a share under Book Building will be Rs39.20.

This is going to be the first IPO by a pharmaceutical company in five years and the second in 27 years. AGP Pharma was the other pharmaceutical company, which went public in 2017. Pakistan Stock Exchange has seen a kind of ‘rush of listings’ during this current financial year with five companies mopping up total capital of Rs14.8bn in IPOs so far. CPL would be the sixth company to list on the PSX this fiscal year.

“There is a lot of excitement in the market on the upcoming CPL IPO,” Omar Salah Ahmed, head of corporate finance and advisory at Topline Securities — the Lead Manager & Book Runner for CPL’s IPO, said. It will be the least leveraged company (at the time of its listing) since debt is just 17pc of its equity. Generally, most listed companies are leveraged with an average debt to equity ratio of 50:50, he added.

Citi Pharma controls 5-6pc of the entire domestic API market and is targeting to enhance its share to 30-40pc by 2030 by increasing its API manufacturing capacity and adding new products to its portfolio

“We feel that the market is ready and ripe for listing; there is a lot of liquidity in the market at the moment and valuations are improving,” Rizwan Sheikh, Citi Pharma chief executive officer (CEO), told this correspondent. “Initially we had targeted to list the company prior to Ramzan. However, we had to slow down the process owing to regulatory requirements of a listed company and our desire to be at par with the listed entities.”

CPL is one of the country’s leading API manufacturers striving to become the first fully-integrated listed pharmaceutical company serving all segments of the healthcare supply chain — from the raw material to end-consumer medicine or finished pharmaceutical products — by developing a diversified product portfolio. “We primarily manufacture APIs or raw materials used for pharmaceutical formulations (consumable medicines),” says Mr Sheikh says. “We want to become a completely integrated healthcare company. Many international firms — such as China’s Sinopharm — have developed in this manner and are operating in the ‘integrated healthcare space’. Glaxo SmithKline is another example of an integrated healthcare firm.”

At present, Pakistan’s imports almost 90pc raw materials — chemical molecules for APIs or semi-finished APIs for formulation — for the pharmaceutical industry from China, India and elsewhere to produce finished products. The API market is estimated to be around $1bn, of which domestic products consist of $100-120mn.

Citi Pharma controls 5-6pc of the entire domestic API market and is targeting to enhance its share to 30-40pc by 2030 by increasing its API manufacturing capacity and adding new products to its portfolio. “This (production of APIs) is a kind of business, which is almost non-existent in Pakistan. With only 12 API producers in the country, the competition is low and growth potential immense. There’s a big room available for growth. Hence, we have adopted an aggressive business strategy to operate and expand in a segment where there’s little or no competition,” Rizwan Sheikh says.

In the last five years, CPL has grown at a compound annual growth rate of 37pc with its revenues crossing the Rs1bn mark in 2016 to grow to Rs3.5bn in 2020. The company has already raked in Rs4bn in sales during the first nine months of 2021 to March, surpassing last year’s sales. The company is targeting to rank among the top five pharmaceutical companies in the next few years, says Mr Sheikh. “We’re earning good profits (with this year’s projected earning per share standing at Rs2.81). But we are not here for profits alone. The local manufacturing of APIs reduces dependency on imported raw material from China and India; all our products are substituting imports. We also plan to start exporting soon.”

Imported APIs attract custom duties and additional custom duties ranging from 5pc to 25pc plus sales tax of 17pc. The custom duties on import of chemical molecules for manufacturing APIs range from 0pc to 5pc, which safeguards the local producers and makes local production more attractive compared to imports. The API manufacturers enjoy exemption on sales tax and additional sales tax on the import of chemical molecules for manufacturing APIs.

The company has five dedicated facilities out of which four are fully operational while one is expected to become operational in near future. It also plans to add 4-5 new products to its portfolio every year. Almost 40pc of the local paracetamol API is being produced by Citi. Its other key products include Penicillin. The CPL CEO says his company isn’t missing the pharmaceutical formulations segment. “We are the only unique company in Pakistan, which has a license for manufacturing both APIs as well as formulations. We are raising capital to invest in our production to offer a complete solution to our customers for contract manufacturing, toll manufacturing, brand marketing, etc.”

Rizwan Sheikh says the increase in the production APIs in the country would result in huge savings for the drug manufacturers. “If the product involves huge volumes, you have to carry at least 90-day inventory of imported APIs that results in heavy financial, warehousing and controlling costs, etc. But when they purchase raw material from a local producer, these costs drastically come down and their cash flows improve as they do not have to maintain inventory for more than a week or so. Our customer started by purchasing 30-day inventory from us, and now they buy for only up to seven days. Then there’s also this advantage of the stable cost of our products. China doubled the prices of APIs during the Covid-19 pandemic.” —NJ

Published in Dawn, The Business and Finance Weekly, June 7th, 2021