BFBL IPO: Putting Your Money Where the Growth Is

September 23, 2024 (MLN): The Pakistan Stock Exchange is evolving into a gold mine yet again. With interest rates on the downward slope and international confidence in the economy being restored, local giants are making calculated moves.

As a result, the local bourse has converted into a haven for investors enthusiastic to park their money in companies with promising future returns.

This time the golden opportunity is knocking at PSX’s door in the shape of BF Biosciences Limited (BFBL) which is all set for its Book Building on September 25-26, 2024.

The investors’ excitement reflects that they are poised to jump on this IPO having the expectations of high returns.

What makes investors so hopeful about this IPO?

This new addition in the already performing pharma sector is anticipated to further fortify the industry and making it even more lucrative to investors.

Unlike previous IPOs where the companies raised money to repay their debts, BFBL aims to expand its production facility with future growth prospects.

To note, the company will raise between Rs1.38 billion and Rs1.93bn, anticipating to drive significant growth in both the company’s topline and profitability.

The company has already completed a brownfield expansion worth Rs4bn, financed at a cost of around 2.5% for 10 years.

Notably, the majority of this expansion was completed when the rupee-dollar parity was at 200.

Additionally, the growth potential of several recently launched products—Ferulin (Insulin), Sematide (semaglutide), and Noxane (Enoxaparin sodium)—is promising and adds to the company’s optimistic outlook.

PE makes BF Biosciences promising case for IPO

The book building will kick off with a floor price of Rs55 per share, offering an attractive PE ratio of 9.38 based on a trailing twelve months (TTM) EPS of Rs5.86 as of March 31, 2024.

Should the share price soar to Rs77—the upper end of the 40% band—the PE ratio will climb to 13.13, adding an extra sparkle to this IPO.

Justification behind Rs52/share premium with up to 40% price band

The company's stellar financial growth brilliantly backs the premium and make it worthy for the price.

The Issue consists of 25 million Ordinary Shares i.e., 28.30% of the total post-IPO paid up capital of BF Biosciences Limited of face value of Rs3 each.

The entire Issue will be offered through Book Building Method at a Floor Price of Rs55 per share including premium of Rs52 per share with a maximum price band of up to 40%.

During the current financial year, the company's revenue surged by 61%, reaching Rs2,915m in 9MFY24 compared to Rs1,809m in FY23.

This growth trajectory is underscored by a robust 4-year compounded annual growth rate (CAGR) of 46.04%, escalating from Rs641m in FY20 to Rs2,915m in 9MFY24.

Similarly, BFBL's net profit soared by 111%, climbing to Rs314m in 9MFY24 from Rs149m in FY23, with a commendable 4-year CAGR of 60.77% from Rs47m in FY20.

This operational success is due to company’s strategic investments in state-of-the-art manufacturing facilities, evidenced by a substantial increase in non-current assets from Rs136m in FY20 to Rs4,170m in 9MFY24.

It is also important to note that the company's prudent financial management and strong internal cash flow generation have significantly augmented its equity, growing from Rs782m in FY20 to Rs2,288m in 9MFY24.

It’s a sure bet that company’s unwavering commitment to operational excellence, coupled with favorable dynamics within the pharmaceutical industry, diversified clientele segments, strong national and international affiliations with key local and international players and the surging demand for its products indicates sustainability of business performance in the future which justifies the floor price of Rs55.00/-per share.

Read more: BF Biosciences gains DRAP’s approval for brownfield expansion

Read more: BF Biosciences inks deal with Lucky Core

Read more: BF Biosciences launches human insulin ‘Ferulin’

Legal Proceedings

Pending litigations and tax contingencies are considered to have remote impact in the case of BFBL. There are only three legal litigations that too with Federal Board of Revenue (FBR) worth the impact of Rs37.61m.

Upon which management is Management is confident that the eventual outcome of the matter will be decided in favor of the company.

Principal Purpose

The IPO proceeds will be used to finance the purchase of plant & machinery to expand the product range and improve efficiency, acquire export certifications such as PIC/S and SRA and new product development including Glucagon-like Peptide (GLP1).

The company will also finance working capital requirements for purchase of raw and packing materials to meet post-expansion working capital needs.

 The capacity of the plant pre and post expansion is outlined below:

Soon after the commencement of Line II operations, the company is targeting PIC/S certification after which it will be aggressively exploring export markets.

In addition, BFBL is actively pursuing new registrations and plans to initiate exports to non-PIC/S countries.

Why the company needs IPO working capital?

In 2020, the company decided to expand its manufacturing capabilities by installation of second cGMP compliant plant i.e. Line II. The initial total project cost was Rs2,900m and was financed through a mix of debt and convertible loan.

The debt component of the financing was raised through State Bank of Pakistan’ Temporary Economic Refinance Facility, whereas convertible loan was obtained from Karandaaz Pakistan at a fixed rate of 3% per annum and for a tenor of 7 years.

As per the terms of the agreement, Karandaaz had the option to convert 50% of the loan into equity.

However, during the financial crisis of 2022, Karandaaz’s board opted to curtail equity exposure in Pakistan and lapsed their conversion option back in December 2022.

Accordingly, the loan continued at a fixed term loan. The company took various steps to hedge against volatility in project costs, including remitting advances to various foreign suppliers in range of 30% to 40% at average USD/PKR rate of 155.

The said IPO proceeds will help the company to recoup its working capital facility amounting to Rs350m which has been utilized for project CAPEX taken from Karandaaz along with the remaining funds.

It will enable the company to optimize its capital structure, reduce reliance on debt and provide the flexibility needed for future financing opportunities, thereby ensuring financial stability and supporting continued growth.

Outlook:

Clearly, the company is setting its sights on a bright future with plans to launch new products and expand into new markets having a decent financial background with minimum legal litigations and managed working capital needs.

The path ahead looks promising for the investors.

Hence, it’s a clear case of putting your money where the growth is.
 

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