Onyx Biotec Limited, a pharmaceutical company, is set to launch its Initial Public Offering (IPO). Known for its expertise in the production of sterile pharmaceutical products, including sterile water for injections, dry powder injections, and dry syrups, Onyx Biotec serves as a contract manufacturer for numerous Indian and multinational clients. Let’s delve into the details of this IPO and evaluate whether it could be a worthwhile investment for you.
About Onyx Biotec Limited
Incorporation & Overview
Incorporated in May 2005, Onyx Biotec Limited has established itself as a reliable pharmaceutical manufacturer specializing in sterile pharmaceutical products. The company operates two World Health Organisation’s Good Manufacturing Practices (WHO-GMP)-certified facilities in Solan, Himachal Pradesh, India. These units are strategically located in a pharmaceutical hub, providing access to skilled labor and cost-effective operations.
Production Capacity
- Unit I: Specializes in Sterile Water for Injections, with a production capacity of 638,889 units per day.
- Unit II: Focuses on dry powder injections (40,000 units/day) and dry syrups (26,667 units/day) in a single shift.
Client Base
Onyx Biotec boasts a diverse clientele, including renowned pharmaceutical companies such as:
- Hetero Healthcare Limited
- Mankind Pharma Limited
- Sun Pharmaceutical Industries Limited
- Aristo Pharmaceuticals Private Limited
- Macleods Pharmaceuticals Limited
As of May 31, 2024, the company has a client base of over 100 pharmaceutical firms, underscoring its strong industry presence.
Also Read: Zinka Logistics Solution IPO Review (BlackBuck IPO) – Should You Invest?
Financial Performance of Onyx Biotec Limited
| Financial Metric | FY22 (in Rs. Cr) | FY23 (in Rs. Cr) | FY24 (in Rs. Cr) |
|---|---|---|---|
| Revenue | 44.86 | 39.48 | 53.75 |
| Total Assets | 36.84 | 58.72 | 74.13 |
| Profit | 3.35 | 1.84 | 3.03 |
The financial performance of Onyx Biotec has seen fluctuations, with revenue and profit figures showing inconsistency. Despite a dip in FY23, the company recovered in FY24, reporting a profit of Rs 3.03 crore.
Key Financial Ratios
| KPI | Value |
|---|---|
| ROE | 4.99% |
| ROCE | 3.71% |
| Debt/Equity | 1.21 |
| RoNW | 4.99% |
| P/BV | 3.1 |
| PAT Margin | 12.42% |
The Return on Equity (ROE) and Return on Capital Employed (ROCE) indicate moderate profitability. However, the Debt-to-Equity ratio of 1.21 highlights a significant debt burden, which could impact the company’s financial stability in the long term.
Also Read: How to Apply for IPO on Groww: A Step-by-Step Guide
IPO Details
- Market Capitalization: Rs 110.61 crore
- Objectives of the IPO:
- Upgradation of existing manufacturing Unit I for large volume parentals.
- Establishing a high-speed packaging line for Unit II.
- Repayment or prepayment of certain company loans.
- General corporate purposes.
Strengths of Onyx Biotec Limited
- Established Reputation: With over a decade of experience, Onyx Biotec has built a solid reputation in sterile pharmaceutical manufacturing, serving major clients like Mankind Pharma and Sun Pharmaceutical Industries.
- WHO-GMP Certification: The company’s two manufacturing units are WHO-GMP certified, ensuring compliance with high-quality standards and regular audits.
- Diverse Clientele: The company has over 100 clients, with repeat orders from 35 clients, reflecting customer trust and satisfaction.
- Strategic Location: The manufacturing facilities in Himachal Pradesh provide access to a skilled labor pool and help keep production costs low.
Also Read: IPO GMP
Risks Associated with Onyx Biotec IPO
- Geographical Concentration: Both manufacturing units are located in Solan, Himachal Pradesh. Any adverse regional changes could significantly impact business operations.
- Dependency on Key Suppliers: The company relies heavily on a few key suppliers for raw materials, with the top five suppliers contributing over 70% of procurement costs. Any disruption could affect production.
- High Client Concentration: A significant portion of revenue comes from the top 10 clients. The loss of any major client could negatively affect the company’s financial performance.
- Debt Burden: Onyx Biotec has a total financial indebtedness of Rs 31.56 crore. Servicing this debt could strain the company’s finances, particularly if cash flows remain inconsistent.
Onyx Biotec IPO Valuation Analysis
Given the company’s historical performance and market potential, the IPO pricing appears to be on the higher side. With a Price-to-Book Value (P/BV) ratio of 3.1, the issue seems to be fully valued. Investors need to consider the company’s fluctuating profitability and high debt levels before making an investment decision.
Should You Apply for Onyx Biotec Limited IPO?
Dilip Davda, a seasoned IPO analyst, suggests that investors may consider applying for the Onyx Biotec Limited IPO, but with caution. The company operates in a highly competitive and fragmented pharmaceutical segment, which could pose challenges. The financial performance has shown inconsistency, with fluctuating top and bottom lines over recent years. Given the fully priced nature of the IPO based on FY25 projected earnings, the recommendation leans towards moderate investment for well-informed, long-term investors.
Conclusion
Onyx Biotec Limited‘s IPO offers an opportunity to invest in a well-established pharmaceutical manufacturer with significant growth potential. However, the associated risks, including financial instability and heavy reliance on a few key clients and suppliers, make it crucial for investors to conduct thorough due diligence before making a decision. If you are looking for a moderate-risk investment with the potential for long-term gains, this IPO could be worth considering.
FAQs
What does Onyx Biotec Limited do?
Onyx Biotec Limited is a pharmaceutical company specializing in sterile water for injections, dry powder injections, and dry syrups. It operates as a contract manufacturer for various pharmaceutical clients.
When was Onyx Biotec Limited incorporated?
The company was incorporated in May 2005.
Where are Onyx Biotec’s manufacturing facilities located?
Both of its WHO-GMP-certified manufacturing units are located in Solan, Himachal Pradesh, India.
What are the key objectives of the Onyx Biotec IPO?
The IPO aims to upgrade existing manufacturing facilities, set up new packaging lines, repay certain loans, and fund general corporate purposes.
Is Onyx Biotec Limited profitable?
Yes, the company reported profits in recent years, although its profitability has fluctuated, with a profit of Rs 3.03 crore in FY24.
What is the financial risk associated with Onyx Biotec?
The company has a significant debt burden, with a debt-to-equity ratio of 1.21, which could impact its financial stability.
Who are Onyx Biotec’s major clients?
The company serves top pharmaceutical firms like Mankind Pharma, Sun Pharmaceutical Industries, and Hetero Healthcare, among others.
Should I invest in Onyx Biotec IPO?
Expert opinion suggests cautious investment due to the company’s fluctuating financial performance and competitive industry environment. It may be suitable for long-term investors with a moderate risk appetite.
What is the market capitalization of the Onyx Biotec IPO?
The market capitalization of the IPO is approximately Rs 110.61 crore.
How can I apply for the Onyx Biotec Limited IPO?
You can apply through your brokerage platform using your Demat account when the IPO is open for subscription.