KARACHI: Citi Pharma Ltd may raise up to Rs2.8 billion, by offering a 35 percent stake to institutional and ordinary investors in an initial public offer (IPO) on the Pakistan Stock Exchange (PSX).
The book-building phase of the IPO will be held on June 15 and 16. The company will issue all new shares through book-building at the floor price of Rs28 per share, which includes a premium of Rs18 apiece.
At the floor price, Citi Pharma will raise Rs2 billion in the IPO. However, according to a press release issued by the company, due to the interest from investors during the book-building process, the strike price may rise by 40 per cent, to Rs39.20 a share. This would translate into Rs2.8 billion.
After the book-building process, successful bidders will be provisionally allotted 75 percent of the issue size or 54.5 million shares. The remaining 25 per cent, or 18.1 million shares, will then be offered to retail investors at the strike price.
Citi Pharma’s major source of revenue is the manufacturing and sale of active pharmaceutical ingredients, or APIs. These are key substances used in finished pharmaceutical products. Major drugmakers like GlaxoSmithKline, The Searle Company, Barret Hodgson and Martin Dow buy their APIs from Citi Pharma. In particular, Citi Pharma sells paracetamol, an API used in painkillers, to GlaxoSmithKline, which sells it under the brand of Panadol.
According to Citi Pharma, there are three main reasons it is raising new funds.
First, the company is planning to expand its existing capacity of 3,600 tonnes per annum of paracetamol to 6,000 tonnes per annum. This is partly because the demand for paracetamol has surged in the wake of Covid-19. In addition, the company says it plans to add new APIs as well as a pharmaceutical formulation, or final products, to its existing product line.
Second, Citi Pharma wants to build three manufacturing facilities, taking its total capacity to 200,000 vials/injectables per day, dry powder/suspension to 60,000 bottles per day, capsules to 4.2 million per day, and tablets to 4.5 million per day. These include dedicated manufacturing lines for penicillin, cephalosporin, and psychotropic and narcotics drugs.
Third, Citi Pharma wants to build a 50-bed healthcare facility in Lahore. The hospital will cater to the outpatient department and consultancy clinics, general operations and diagnostic services.
Current sponsors of Citi Pharma acquired the company, including its licenses and manufacturing rights, in March 2013.
Construction on Citi Pharma’s first plant began in 1993. Production began in 1996, while formulation began in 2003. Today, some 93 percent of the company’s sales originate from the API segment, while the pharmaceutical formulation segment contributes seven per cent to the top line. Over half of total sales in the API segment come through a single client: GlaxoSmithKline.
Citi Pharma’s revenue was a little over Rs1 billion in 2016, which grew to Rs3.5 billion by 2020. This reflects an annualised growth rate of 36.5 percent. Similarly, net profit for 2020 was Rs145.6 million, with an annual average growth rate of 27.7 percent. Net profit for the first half of 2021 amounted to Rs168.5 million.
According to the press release the pharmaceutical industry in Pakistan is worth Rs501 billion. It grew at an annualised growth rate of 11.4 percent between 2016 and 2020. Of the 650 existing pharmaceutical companies, only 31 are multinationals. Local firms have a collective share of 60 percent while multinationals control the rest of the market.