Windlas Biotech – Pure play CDMO currently at ~1.1x sales

Thanks for your insights.

I have gone through the thread, and it is a good piece of work which has come about during the IPO in August 2021. In fact I would even say that 1 year later now, the author has been proven right as valuations were very high (as usually are in several IPOs).

But then again, the situation currently is very different:-

• The largest part of the thread addresses that the IPO pricing seemed aggressive and there was obviously an OFS component for the PE fund and the promoters. I would agree with the author at that time, at 50x PE it was very expensive and yes the PE fund did get an exit (even if the author thinks the IRR was not the best). I did not apply for the IPO myself inspite of liking the business then.

But currently the price is much lower then when the thread was written (INR 235 vs INR 460). My entry price is below current CMP. I felt at a sub 15 PE and 1.1 PS the risk reward was favourable taking into account these aspects.

• The USFDA inspection was a big issue. But since then in concalls, the management has mentioned that after this issue, they have not really pursued the US markets as an active strategy for expansion but are instead focusing on growth through the core business of CDMO and trade generics in India, and some other export markets like South Africa. Inspite of questions on US growth, the management does not seem too keen to pursue the market. I do not mind the management not pursuing the US markets currently, I think the opportunities they are focusing on are large enough for a company their size

• The author has mentioned some aspects with proprietorship firms and related party transactions. I am not sure if we can find a definite red flag in doing business with proprietorship firms. But the point on related party transactions is one point which would still be worth digging into.

That said, this is eventually a microcap with a limited history in the markets and as with most of them, there are risks and we will need to gauge with time if management delivers. There are also other potential anti thesis aspects, ones which I could think of I have already mentioned above, but then again I can also opine that current valuations could already reflect that, which the IPO price did not.

Discl : Same as above