Parabolic Drugs Limited– IPO Note - ANS Pvt. Ltd.

ConcernsNegative Operating Cash flowThe cash flow from operations for PDL has been negative over last few years. This may be a signlow lower cash flow generation from its business.High DebtThe company has higher debt than most of its peers, again showing signs of not enough cashflow generation to fund its expansions.Excess equity dilutionThe company has already diluted its equity 9 times in past 5 years. PDL does not seem to beable to have internal accruals to fund its expansion and growth. The promoter’s stake after theissue will reduce from 63% to 40%. Also, the two PE funds are selling just over 11% of theirstake. This is again, substantial dilution of equity. None of its peers have gone for such equitydilution for the same period.‘Parabolic’ name not registeredThe name and logo ‘Parabolic’ are not registered trademarks for the company. Themanagement does claim to have applied for the registration.Limited product portfolio and high competitionPDL manufactures semi synthetic penicillin (SSP) and cephalosporin range of antibiotics. Itsproduct portfolio comprises 44 APIs and 7 API intermediates. This space is highly competitiveand maintaining high margins will be very difficult. The company derived 100% of its grossincome (Rs374.52 crore) from the antibiotics category in the nine months ended December2009.Focus only on CRAMS and APIThe company till now has concentrated mainly on low margin CRAM and API products which donot provide any pricing power to them. Going forward also they don’t have any plans to moveinto branded products. So though concentrated business focus is a good thing but the industryitself is very competitive and so if they loose out some important customers than it will becomevery difficult for the company to operate in such a competitive environment.