Ugandan drug manufacturer Cipla Quality Chemical Industries Ltd (CiplaQCIL) is to list 31.1 per cent of its shares on the local bourse, but the transaction value and share price remain unknown as the company awaits regulatory approvals for its equity offer.

The HIV, malaria and Hepatitis B drugs manufacturing firm is a joint venture between Cipla Ltd of India, which currently holds majority stake of 62.3 per cent, and Quality Chemicals Uganda Ltd.

According to the latest company transaction brief seen by The EastAfrican, Cipla’s shareholding will drop to 51 per cent after the initial public offering (IPO) but the Indian drug giant will retain majority shares in the company.

Capital Works Investment Management, an institutional investor with 14.4 per cent shares, is to exit the business after the IPO.
Local shareholders — who include Frederick Mutebi Kitaka, George W Baguma and Emmanuel Katongole — will divest half of their shares through the public offering. These investors currently own 3.6 per cent shares each, which will be reduced to 1.8 per cent, the transaction brief shows.

TLG Capital, a London-based private equity firm, which is the other shareholder, will retain 12.5 per cent shares in the company.

Details of the targeted amount of money expected from the IPO and proposed share price were missing from the transaction brief, which observers say could be a sign of uncertainty over existing market appetite to the mooted listing.

The company is yet to issue a prospectus, while the Uganda Securities Exchange has not announced a listing date, a development tied to pending compliance issues raised by the bourse, sources said.

According to the transaction brief, the company’s overall turnover stood at $48.7 million in 2016 and is projected to reach $60.1 million at the end of this year.

Total turnover is projected at $86.2 million in 2018.

The company’s operating profit amounted to $13 million in 2016 and is projected to reach $14 million this year. Operating profit is forecast to hit $20 million in 2018. The firm’s return on earnings stood at 38.4 per cent in 2016 but is projected to drop to 34.2 per cent this year. Total return on earnings is predicted to rebound to 38.5 per cent in 2018.

Whereas the company’s IPO was anticipated during the first quarter of the year, some local institutional investors are pointing to the post-Easter window as the earliest launch period.

“It takes a long time to see an IPO in the Ugandan market. As a result, many investors have been flocking to Nairobi in search of diverse equity options.

Therefore, the Cipla Quality Chemicals IPO is relief for us. This company enjoys a strong pool of reliable clients in the form of governments and donor agencies that offer steady, bulk orders and regular payments. Such a client pool and factory visits made to the pharmaceutical plant impressed me.

But the biggest commercial risk may lie in bullish projections for open market sales that constitute the smallest portion of its revenue portfolio.

Delays in obtaining regulatory approvals and issuance of the company’s prospectus have bogged down the listing schedule. Still, we are optimistic that the IPO will be launched after Easter,” said George Mulindwa, a portfolio manager at Stanlib Uganda, a fund management firm.

“If the agreed share price turns out to be too expensive for local investors, then the IPO could be undersubscribed. However, stockbrokers need to step up investor awareness efforts in order to increase the chances of a successful IPO in the near future, in light of the glaring ignorance among retail investors about accessibility to public equity offerings,” said Isaac Mwigo, a stockbroker at Equity Stockbrokers Ltd.

Antiretroviral drugs accounted for 52 per cent of the company’s total sales revenues in 2016 while anti-malaria drugs contributed roughly 48 per cent to overall sales. Hepatitis B drugs accounted for less than one per cent of total sales in the same period. 

The National Medical Stores of Uganda accounted for 54 per cent of the company’s order book compared with 22 per cent by the Global Fund and 24 per cent purchased by other buyers in 2016, the transaction brief showed.