Navigating Uncertainties: Key Considerations for Indegene Ltd's IPO

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  • 03 May 2024
5 Key Risks You Need to Know Before Investing in Indegene Ltd’s IPO

Key Highlights:

  • Challenges within the life sciences industry can affect Indegene Ltd’s business

  • High dependence on revenues from clients in North America and Europe

  • The company is exposed to counterparty credit risks with inadequate disaster recovery and business continuity plans

  • Indegene Ltd operates in a highly competitive life sciences industry


Indegene Ltd, offering digital services to the life sciences industry, has launched its initial public offering (IPO) on 6th May. An essential aspect of investing in a company’s IPO is being aware of the risks involved. Knowing them will help you make informed decisions. If you are looking to subscribe to Indegene Ltd’s IPO, here are the risks you must note.

Some of the associated risks with Indegene Ltd are as follows:

1. Adverse impact in the life sciences industry can affect the company's business
As Indegene Ltd caters to the needs of the life sciences industry, any adverse impact within the sector can affect its operations and hamper its growth. Be it regulatory hurdles related to product approvals, supply chain disruptions, or reputational damage arising from safety concerns, the hurdles can have a profound impact on the company.

Economic factors and industry trends affecting life sciences companies can affect Indegene's business. The company can also be impacted by the trends affecting the life sciences industry, including healthcare reforms and outsourcing trends, among others.

2. A significant portion of revenues comes from clients in North America and Europe
A significant portion of the company’s revenue comes from clients in North America and Europe. For FY 23, the company’s revenue from operations in North America and Europe stood at 68.28% and 27.36% respectively. If there’s any disruption in these markets, the same can affect Indegene Ltd’s business. Changes in regulatory framework and political situations accompanied with downsizing of economies in these markets can have an adverse impact on Indegene’s bottomline.

3. Inadequate disaster recovery and business continuity plans
Though the company has undertaken steps to augment its disaster recovery and business continuity plans, more needs to be done in this regard. Any disruption that the company has not factored in such plans, if it happens, can negatively impact the company’s financial conditions. If the company fails to start its key services within the said timelines, the same can negatively affect its financial positioning.

4. Exposed to counterparty credit risks
The company has counterparty credit risks, and if it fails to receive payments on time, the company may be negatively impacted. For FY 22, the company's bad debts amounted to Rs 0.507 crores. The company can't ensure that it will receive all its outstanding dues on time, and it may fail to assess the creditworthiness of its clients accurately. Delayed payments from clients can negatively impact its growth.

5. Highly competitive life sciences industry
The company operates in a highly competitive life sciences industry. With rivals eyeing market share and striving to outgrow each other, the company faces the pressure to stay ahead in the competition. Its future growth hinges on how well it can successfully compete with other companies providing similar solutions. If it fails to differentiate its solutions, it can potentially lose out clients and its market share.

Some of the other risks are as follows:

  • Unfamiliar business and revenue models to prospective investors
  • Subsidiaries contribute the majority of revenues, and any disruption can affect the company's financial conditions
  • Delay in the timing of revenue recognition
  • Subject to data protection and other laws
  • Subject to non-compete provisions limiting its ability to lap up business opportunities
  • Inadequate insurance coverage
  • Outstanding legal proceedings against the company

In conclusion

Go through the company’s draft red herring prospectus (DRHP) for a detailed overview of the risks. Make sure you are comfortable with the risks before subscribing to the IPO. At the same time, factor in your goals and risk tolerance before subscribing.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

Investments in securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI prescribed Combined Risk Disclosure Document prior to investing. Brokerage will not exceed SEBI prescribed limit.

Source: RHP

FAQs

An IPO may fail to live up to its mark post-listing. Additionally, dissatisfied shareholders, insider trading, trade secret concerns, etc., are some of the other risks.

If done with diligence, investing in an IPO can help you add high-quality stocks to your portfolio.

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