Supriya Lifescience Ltd, an Indian manufacturer and supplier of active pharmaceutical ingredients (APIs), will open its Rs 700-crore initial public offering (IPO) on December 16. The issue will close on December 20.
The company has a niche product basket of 38 APIs across antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and anti-allergic therapies.
It is India’s largest exporter of Chlorpheniramine Maleate, an anti-allergy drug, and Ketamine Hydrochloride, a general anaesthetic.
The company was among the largest exporters of Salbutamol Sulphate, which is used to treat asthma, contributing to 31 percent of API shipments from India in FY21 in volume terms.
Its products are registered with various international regulatory authorities including the US Food and Drug Administration, European Directorate for the Quality of Medicines and HealthCare and China’s National Medical Products Administration.
As of October 31, Supriya Lifescience exported products to 1,296 customers in 86 countries through a network of 346 distributors.
The company’s manufacturing facility is in Parshuram Lote, Maharashtra, about 250 km from Mumbai.
About the IPO
The Rs 700-crore IPO involves a fresh issue of shares worth Rs 200 crore and an offer-for-sale of shares for Rs 500 crore by promoter Satish Waman Wagh, who holds a 99.26 percent stake in the company. The promoter group’s holding is 99.98 percent.
The shares with a face value of Rs 2 will be offered at Rs 265-274 apiece.
Investors can bid for a minimum of 54 shares and multiples of 54 shares thereafter. Retail investors can invest a minimum of Rs 14,796 for one lot, and their maximum investment is Rs 1,92,348 for 13 lots.
The allotment of shares will be decided by December 23. Unsuccessful investors will get refunds by December 24 and successful bidders will get shares credited to their demat accounts by December 27.
The shares of Supriya Lifescience will list on the BSE and the National Stock Exchange on December 28.
The company will use the proceeds from the fresh issue to meet capital expenditure requirements and repay debt, besides other general corporate purposes.
Brokerage views
Brokerages are optimistic about Supriya Lifescience and have given a positive rating to the issue, based on its global presence and long relationships with customers, which is a good source of repeat business.
The company’s focus on research and development has helped it to diversify and enter the high-margin business and the backward integration of API ensures a steady supply of intermediates.
Experts said the global pharmaceutical industry will expand at a compound annual growth rate of about 5 percent and will reach $1,585-1,625 billion by CY25 from $1,270 billion in CY20. This provides ample opportunity for Supriya Lifescience to increase its scale and sustain growth.
“The company is increasing its exposure to high-margin regulated markets, which will support its operating margins,” brokerage firm Arihant Capital Markets said in a report.
The additional land and backward integration plans augur well for the company.
However, the business is subject to extensive regulation and failure to comply with or renew statutory and regulatory licences, permits and approvals can adversely affect business operations, the brokerage said.
“At the upper price band of Rs 274 per share, the company is valued at a P/E multiple of 16x based on FY21 EPS of Rs 16.9,” which is an attractive valuation, said Arihant Capital, which recommended investors to “subscribe” to the IPO.
“The company demonstrates a sustained improvement in its scale of operations and profit margins and efficiently manages its working capital requirements, thereby reflecting notable improvement in utilisation levels and free cash balances,” BP Equities said in its report.
On the flip side, its international operations expose the company to complex management, legal, tax and economic risks, which could adversely affect its business, results of operations and financial condition.
Customers may start manufacturing their own APIs, which is a risk because the company is dependent on a limited number of customers for a significant portion of its revenue.
However, BP Equities said, “The issue is attractively priced at the upper end of the price band at a PE of 16.2 (based on FY21 earnings), which is at a significant discount to its listed peers with similar return and margin profile. Hence, we recommend a ‘subscribe’ rating on this issue.”
“The company has de-risked its business model with wide geographical presence, diversified product portfolio, catering to diverse therapeutic areas,” Choice Broking said in its report.
Supriya Lifescience has demonstrated a healthy profitable business growth with stable operating cashflows and since inception it has reported a positive operating cashflow, it added.
Possible risks
However, the company is exposed to risks from unfavourable forex movements, unfavourable product mix, and risks from concentrated product and revenue mix.
“At higher price band of Rs 274, the company is demanding a P/E multiple of 17.8x (to its FY21 earning of Rs 15.4), which is at a discount to the peer average of 31.4x,” Choice Broking said. It assigned a “subscribe” rating to the issue, finding it to be attractively priced.
Marwadi Financial Services said the company generates a significant portion of its revenue from its top 10 customers by selling its top 10 APIs and related products. This poses a risk to the company as any shift in customer preferences could impact its business.
“Considering the FY21 adjusted EPS of Rs 15.39 on a post-issue basis, the company is going to list at a P/E of 17.81x with a market cap of Rs 2,205 crore, while its peers namely Divis Laboratories and Aarti Drugs are trading at a P/E of 56.3x and 25.5x,” the brokerage said.
It assigned a “subscribe” rating to the IPO, saying the company has significant scale with leadership position across key and niche products and is available at reasonable valuation as compared to its peers.
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