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Should You be Investing in Supriya Lifescience Limited IPO?

Should You be Investing in Supriya Lifescience Limited IPO?

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Supriya Lifescience IPO is one of the key Indian manufacturers and suppliers of active pharmaceuticals ingredients (APIs), with a focus on research and development. The company has 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anesthetic, vitamin, anti-asthmatic and anti-allergic. Supriya Lifescience has consistently been the largest exporter of Chlorpheniramine Maleate and Ketamine Hydrochloride. Its products were exported to 78 countries.

Supriya Lifescience has a modern manufacturing facility in Maharashtra spread across 23,806 sq. meters, having a reactor capacity of 547 KL/ day including 7 clean rooms. The company’s manufacturing facility has received approvals from USFDA, EDQM TGA-Australia, KFDA-Korea, PMDA Japan, NMPA- China, Health Canada, etc.


IPO Brief

  • IPO open from: Dec 16th – Dec 20th 2021
  • Face value: ₹2
  • Price Band: ₹265-274
  • Market Lot: 54 shares
  • Minimum Investment: ₹14,796
  • Listing on: BSE and NSE
  • Total issue size: up to ₹700 crores
  • Fresh Equity Issue: up to ₹200 crores
  • Offer for sale: up to ₹500 crores
  • Promoters: Satish Waman Wagh is the promoter of the company which holds 99.26% of pre-issue paid-up capital.
  • Book running lead managers: Axis Capital Limited & ICICI Securities Limited.

What is an IPO and should you invest in them?


Offer Break-up

The offer is broken up into the following investor classes:


IPO OBJECT

Supriya Lifescience IPO Size is ₹700 crores and below are the objects of the IPO:

1) Offer for Sale (OFS) 500 crores:  The existing shareholders would sell their shares and the company would not receive any part of it from the IPO proceeds.

2) Fresh issue of 200 crores:  The money that will be infused into the company will be used as follows:

  • Funding capital expenditure requirements.
  • Payment of certain borrowings availed by the company and
  • Rest will be for general corporate purposes.

IPO Strengths

  • Diversified revenues model: The company has well-diversified revenues with a global presence across 78 countries such as the USA, China, European Union, Japan etc.
  • Advanced manufacturing capabilities: The company has a modern manufacturing facility located in Maharashtra with a total land area of 23,806 square meters. Also, the company has acquired land measuring 12,400 square meters near the present manufacturing facility to carry out its expansion plan.
  • Strong financial performance: Supriya Lifescience has delivered consistent financial growth. The company has also a strong balance sheet and stable cash flow profile.
  • Strong R&D capabilities: Supriya Lifescience is an R&D driven company. Its R&D activities primarily include developing new products, improving existing products and expanding product applications.

Key Risks

  • Revenue comes from the sale of certain products: The company generates a significant portion of their revenue from a few products. Its sale of top 10 APIs and related products accounted for 82.13% of revenue from operations.
  • Highly regulated business: the company operates in a highly regulated industry that requires certain approvals from relevant regulatory and health authorities. Any delay or failure to obtain such approvals may negatively impact the business.
  • Dependent on a limited number of customers: The company derive a significant portion of revenue from a few customers. For the period ended December 31, 2020, their top 10 customers contributed 35% of the revenues. Loss of one or more such customers could adversely affect their business.

Valuation and Outlook:

At the upper price band of INR 274 per share, the company is valued at a P/E multiple of 16x based on FY21 EPS of INR 16.9. The company has expanded its capacity in mid-2021 and is ramping up its utilization to optimal levels of about 82%. This will facilitate volume growth and increase its top-line. Also, the company is increasing exposure to high margin regulated markets, which will support its operating margins. It also has additional land and backward integration plans which will augur well for the company in the future. We have a positive view of the company and recommend investors to subscribe to the IPO owing to its attractive valuation.

Financials

 (₹ in crores)6M Ended 30-Sep-21Year Ended 31-Mar-21Year Ended 31-Mar-20Year Ended 31-Mar-19
Total Assets504.10445.82336.40253.10
Total Revenue230.06396.22322.71285.86
Profit After Tax65.96123.8273.3739.42

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