Supriya Lifesciences Ltd IPO - Information Note

5paisa Research Team 5paisa Research Team 14th December 2021 - 05:59 pm

Supriya Lifesciences is a 13 year old company focusing on the fast-growing active pharma ingredients (API) business. APIs are the inputs that go into medicines and Supriya Lifesciences caters to a wide spectrum of formulations as well as niche products.

Its products are predominantly exported to 86 countries and as of FY21, exports account for 77.47% of total sales with domestic sales accounting for the balance 22.53%.

Supriya Lifesciences has a portfolio of 38 APIs across therapeutic applications like anti-histamine, anti-allergic, anti-anaesthetic, analgesic, anaesthetic and vitamins.

Supriya is the largest exporter of Chlorpheniramine Maleate and Ketamine Hydrochloride while the company is also among the key exporters of Salbutamol Sulphate from India. The company has 8 DMFs filed with US-FDA and 8 active CEPs with EDQM of Europe.

Key terms of the IPO issue of Supriya Lifesciences

Key IPO Details	Particulars	Key IPO Dates	Particulars
Nature of issue	Book Building	Issue Opens on	16-Dec-2021
Face value of share	Rs.2 per share	Issue Closes on	20-Dec-2021
IPO Price Band	Rs.265 - Rs.274	Basis of Allotment date	23-Dec-2021
Market Lot	54 shares	Refund Initiation date	24-Dec-2021
Retail Investment limit	13 Lots (702 shares)	Credit to Demat	27-Dec-2021
Retail limit - Value	Rs.192,348	IPO Listing date	28-Dec-2021
Fresh Issue Size	Rs.700 crore	Pre issue promoter stake	99.98%
Offer for Sale Size	Rs.200 crore	Post issue promoters	68.24%
Total IPO Size	Rs.500 crore	Indicative valuation	Rs.2,205 crore
Listing on	BSE, NSE	HNI Quota	15%
QIB Quota	75%	Retail Quota	10%

_{Data Source: IPO Filings}

Here are some of the key aspects of the Supriya Lifesciences business model

A) It has a strong portfolio of 38 APIs across a range of therapeutic applications with a primary focus on the research and development activity.

B) Company generates over 77% of its annual revenues from exports, which de-risks the company substantially from the domestic demand and supply cycles.

C) Leadership in exports of Chlorpheniramine Maleate, Ketamine Hydrochloride and Salbutamol Sulphate with export share of 50%, 65% and 31% respectively.

D) Supriya Lifesciences has a low 4.8% exposure to the US market with major export sales coming from Latin America, Asia (ex-Indochina), Europe and Cambodia.

E) Among therapeutic areas, analgesics, anaesthetics, anti-histamine, anti-asthma and vitamins contribute 81% of the total sales.

How is the Supriya Lifesciences IPO structured?

The Supriya Lifesciences IPO is a combination of a fresh issue and an offer for sale.

1) The fresh issue component will comprise the issue of 72,99,270 shares to the public and at the upper end of the price band at Rs.274, this translates into a fresh issue size of Rs.200 crore. These funds will be used for capex and prepayment of loans.

2) The OFS component will comprise issue of 1,82,48,175 shares and at the upper price band of Rs.274, the OFS is worth Rs.500 crore. The total issue comprising of the fresh issue and OFS is worth Rs.700 crore.

3) Out of the OFS of 182.48 lakh shares, promoter Satish Waman Wagh will be tendering the entire 182.48 lakh shares. The OFS is meant to give partial exit to the promoter group and also help the company list on the bourses.

4) Post the offer for sale and the fresh issue, the promoter stake will come down from 99.98% to 68.24%. Public shareholding overall will go up to 31.76% post IPO.

Key Financial parameters of Supriya Lifesciences

Financial Parameters	Fiscal 2020-21	Fiscal 2019-20	Fiscal 2018-19
Sales Revenues	Rs.385.37 cr	Rs.311.64 cr	Rs.277.84 cr
EBITDA	Rs.178.15 cr	Rs.109.45 cr	Rs.72.76 cr
Net Profit / (Loss)	Rs.123.83 cr	Rs.73.40 cr	Rs.39.42 cr
EBITDA Margins	46.23%	35.12%	26.19%
Net Profit Margins (NPM)	31.25%	22.75%	13.79%
Net Worth	Rs.268.94 cr	Rs.149.16 cr	Rs.93.79 cr

_{Data Source: Company RHP}

Two things have worked to favour the financials; its positioning in the niche API for therapeutics and the limited dependence on the price competitive US markets. Revenues in FY21 are up 38.7% over FY19 while profits are up more than 3-fold in the same period. The EBITDA margins and the net margins have shown sharp expansion over FY19.

Supriya Lifesciences is expected to have a listing market cap of Rs.2,205 crore assigning a P/E ratio 17.8 times FY21 earnings. That is reasonable valuation for a company that has a stable revenue model, strong entry barriers and ROE in excess of 45%.

Investment Perspective for Supriya Lifesciences IPO

Here is what investors must consider before investing in the Supriya Lifesciences IPO.

a) The company has very strong financials as is evident from the growth in sales, profits and operating profit margins over FY19.

b) What should work for the company is the fact that nearly 80% of the fresh funds will be applied to capex and loan prepayment, which are value accretive.

c) Since Supriya gets less than 5% of its revenues from the US markets, the impact of price competition on its profit margins are limited for now.

d) The company has just expanded its capacity utilization from 63% to 71% in FY21. As the utilization perks up further, it will give a boost to fixed cost absorption.

e) At a P/E of 17.8X, the ROE of over 45% will be an advantage. However, most API companies in India, except Divi’s Laboratories, quote at these median valuations.

The stock has a good story, but API companies do have a valuation overhang.

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