Supriya Lifescience - IPO - Strong R&D Focused API Player - Reliance Research

About the Company

Supriya Lifescience (Supriya) is one of the key Indian manufacturers of active pharmaceuticals ingredients (APIs), with a focus on R&D. As of Oct'21, the company has niche product offerings of 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and antiallergic. Supriya has a global presence across 86 countries with 346 distributors that contribute 77% of the total revenue. It was the largest exporter of Chlorpheniramine Maleate (export share of 45%-50%) and Ketamine Hydrochloride (export share of 60%-65%) during FY17-FY21. Supriya is also one of the largest exporters of Salbutamol Sulphate in India, contributing to 31% of API exports in FY21. Derivatives of pyridine such as pyrilamine maleate, dexchlorpheniramine maleate, brompheniramine maleate dexbrompheniramine maleate and their exports from India have clocked 15% CAGR over FY17-FY21, in which the company had a market share of 2.5%-3%. Supriya has backward integration into API, which ensures a steady supply of intermediates. Currently, 12 of the existing products are backward integrated, which contributed 67% of the total revenue in FY21, with higher margins and lesser dependence on suppliers for key starting material. The company has superior manufacturing and R&D capabilities in Maharashtra, which are spread across 23,806 sq.mt with a reactor capacity of 547 KL/day. Supriya has its products registered with international regulatory authorities like USFDA, EDQM, NMPA, and Taiwan FDA etc.

Expansion into Key Export Markets

Supriya is looking to expand in existing geographies in Latin America, North America, Europe, Asia and the Middle East by increasing product portfolio and leveraging its relationships. The company intends to create a strong local presence and expertise to exploit the growth potential. Supriya's growth strategy varies from country to country depending on factors like applicable regulatory requirements, competition and pricing. It continues to carefully select products of value for launch in the regulated markets like Europe, which enables to have a better pricing for products. Supriya will continue to engage with pharmaceutical companies with a strong local presence or alternatively appoint local distributors.

Financials in Brief

Supriya has a decent track record of operations of over 12 years with a strong balance sheet and stable cash flow. It has maintained positive operating cash flows since inception. Supriya reported strong growth in the past couple of years. During FY19-FY21, its revenue and PAT clocked 18% and 77% CAGR, respectively, while the average RoE and RoCE stood at ~46% and ~37%, respectively. Its operating margin and return ratio profile is nearly double of the industry average. The company has a strong asset-sweating capability, with an asset turnover ratio of 4x. Balance sheet has improved significantly in the past few years, with the debt-equity ratio reduced to 0.3x in FY21, from 0.9x in FY19.

Our View: SUBSCRIBE

On FY22 annualized financials, the IPO is valued at 11.8x EV/EBITDA, 4.9x EV/sales and 16.7x P/E, which is more or less close to industry average. However, company's high EBITDA margin and healthy return ratios (2x of Industry average) certainly commands premium valuation. The company is looking to expand its capacity and has initiated the construction of a new warehouse and administration block. It has acquired a plot of land of 12,551 sq.mt near the present manufacturing facility. Supriya is also looking to start the production of intermediates for Diphenhydramine Hydrochloride, Cetirizine Dihydrochloride and Tramadol to enhance its backward integration abilities. It intends to increase R&D capabilities and expertise in niche areas with a high entry barrier such as complex chemistry, complex technology and patented processes, which offer significant market opportunities. The expanding portfolio of product offerings in regulated markets is largely backed by increased regulatory capabilities. As of Oct'21, it has filed 14 active Drug Master Files (DMFs) with the USFDA and 8 active Certificate of Sustainability (CEP's) with the European Directorate for the Quality of Medicines & Health Care (EDQM). Supriya continues to focus on developing and filing more DMFs in areas of niche and differentiated products that provide better growth opportunities and help to develop new business. In view of the strong financials with healthy margins and high return ratios, niche product offerings of 38 APIs, expansion into key overseas markets, strong market share and valuation comfort, we recommend SUBSCRIBE to the issue and expect a reasonable IPO listing gain for investors.

Link to the report

Source : Equity Bulls

Keywords

SupriyaLifescience IPOReview RelianceSecurities