IPO Analysis: Supriya Lifescience Ltd

IPO Rating: Invest for long-term 

About the issue: 

Supriya Lifescience is a pharmaceutical company which is one of the key Indian manufacturers and suppliers of active pharmaceutical ingredients (“APIs”), with a focus on research and development. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 2 per equity share. The maiden offer comprises of fresh issue of Rs 200 crore and an offer for the sale of shares worth Rs 500 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 265 to Rs 274 per equity share. The IPO opening date is December 16, 2021, while it will be closing on December 20, 2021. The issue will be listed on the exchange on December 28, 2021. The IPO market lot size is 54 shares. A retail-individual investor can apply up to a maximum of 13 lots (702 shares or Rs 192,348).  

 The objects of the offer are:  

Funding capital expenditure requirements of the company 

Repayment and/ or pre-payment, in full or part, of certain borrowings availed by the company and 

General corporate purposes 

Supriya Lifescience IPO Details: 

About the company: 

Supriya Lifescience is engaged in the manufacturing of active pharmaceutical ingredients (APIs). As of March 31, 2021, the company produces 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and anti-allergic. The company has been the largest exporter of Chlorpheniramine Maleate and Ketamine Hydrochloride from India between Fiscal 2017 and 2021. The company is also one of the largest exporters of Salbutamol Sulphate from India in FY 2021 in terms of volume. 

In Fiscal 2021, the company's products were exported to 86 countries to 1,296 customers including 346 distributors. The company has API business in Europe, Latin America, Asia, and North America. 

Supriya Lifescience has a modern manufacturing facility in Maharashtra spread across 23,806 sq. mt, having a reactor capacity of 547 KL/ day including 7 clean rooms. The company has also acquired a plot of land, admeasuring 12,551 sq. mt, near the present manufacturing facility, to expand its manufacturing infrastructure. The company's manufacturing facility has received approvals from USFDA, EDQM TGA-Australia, KFDA-Korea, PMDA Japan, NMPA (previously known as SFDA) - China, Health Canada, in relation to API products being exported to the relevant jurisdictions by the company. 

Competitive Strengths: 

Significant scale with leadership position across key & niche products 

Backward integrated business model 

Advanced manufacturing and research and development capabilities 

Consistent strong financial performance due to de-risked business model 

Experienced senior management team and qualified operational personnel 

Company Financials: 

Its total revenue represented a growth of 12.89 per cent, and 22.78 per cent, respectively, from Fiscals, 2019 to Fiscal 2020 and from Fiscal 2020 to Fiscal 2021, respectively. Its EBITDA represented a growth of 50.43 per cent and 62.77 per cent, respectively, from Fiscals, 2019 to Fiscal 2020 and from Fiscal 2020 to Fiscal 2021, respectively. Its profit after tax represented a growth of 86.19 per cent and 68.70 per cent, respectively from Fiscals, 2019 to Fiscal 2020 and from Fiscal 2020 to Fiscal 2021, respectively. 

Recommendation:  

The company has been focused on exports as it contributes more than 70 per cent to its revenues. It intends to continue to grow its sales in existing geographies in Latin America, North America, Europe, Asia and the Middle East and to grow its market share in these markets by increasing its product portfolio in these markets and by leveraging its existing relationships with customers. It also plans to enhance its manufacturing capabilities and towards this strategy, the company has acquired a plot of land measuring 12,551 sq. mt near the present manufacturing facility. Its backward integration of API ensures a steady supply of intermediates. As of October 31, 2021, 12 of its existing products are backward integrated, which contributed 67.14 per cent and 60.17 per cent of the total revenue for the Fiscal year 2021 and for the six-month period ended September 30, 2021, thereby resulting in increased margins and lesser dependence on suppliers for key starting material.   

As far as the financials are concerned, the company has a proven track record of operations of over 12 years and has a strong balance sheet as well as a stable cash flow profile. We have had positive operating cash flows every financial year since incorporation. As of H1FY22, it had a high EBITDA margin of 42.89 per cent and a high net profit margin of 28.67 per cent. The company has minimal debt in its book with a debt-to-equity ratio standing at 0.21. Considering all such factors, we recommend investing in the IPO for the long-term.