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Supriya Lifescience Ltd (SLL) is one of the key Indian manufacturers of Pharma APIs, with focus primarily on diverse therapeutic areas.

Largest exporter of certain niche products:

SLL offers 38 APIs focusing on high value products with limited competition. It has been consistently the largest exporter of Chlorpheniramine Maleate (used in anti-histamine and anti-allergic drug; 45-50% share) and Ketamine Hydrochloride (pain management drug; 60-65% share) from India from FY17-21. It is also among the largest exporters of Salbutamol Sulphate (anti-asthmatic drug) with 31% share in FY21. SLL derives ~75% of its revenue from exports, with low geographic concentration and well-balanced presence between regulated and semi/non-regulated markets.

Backward integrated business model:

12 of SLL’s existing products are backward integrated (~60% of the total revenue), thereby resulting in increased margins and lesser dependence on suppliers for key starting material. It is further incurring capex of INR923mn to enhance backward integration capabilities and expand its product portfolio across existing as well as new segments/markets.

Robust Financials:

Over FY19-21, SLL revenue/EBITDA/PAT grew at 18%/ 61%/77% CAGR, while EBITDA margins expanded from 23.3% to 43.4%, led by increased presence in regulated market and enhanced backward integration. It generates strong FCF consistently and would become debt free post IPO. Return ratios are superior at ~30% (post issue basis).

Issue Size:

INR7bn IPO consists of INR2bn of fresh issue and OFS (by promoters) worth INR5bn which would result in promoter’s stake reducing to 68.3% post-IPO from 100% earlier. The funds raised would be utilized for capex (INR923mn) and repayment of debt (INR600mn).

Valuation & View:

We like SLL given its niche product portfolio in diverse therapeutic segments, backward integrated business model with advanced manufacturing and R&D capabilities, extensive global presence with strong clients’ relation and robust financials. It is well placed to tap opportunity in the pharma API market given its strong pipeline focused on further diversification. The issue is reasonably valued at 17.8x FY21 P/E (post issue basis) v/s its peers (available at avg. P/E of 22.8x), while it enjoys similar growth trajectory. Hence we recommend Subscribe.

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