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Sai Life Science Ltd is an innovator-focused, contract research, development, and manufacturing organization (“CRDMO”). It served more than 200 innovator pharmaceutical companies across the US, the UK, Europe and Japan. It also provided CRO services to more than 60 customers on an ongoing basis, for their integrated drug discovery programs. As on Sep’24, its CDMO product portfolio included more than 170 innovator pharmaceutical products, including 38 products that were supplied for manufacturing of 28 commercial drugs.

Details of the Issue:

* The issue size consists of offer for sale worth Rs. 2,093cr and fresh issue of Rs. 950cr.

* A portion of proceeds from fresh issue is to be utilized for the repayment of borrowings worth Rs. 720cr.

Investment Rationale:

* One of the India’s largest player in integrated CRDMO capabilities with strategic customer base

* CDMO platform with a diverse mix of commercial and under-development molecules

* Increase cross-selling and win new customers

* Geographic expansion and proximity to innovation hubs

* Operational excellence and digital transformation

* Capacity expansion and capability enhancement

Valuation and Recommendation:-

Sai Life Science is one of the leading players in CRDMOs in India. It has demonstrated a strong financial performance, with a revenue CAGR of 30% and EBITDA CAGR of 51% between FY22 to FY24. Company’s operating margins improved from 14% in FY22 to ~19% in FY24. As a result, ROE and ROCE have also improved to 8.5% and 11.6% in FY24, respectively (FY22 ROE: 0.7% and ROCE: 3.6%). The issue is offered at a valuation of 39.5x EV/EBITDA based on FY24 Financials which is at discount when compared to 51.5x of average industry valuation. Although company’s operating margin profile is lowest among its peers, it has a potential to improve it backed by their investments in R&D, talent development and operational excellence. Further, debt repayment worth Rs. 720 cr will result in lower finance cost in the future which will improve its overall profitability. Thus, we recommend SUBSCRIBE to the issue with a long-term investment horizon.

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SEBI Registration number is INH000001766