Reduce Sudeep Pharma Ltd For Target Rs.638 by Prabhudas Liladhar Capital Ltd
Quick Pointers
* Foray into battery-grade iron phosphate, to set up 100,000mtpa of capacity in phases
* Pharma, Food & Nutrition capacity expansion by 51,200mtpa to drive volume growth
Valuing Sudeep Pharma (SUDEEPPH) at 32x, we initiate coverage on the stock with ‘REDUCE’ rating. A niche player in the mineral ingredients space, SUDEEPPH has 2 product segments: Pharma, Food & Nutrition (~65% of total revenue) and Specialty Ingredients. The Specialty Ingredients portfolio accelerated in 2021 with the launch of 4 more technologies, resulting in further downstream value addition. Banking upon its experience in food-grade iron phosphate, the company is foraying into battery-grade precursor to cathode active material (pCAM) iron phosphate, with INR5bn capex for total capacity of 100,000mtpa coming up in phases starting early 2027. Led by volume growth, we expect revenue to clock 18% CAGR during FY25-28E. EBITDA is likely to clock 14% CAGR during FY25-28E. RoE is likely to decline, but remain at around ~20%. We expect EPS CAGR of 12%. Initiate with ‘REDUCE’, valuing it at 32x FY28 EPS with a target price of Rs638.
Global excipients market is projected to grow at 4.6% CAGR and Indian market, at 11% CAGR during 2024-29. India imports >80% of excipients from countries like China, the US, Europe, Japan and Korea. Declining nutritional value in agricultural produce and lifestyle changes are resulting in strong demand for food fortification. Thus, both global and Indian vitamins and minerals markets are expected to grow at ~7% CAGR through 2024-29.
Expansions to drive growth: SUDEEPPH plans to expand Pharma, Food & Nutrition (PFN) from 35,000mtpa to 86,200mtpa by end of FY26. With this, we expect segmental revenue to clock 15% CAGR in FY26-28E. Existing capacity of 30,000mtpa in India is low on utilization, which leaves scope for volume growth. We expect Specialty Ingredients (SI) to grow at 10% CAGR during FY26-28E.
Foray into battery-grade iron phosphate: SUDEEPPH already has 15,000mtpa fungible food-grade iron phosphate capacity. It intends to establish total 100,000mtpa capacity for battery-grade iron phosphate in 4 phases, starting early 2027, at a total cost of INR5bn. It has already completed a pilot for the same and sent samples to clients for qualification. We estimate option value of INR243 for this segment.
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