Supriya Lifescience IPO opens: Here's what brokerages are suggesting

16 Dec , 2021 By : monika singh

New Delhi: The Rs 700-crore initial public offering (IPO) of Supriya Lifescience will kick-off for subscription on Thursday, December 16.

Supriya Lifescience is a manufacturer and supplier of active pharmaceutical ingredients (APIs) that go into medicines, with a strong focus on research and development.

The issue consists of issuance of fresh equity shares worth Rs 200 crore, and the promoter, Satish Waman Wagh, will offload shares worth Rs 500 crore. The company will sell its shares in the range of Rs 265-275 apiece. Investors can bid for a minimum of 54 equity shares and then in multiples of 54 thereof. The issue is open for subscription till Monday, December 20.

The company will utilise the net proceeds from the fresh issue to meet capital expenditure requirements, repaying debts and other general corporate purposes.

The company has received positive reviews from analysts, who are bullish on the API manufacturer thanks to competitive pricing, market leadership and growth prospects.

Marwadi Shares and Finance said considering the FY-21 adjusted EPS of Rs 15.39 on a post-issue basis, the company was going to list at a P/E of 17.81x, with a market cap of Rs 2,205.2 crore. Its peers Divis Laboratories Ltd and Aarti Drugs Ltd were trading at a P/E of 56.3x and 25.5x.

"We assign a subscribe rating to this IPO as the company has a significant scale with a leadership position across key and niche products," it added. "It is available at a reasonable valuation as compared to its peers."

A day before the IPO, Supriya Lifesciences raised Rs 315 crore from 18 anchor investors, allocating them 1,14,96,351 equity shares for Rs 274 apiece, according to a BSE filing. Dovetail India Fund, Hornbill Orchid India, Volrado Venture Partners, Optimix Wholesale Global Societe Generale, Nippon Life, Aditya Birla Sun Life Insurance, Abakkus Growth Fund were among the key anchor investors.

The IPO is priced at an EV/EBITDA of 11.2 times and price-to-earnings of 16.2 times at the upper price band of the IPO. The company is focused on research & development and has a diversified niche product portfolio of APIs, said Yash Gupta, Equity Research Analyst, Angel One. "We believe that the company's new manufacturing unit and product launch will be growth drivers for the company," he added, giving a subscribe rating.

As on March 31, 2021, the company produced 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anesthetic, vitamin, anti-asthmatic and anti-allergic. It has been the largest exporter of chlorpheniramine maleate and ketamine hydrochloride from India during FY17-20. The company is also one of the largest exporters of salbutamol sulphate in FY2021 in terms of volume.
Supriya Lifescience has de-risked its business model with wide geographical presence, diversified product portfolio, catering to diverse therapeutic areas. The company has demonstrated a healthy profitable business growth with stable operating cash flows, said Choice Broking. "It has reported a positive operating cash flow since beginning. At the upper price band, it is demanding a P/E multiple of 17.8x, which is at discount to the peer average,” it said, giving a subscribe rating because of attractive valuations.

In 2020-21, 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, 23,806-sqm manufacturing facility in Maharashtra, with a reactor capacity of 547 KL/ day including 7 clean rooms.

The company occupies a healthy share in the global market for its key products and is one of the leading companies producing chlorpheniramine maleate (CPM) and ketamine. It has long-term associations with reputed customers that translate into repeat orders, said BP Wealth in its pre IPO note.

The issue is attractively priced at the upper end of the price band at a 16.2 P/E (based on FY 21 earnings), significantly discount to its listed peers with similar return and margin profile, it said with a subscribe rating.

In 2020-21, the company reported a net profit of Rs 123.82 crore, 69 per cent higher than the net profit of Rs 73.37 crore in the previous period. Revenue jumped 23 per cent to Rs 396.22 crore from Rs 322.71 crore. For the period ended September 30, 2021, the company reported a net profit of Rs 65.96 crore, with a revenue of Rs 230.06 crore.

In the issue, 75 per cent of equity shares are reserved for qualified institutional buyers, whereas HNI investors will get 15 per cent shares. Retail quota is fixed at 10 per cent of the issue.

Supriya intended to enhance its production capacity and capabilities through additional capital expenditure in its manufacturing facilities, said Religare Broking with a positive view on the issue in the long term. "It also plans to expand its product portfolio with increasing R&D capabilities and continue to grow its sales in existing geographies in Latin America, North America, Europe, Asia and Middle East," it added.