BL Research Bureau
Supriya Lifescience (Supriya) IPO opened at ₹425 per share, a 55 per cent premium to the issue price of ₹274. Subsequently, it has given up some of the gains, and at the time of writing, this was trading at ₹400 a 46 per cent premium. The strong listing gains of the IPO have pushed the valuations of the API player to the upper range of industry multiples at 23.7 times FY21 earnings compared to the modest 16.2 times at the time of IPO.
We earlier recommended subscribing to the IPO in our note published in the Portfolio edition dated December 19. At the IPO valuation of 16.2 times FY21 EPS, it was reasonably valued, giving scope for upside given its strong financial profile, growth prospects and potential positive surprises on the macro-front (demand moving from China and strong domestic environment).
Even as Supriya’s operational performance can be expected to sustain, the current valuation post listing premium leaves little margin of safety for company-specific execution risks and broader market risks. Hence, we recommend investors book profits now at the current price and consider re-entering on future corrections.
Business performance
Supriya Lifescience Limited (SLL) is an API manufacturer (Active Pharmaceutical Ingredients) with a portfolio of 38 APIs. It has demonstrated strong operational performance, backed by established presence in three export molecules (share of 30-65 of FY21 exports from India in these molecules); backward integrated model extending to n-7 or 8 stage of production in 12 molecules; and by increasing presence in regulated markets of Europe, US and China. This is reflected in the 17 per cent revenue CAGR in FY19-21 with EBITDA margins scaling up to 43 per cent in FY21 (from 23 per cent in FY19). The company’s, margins have gained more from backward integration and regulated market expansion.
The company operates from Parshuram Lote, Maharashtra, with a capacity of 547 KL/day, which increased in the last year from 332 KL/day. The IPO proceeds of ₹92 crore (of the fresh proceeds ₹200 crore) will be utilised for developing land acquired near the current facility for new therapy lines, including decongestants and anti-gout medication.
Going forward, investors must track the stickiness of the margin expansion in future earnings. Also, Supriya’s realisation from China +1 and government incentives for industry growth need to be monitored, which the company is optimistic and ideating upon.