Sound fundamentals apart, promoter should be lauded for fair IPO pricing!
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SUPRIYA LIFESCIENCE OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 700Cr (2,55,47,445 equity shares) |
| Fresh Issue | Rs 200 Cr (72,99,270 equity shares) |
| Offer for Sale | Rs 500 Cr (1,82,48,175 equity shares) |
| Face Value | Rs 2 |
| Price Band | Rs 265–274 |
| Mkt/Bid Lot | 54 Nos. |
| Implied M-Cap | Rs 2,205 Cr |
| Implied Equity Cap | Rs 16.09 Cr |
| Free Float | 31.76% |
| Lead Manager | ICICI Sec and Axis Cap |
| Registrar | Link Intime |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :16-Dec-2021 | Closing :20-Dec-2021 |
| Allotment :23-Dec-2021 | Refunding :24-Dec-2021 |
| DematCredit :27-Dec-2021 | Trading :28-Dec-2021 |
The Offer
The Mumbai-registered Supriya Lifescience Ltd, is entering the capital market with an IPO of Rs 700 Cr (2,55,47,445 equity shares). The offer consists of a fresh issue of Rs 200 Cr (72,99,270 shares) and an offer for sale of Rs 500 Cr (1,82,48,175 shares) by the promoter of the company. The offer is being made through the book-building route with a price band of Rs 265-274 for Rs 2 paid-up share. Applicants for the IPO should bid for a minimum lot of 54 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on Tuesday, December 28, 2021.
ICICI Securities and Axis Capital have been roped in as lead-managers to the offer. Link Intime is engaged as the registrar to the issue. The bidding opens on Thursday, December 16, 2021 and closes on Monday December 20, 2021. The company plans to utilize the proceeds of the fresh issue (Rs 200 Cr net of issue expenses) towards funding capital expenditure requirements (Rs 92.30 Cr); repayment of the borrowings (Rs 60 Cr) and general corporate purposes.
Lineage
Supriya was initially constituted as a partnership firm in 1985 under the name Supriya Chemicals. Satish Waman Wagh and his mother Asha Waman Wagh were the original partners. The Partnership firm was re-constituted in 2007 and five more people were inducted as partners. Within a year, in 2008, the partnership firm was converted into a public company and the name was changed to Supriya Lifescience Ltd. Though there were seven partners in Supriya Chemicals, currently more than 99% of the company’s capital is held by the partner-turned-promoter, Satish Waman Wagh. In fact, outsiders hold just 0.02% (14640 shares).
Supriya is one of the key Indian manufacturers of active pharmaceuticals ingredients (APIs) with a focus on research and development. The company has a modern manufacturing facility located at Parshuram Lote, which is about 250 km from Mumbai. It has a R&D facility approved by Department of Scientific and Industrial Research and at the end of October 2021 it had a team of 23 scientists. The company’s R&D efforts are primarily focused across the value chain of API process development.
The company’s customers include global pharma companies such as Syntec Do Brasil LTDA, American International Chemical Inc and AT Planejamento E Desenbolvimento De Negocios Ltda, with whom it has business relationship for over nine years, and Suan Farma Inc, Acme Generics LLP, Akum Drugs Ltd and Mankind Pharma Ltd with whom it has business relationship for over four years. For the fiscals 2019, 2020 and 2021 the company’s export sales accounted for 70.96%, 71.85% and 77.47% respectively of the total revenue.
Supriya’s products are reportedly registered with various international regulatory authorities such as USFDA, EDQM, NMPA (previously known as SFDA), KFDA, PMDA, TGA and Taiwan FDA. As of October 31, 2021, the company had filed 14 active DMFs with USFDA and eight active CEPs with EDQM, for its API products in therapeutic areas antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and anti-allergic.
Key Management
Supriya’s board is dominated by the Wagh family. Promoter Satish Wagh (65) is the chairman and managing director of the company. He holds a bachelor’s degree in science from Mumbai University and an honorary Ph.D. in entrepreneurship from Faculty of Management Studies, National American University. Promoter’s spouse, Smita Wagh (63), who holds a bachelor’s degree in arts and education, is a whole-time director. Promoter’s daughters Saloni Wagh (31) and Shivani Wagh (30) are also designated as whole-time directors.
The company’s only whole-time director not from the Wagh family is Balasaheb Gulabrao Sawant. He was previously associated with USV Ltd as a plant manager, Encure Pharmaceuticals Ltd as senior general manager production, Arch Pharmalabs Ltd, Mylan Laboratories Ltd and Enaltec Labs Private Ltd as head operations.
Stakeholders
The promoter had acquired 99.26% of the company’s equity capital at a cost of about Rs 3.5 cr. By diluting less than 32% through the public offer he will be receiving Rs 500 cr. In other words, post-IPO the promoter will hold 67.58% (5,43,94,205 shares) at negative cost whereas the investing public will hold 31.74% at Rs 274 a share (IPO cap price).
Business
Supria claims to have niche product offerings of 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and antiallergic. It has consistently been the largest exporter of Chlorpheniramine Maleate and Ketamine Hydrochloride from India, contributing to 45-50% and 60-65%, respectively, of the API exports from India, between fiscal 2017 and 2021. Also, the company is among the largest exporters of Salbutamol Sulphate in India contributing to 31% of the API exports from India in FY 2021 in volume terms.
From April 2020 until October 2021, its products were exported to 86 countries to 1,296 customers including 346 distributors. Supriya has grown API business in several countries across (i) Europe, which contributed 17.40 % of revenue in fiscal 2021; (ii) Latin America, 19.15% of revenue ; (iii) Asia (excluding India), 29.27 %; (iv) North America), 4.76 %; and (vi) India, contributing 22.53% of revenue.
Financial Track
Supriya’s revenue increased 12.89% in fiscal 2020 and 22.78% in fiscal 2021. EBITDA has grown 50.43% and 62.77%, respectively, during these periods. And, profit after tax registered a growth of 86.19% and 68.70% respectively. The company’s existing bottom line itself is quite impressive at Rs 124 Cr against its proposed equity base of Rs 16 cr. This yields an EPS of over Rs 15 on Rs 2 paid up share.
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Supriya Lifescience Financials (in Cr) |
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| Period Ended |
Sep-21 |
Mar-21 | Mar-20 | Mar-19 |
Mar-18 |
| Months |
6 |
12 | 12 | 12 |
12 |
| Revenue |
224.80 |
385.37 | 311.64 | 277.84 |
212.91 |
| Operating Profit |
93.41 |
167.30 | 98.38 | 64.74 |
21.95 |
| OPM% |
41.6 |
43.4 | 31.6 | 23.3 |
10.3 |
| Other Income |
5.26 |
10.86 | 11.07 | 8.02 |
8.60 |
| EBIDTA |
98.67 |
178.15 | 109.45 | 72.76 |
30.55 |
| EBIDTA % |
42.9 |
45 | 33.9 | 25.5 |
13.8 |
| Interest |
2.03 |
4.08 | 6.85 | 10.22 |
10.75 |
| Depreciation |
4.94 |
6.68 | 6.38 | 5.44 |
5.33 |
| Net Profit |
65.96 |
123.83 | 73.4 | 39.43 |
8.73 |
| Equity (Implied) |
16.10 |
14.64 | 14.64 | 14.64 |
14.64 |
| Reserves (Implied) |
518.77 |
254.31 | 134.56 | 79.15 |
40.02 |
| Borrowing |
70.99 |
67.41 | 79.08 | 85.34 |
121.07 |
| Fixed Assets |
183.60 |
178.90 | 138.20 | 120.00 | 125.40 |
Valuation
The IPO cap price of Rs 274 discounts Supriya’s last fiscal earnings around 18 times which appears to be very reasonable for the company’s stature and track record. At a time when high profile brands trade their losses at huge premiums, and greedy promoters asking for steep valuations, Supriya should certainly be lauded for its fair IPO pricing.
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HOW SUPRIYA LIFESCIENCE COMPARES WITH API PEERS |
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Financials |
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| (Amount in Cr) |
Supriya |
Aarti Drug | Solara | Neuland | SMS Phar |
Guj. Themi |
| Market Cap |
2205 |
5235 | 4110 | 2069 | 1060 |
728 |
| Borrowing |
67 |
305 | 516 | 145 | 219 |
0 |
| Fixed Assets |
179 |
685 | 1079 | 435 | 464 |
21 |
| Revenue |
385 |
2155 | 1617 | 937 | 563 |
91 |
| Other Income |
11 |
5 | 29 | 16 | 3 |
3 |
| EBIDTA |
178 |
442 | 415 | 163 | 126 |
44 |
| Interest |
4 |
23 | 84 | 18 | 11 |
1 |
| Net Profit |
124 |
280 | 221 | 81 | 63 |
30 |
| Equity Cap |
16 |
93 | 36 | 13 | 8 |
7 |
| Reserves |
519 |
284 | 1553 | 773 | 402 |
63 |
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Stock Features |
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| Current Price (Rs) |
274 |
565 | 1144 | 1604 | 125 |
501 |
| Face Value (Rs) |
2 |
10 | 10 | 10 | 1 |
5 |
| Book Value |
66 |
41 | 442 | 609 | 49 |
48 |
| Promoter Stake % |
68 |
60 | 41 | 36 | 67 |
75 |
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Profitability |
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| OPM % |
43.4 |
20.3 | 23.9 | 15.7 | 21.5 |
44.5 |
| Net Margin % |
31.3 |
13.0 | 13.5 | 8.5 | 11.0 |
32.2 |
| Cash EPS |
16.22 |
35.67 | 91.89 | 93.26 | 10.02 |
21.96 |
| Earnings Per Share |
15.39 |
30.28 | 61.64 | 62.50 | 7.39 |
20.77 |
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Growth |
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| CAGR 3Yr Sales % |
23.2 |
18.0 | 41.9 | 17.9 | 6.3 |
32.8 |
| CAGR 3Yr EBIDTA % |
80.0 |
30.4 | 88.3 | 43.6 | 9.6 |
89.5 |
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Return |
||||||
| RONW % |
37.0 |
74.5 | 13.9 | 10.3 | 15.2 |
43.1 |
| ROCE % |
42.6 |
57.5 | 14.5 | 13.2 | 16.5 |
59.8 |
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Discounting |
||||||
| Price/Earnings |
17.8 |
18.7 | 18.6 | 25.7 | 17.0 |
24.1 |
| Price/Cash EPS |
16.9 |
15.9 | 12.5 | 17.2 | 12.5 |
22.8 |
| Price/Book Value |
4.1 |
13.9 | 2.6 | 2.6 | 2.6 |
10.4 |
| Price/EBIDTA |
12.4 |
11.9 | 9.9 | 12.7 | 8.4 |
16.7 |
| Price/Revenue |
5.7 |
2.4 | 2.5 | 2.2 | 1.9 |
8.0 |
| Price/Fixed Assets |
12.3 |
7.7 | 3.8 | 4.8 | 2.3 |
34.6 |
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Distribution |
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| Dividend % |
27 |
25 | 70 | 50 | 30 |
0 |
| Yield % |
0.2 |
0.4 | 0.6 | 0.3 | 0.2 |
0 |
| Pay-out % |
3.5 |
8.3 | 11.4 | 8 | 4.1 |
0 |