Supriya Lifescience IPO: All You Need To Know

Supriya Lifescience Ltd., a bulk drugmaker and supplier, will sell shares at Rs 265-274 apiece in its initial public offering starting Thursday.

The IPO comprises a fresh issue worth Rs 200 crore and an offer for sale of up to Rs 500 crore, the Mumbai-based company said in its red herring prospectus. It is seeking a market value of Rs 2,205 crore at the upper end of the price band.

The promoter and promoter group shareholding after the share sale will be at 68.24% against close to 100% now. Around 10% of the net offer is for retail, while 75% is for qualified institutional buyers, and 15% for non-institutional buyers.

Issue Details

• Issue opens on: Dec. 16.

• Issue closes on: Dec. 20.

• Issue size: Rs 700 crore.

• Face value: Rs 2 apiece.

• Lot size: 54 equity shares and multiples.

• Listing on: BSE and NSE.

• Lead managers: Axis Capital, ICICI Securities.

• The company plans to utilise Rs 92.3 crore toward funding capital expenditure requirements. It looks to expand the existing manufacturing facilities in Maharashtra. The expense will be incurred over a period of three years up to FY24.

• Repay and/or prepay, in full or part, certain borrowings availed by the company to the extent of Rs 60 crore.

• General corporate purposes.

Supriya Lifescience makes and supplies active pharmaceutical ingredients, with a focus on research and development. It has niche product offerings of 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and anti-allergic, as on Oct. 31.

The company has consistently been the largest exporter of chlorpheniramine maleate (for allergy, hay fever, and the common cold) and ketamine hydrochloride (sedative for diagnostic and surgical procedures) from India. That contributed 45-50% and 60-65%, respectively, to the company’s API exports between fiscals 2017 and 2021.

Supriya Lifescience was also among the largest exporters of salbutamol sulphate (asthma), the IPO prospectus said citing a Crisil report. This formed 31% of its API exports by volume in FY21.

From April last year to October 2021, the company exported to 1,296 customers in 86 countries.

Its 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 a business relationship for more than nine years; and Suan Farma Inc., Acme Generics LLP., Akum Drugs Ltd. and Mankind Pharma Ltd. for over four years.

Supriya Lifescience has a manufacturing facility located in Parshuram Lote, Maharashtra—about 250 kilometres from Mumbai.

• The unit is spread across 23,806 square metre, and has a reactor capacity of 547 KL/day and seven cleanrooms (controlled environment to manufacture products).

• It has four manufacturing blocks, segregated based on therapeutic segments, of which the fourth block commenced operation on May 30, 2021.

• The company has acquired 12,551-sq-mt land near the existing manufacturing unit to expand infrastructure.

It also has a R&D facility at Parshuram Lote.

Twelve of its existing products are backward integrated as of October. These contributed to 67% and 60% of the total revenue for fiscal 2021 and for the six months ended September, respectively. This ensures steady supply of intermediates and key starting materials avoiding market fluctuations.

• Exports contributed to around 74% in the first half of FY22 and 78% in FY21.

• The company's share from regulated markets is growing. For H1 FY22, it stood at 49% of the total sales against 38% for financial year ended March 2021.

• Debt to equity ratio for first half of FY22 is 0.21.

• Asset turnover ratio is 1.55 as on Sept. 30, 2021.

• Basic EPS was Rs 9.01 for H1 FY22 and Rs 16.92 for the year ended March 2021.

• R&D expense is 0.64% of operating revenue for H1 FY22 and 0.4% for FY21.

• Capacity utilisation of the manufacturing facility was 49% from April-October 2021, while it was 71% for FY21.

Supriya Lifescience has listed peers such as Solara Active Pharma Sciences Ltd., Neuland Laboratories Ltd., Aarti Drugs Ltd., Wanbury Ltd. and Divis Laboratories Ltd.

• Top three products contributed to 52% of the total revenue in H1 FY22 and 50% in FY21. Since significant portion of revenue comes from top products, an inability to sell these could impact business.

• Dependency on limited customers for significant portion of revenue. Also, no long-term contractual arrangements with customers. Top three customers contributed to 31% of the total revenue in H1 FY22 and 22% in FY21.

• Operates in a highly regulated industry and manufacturing unit is subject to periodic inspection and audit. There is also risk of regulatory compliance and challenges associated with international operations.

• Quality control risk and risk of rejection of supplied products due to defects. The company may also face product liability claim risks if the use of their products results in personal injury.

• Non-compliance with and changes in safety, health, environmental and labour laws.

• Underutilisation of manufacturing capacities could impact growth prospects and performance.

• Dependency on third-party suppliers for raw materials. Around 32% of the total raw material sourced expense is towards procurement from China, while 5% is towards the U.S., and 2% towards Europe for the period ended Oct. 31.

• Outstanding legal cases against the company.

• Any social, political, economic disruption, natural calamities or civil disruptions can impact operations.

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