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Review By Dilip Davda on December 13, 2021

•    SLL is in the manufacturing and marketing of APIs globally.
•    For FY21 its top-line included 77% revenue from exports to over 86 countries.
•    Despite being profit-making and dividend-paying co., its retail portion is just 10%.
•    The issue is attractively priced.
•    Investment may be considered for short to long term rewards. 

ABOUT COMPANY:
Supriya Lifescience Ltd. (SLL) is one of the key Indian manufacturers and suppliers of active pharmaceuticals ingredients ("APIs"), with a focus on research and development. As of October 31, 2021, it had niche product offerings of 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and antiallergic.

SLL 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. It 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 (Source: CRISIL Report).

Its pharmaceutical business is organized into domestic and export sales, according to the geographies in which it operates. From April 1, 2020, until October 31 2021, SLL's products were exported to 86 countries to 1,296 customers including 346 distributors. 

It has grown API business in several countries across (i) Europe, which contributed to 17.40 % and 18.53 % of revenue from operation for the year ended March 31, 2021, and for the six-month period ended September 30, 2021, respectively; (ii) Latin America, which contributed to 19.15 % and 12.01 % of revenue from operation for the year ended March 31, 2021, and for the six-month period ended September 30, 2021, respectively; (iii) Asia (excluding India), which contributed to 29.27 % and 36.76 % of revenue from operation for the year ended March 31, 2021, and for the six month period ended September 30, 2021, respectively; (iv) North America), which contributed to 4.76 % and 2.36 % of revenue from operation for the year ended March 31, 2021, and for the six month period ended September 30, 2021, respectively; and (vi) India, which contributed to 22.53% and 26.43% of revenue from operation for the year ended March 31, 2021, and for the six month period ended September 30, 2021, respectively.

SLL customers include global pharma companies such as Syntec Do Brasil LTDA, American International
Chemical Inc and AT Planejamento E Desenbolvimento De Negocios Ltd., with whom It had a business relationship for over nine years, and Suan Farma Inc, Acme Generics LLP, Akum Drugs Ltd and Mankind Pharma Ltd with whom it has a business relationship for over four years. Its products are 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, it had filed 14 active DMFs with USFDA and eight active CEPs with EDQM, for its API products in therapeutic areas such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and anti-allergic. Its total revenue has over 70% exports business and the balance from domestic markets. For FY21 its total revenue included 77% exports business in 86 countries with over 50% in regulated markets.

ISSUE DETAILS/CAPITAL HISTORY:
To meet its funding requirements for xxx, SLL is coming out with a combo IPO of equity shares worth Rs. 700 cr. (approx. 25547464 shares at the upper cap). The company will be issuing approx. 7299288 fresh equity shares for Rs. 200 cr. and 18248176 shares by way Offer for Sale amounting to Rs. 500 cr. The company has fixed the price band for this IPO of Rs. 265 to Rs. 274 per share having a face value of Rs. 2 each. The issue opens for subscription on December 16, 2021, and will close on December 20, 2021. Minimum application is to be made for 54 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 31.74% of the post issue paid-up capital of the company. 

The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., and Axis Bank Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. The company has allocated 75% for QIBs, 15% for HNIs and 10% for the Retail investors. 

Having issued initial equity at par, the company issued further equity at a price of Rs. 34 per share (based on the FV of Rs. 2 per share) in December 2009. It has also issued bonus shares in the ratio of 12 for 1 in March 2012, 1 for 2 in March 2013 and 2 for 1 in October 2015. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.48 and Rs. 36.09 per share. 

Post-IPO, SLL's current paid-up equity capital of Rs. 14.64 cr. will rise to Rs. 16.10 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 2205.23 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SLL has posted turnover/net profits of Rs. 285.86 cr. / Rs. 39.42 cr. (FY19), Rs. 322.71 cr. / Rs. 73.40 cr. ((FY20), Rs. 396.22 cr. / Rs. 123.83 cr. (FY21). For the first half of FY22 ended on September 30, 2021, it has earned a net profit of Rs. 65.96 cr. on a turnover of Rs. 230.06 cr. Thus it has shown a growing pattern for its top and bottom lines. 

For the last three fiscals, it has posted an average EPS of Rs. 12.70 and an average RoNW of 46.43%. The issue is priced at a P/BV of 5.99 based on its NAV of Rs. 45.76 as of September 30, 2021, and at a P/BV of 4.12 based on its post-issue NAV of Rs. 66.46 (at the upper cap). 

If we annualize FY22 earnings and attribute it to fully diluted post IPO equity capital, then the asking price is at a P/E of about 16.72 and on the basis of FY21 earnings, P/E stands at 17.80. Thus the issue is attractively priced. 

DIVIDEND POLICY:
SLL has paid a dividend of 100% (FY20), 27.03% (on Rs. 2 FV - FY21) and 30% for FY22 to date. Thus it's a dividend-paying company. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has shown Solara Active, Neuland Lab, Aarti Drugs, Wanbury Ltd., and Divis Lab. They are currently trading at a P/E of 20.29, 30.26, 26.57, 00 and 56.76 (as of December 10, 2021). However, they are truly comparable on an apple-to-apple basis. 

MERCHANT BANKERS' TRACK RECORDS:
The two BRLMs associated with this issue have handled 53 public issues in the past three years, out of which 19 issues closed below the offer price on the listing dates.

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