Solara Active RI review (May apply)

• The company is R & D focused API company serving globally.
• Surprisingly, it has been incurring rising losses for the reported periods with declining trends in its top lines.
• The promoter's holding has also marked decline in the last three quarters.
• Bumper reserves against small equity as of December 31, 2023 it the only plus point.
• Well-informed investors may park moderate funds for medium term.

ABOUT COMPANY:
Solara Active Pharma Sciences Ltd. (SAPSL) is an R&D focused, API company, based in India, engaged in manufacturing and development of APIs and offering services, including contract research and manufacturing services ("CRAMS") for development of semi-synthetic new chemical entity ("NCE") APIs. The Company was formed pursuant to the demerger of the commodity API business of Strides and the human API business of Sequent and is backed with a significant pharma experience of over 30 years. Our Company has (a) five globally compliant API facilities located in Puducherry, Ambernath (Maharashtra) Cuddalore (Tamil Nadu), Mangalore (Karnataka) and Vishakhapatnam (Andhra Pradesh); and (b) an API facility at Mysuru (Karnataka) (collectively, the "Manufacturing Facilities").

Its six Manufacturing Facilities, presence across 73 countries (as on February 29, 2024), an array of diversified products and established customer relationships, has helped the company in creating a foundation in the B2B space of API manufacturing and development. Its Manufacturing Facilities has an aggregate installed capacity of 2,584 KL as of December 31, 2023. SAPSL's Manufacturing Facilities are compliant with global manufacturing standards and most of manufacturing facilities have valid certifications from USFDA (United States), EU and PMDA (Japan).

The Company is quality compliant, with the last USFDA inspection at its Manufacturing Facilities (except Mysuru facility) including the R&D Centre have been cleared with zero 483s observations. In addition to the regulatory inspections, its Manufacturing Facilities have also been subject to audits by customers with regard to adherence to their specifications and standards.

SAPSL's API business comprises manufacturing and development of generic and commercial APIs including in the anthelmintic, anti-malarial, anti-infective, antipsychotic and anti-hyperkalemia categories. The Company is involved in API manufacturing and contract manufacturing services for APIs for its varied customer base, in terms of products manufactured as well as geography catered. It has extensive operations including in North America, Latin America, Europe, Japan, South Korea, China, India and the Middle East. The company offers CRAMS, where it collaborates with third-party pharmaceutical companies to develop semi-synthetic NCE APIs at its Manufacturing Facilities.

SAPSL has a basket of diversified product offerings for the global market, with 67 APIs predominantly in the pain management, anthelmintic, anti-malaria, anti-infective, anticonvulsant, anesthetics, antipsychotic, anti-hyperkalemia categories and 95 drug master files ("DMFs") filed with USFDA as on December 31, 2023. Its R&D initiatives focus on critical activities including new product development, cost improvement, process improvement and scale up initiatives. The company employed a total of 2,205 permanent employees as on December 31, 2023, comprising the administrative, operations, R&D, project management, marketing and quality control departments.

ISSUE DETAILS:
The company is coming out with its Rights Issue (RI) of 11998755 equity shares of Rs. 10 each at a fixed price of Rs. 375 per share to mobilize Rs. 449.95 cr. The RI is opening for subscription on May 28, 2024, and will close on June 11, 2024. The company is offering RI in the ratio of 1 for 3 to its eligible stakeholders as of the record date of May 15, 2024. The company is asking Rs. 131.25 per share on application for the number of shares applied. The remaining amount will be by way of additional calls as may be decided by the company from time to time. The company is spending Rs. 3.67 cr. for this RI process, and from the net proceeds, it will utilize Rs. 334.71cr. for repayment/prepayment of certain outstanding borrowings, and Rs. 111.57 cr. for general corporate purposes.

The RI is solely lead managed by Choice Capital Advisors Pvt. Ltd., and Cameo Corporate Services Ltd. is the registrar to the issue.

Post-RI, company's current paid-up equity capital of Rs. 36.00 cr. will stand enhanced to Rs. 48 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 1799.81 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has (on a consolidated basis) posted a total income/net profit/ -(loss) of Rs. 1288.36 cr. / Rs. 58.29 cr. (FY22), and Rs. 1466.36 cr. / Rs. 22.25 cr. (FY23).

The company has incurred a loss of Rs. 311.51 cr. on a total income of Rs. 1029.95 cr. for the 9M-FY24 period ended on December 31, 2023. As of the said date, its current paid-up equity capital of Rs. 36 cr. is supported by reserves of Rs. 1152.76 cr. Its reserves have declined to this level against Rs. 1488.87 cr. as of March 31, 2022. Thus for the reported periods of the offer document, it has been posting losses with rising trends, which raises concern. Its PAT margins declined from -(4.52)% for FY22 to - (30.25)%for 9M-FY24.

DIVIDEND POLICY:
The offer document is silent on company's dividend policy. As per exchange data, it paid a dividend of 20% in July 2020, 40% in November 2020 and 30% in August 2021. It will adopt a prudent dividend policy post listings of RI shares based on its financial performance and future prospects.

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 541540 (FV Rs. 10).
The scrip last closed on cum-right basis at Rs. 546.20 on May 14, 2024, and opened on an ex-right basis at Rs. 491.65 on May 15, 2024. Since then, it has marked a high/low of Rs. 506.45 / Rs. 473.60. The scrip last closed at Rs. 485.10 as of May 22, 2024. For the last 52 weeks' it has posted a high/low of Rs. 559.61/ Rs. 264.61. Based on its last traded price, the offer is at a discount of around 22.70%

The promoters' holding has declined from 37.19% as of September 30, 2023 to 30.49% as of March 31, 2024. The counter is well managed above the RI price to lure investors.

Conclusion / Investment Strategy

This RI is at a discount of around 22.50% based on its last traded price. However, its declining trends for top lines and rising losses for the reported periods raise concern. Even its promoter’s holding has shown decline. No doubt, it has bumper reserves as of December 31, 2023 against small equity, and that is the only plus point. Considering these, well-informed investors may park moderate funds for medium term.

Review By Dilip Davda on May 23, 2024

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: dilip_davda@rediffmail.com ).

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Solara Active Pharma Sciences Ltd Review by Dilip Davda

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Solara Active RI review (May apply)

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