Sai has 160 projects in pipeline and 30 commercial molecules for being nearly 1/3rd the size of Laurus by mcap, which is why I mentioned, no one else has a funnel like Sai. Also, pls note that Sai’s molecules are likely from Discovery/Development phase and so are internal funnel (though they say of late lot of molecules are moving from China with a ToT as well) whereas Laurus likely is developing its pipeline through business development or other means of external enquiry. Not to put down Laurus. I think they are doing very well too - but still Laurus ARV, generics and FDCs and other such commodity business makes up more than 75% for Laurus and even in CDMO, the innovator CDMO is contributing only ~15% (Suzetrigine for chronic pain management and Abrocitinib for atopic dermatitis are both good molecules with great scope though) but the price we are paying for it at present is quite high i feel.
I notice in general that lot of businesses including Divi’s actually derive bulk of revenue from normal products but done at great scale - Divi’s makes ~10% of revenues from sacubitril valsartan (Novartis molecule which had its patent expire in July this year. Should see how it affects Divi’s) and even otherwise they make a lot of revenues from ARVs and generic intermediates (DTTA Salt, Ketoamide etc.) but done at scale so they have great margins. Divi’s however is leading investments in GLP-1 both peptides and oral - so it doesn’t matter how they made money so far but what they are investing further in.
I also noticed Anthem actually derives 30%+ (and not 25% as I initially guessed) from Rimegepant and yet market is comfortable paying 45k Cr mcap and 100 P/E for it. These multiples with those risks are somewhat confusing to me. It is what it is.
Specific to Sai, there are few more things I missed adding to my main post.
Levers for growth
Development vs Commercial CDMO proportion - Though CDMO is 63% of revenue - it should be noted that maybe only 1/3rd of it is from commercial molecules. Rest is from development molecules (phase 1-3 supplies). This proportion should go up towards commercial ones - these are the ones manufactured at higher volumes and consequently should lead to much better margins from operating leverage
Depreciation as a % of EBITDA - depreciation is high in Sai - very high infact vs peers like Neuland. This is because of CRO business being such a large part of business. CRO equipment (lab equipment typically) depreciates lot faster than factory equipment. You can see similar trend in Vimta as well. As EBITDA goes up from commercial CDMO, dep as % of EBITDA also will keep reducing - this will lead to improved PAT margins. You can see this already on a good trend (0.71 → 0.59 → 0.41 → 0.33 → 0.29 TTM). My guess is it should be between 0.25-0.30 steady state here on.
EBITDA margin itself can improve quite higher here. Q4, FY25 is a good example of this. There was a high proportion of commercial revenues in this quarter. The margins are depressed only due to a 34 Cr write-off which sits in operating expenses. Otherwise this quarter margin is 33% and is a sign of how things could look 2-3 yrs down the line.
Interest cost reduction - The company has paid off 720 Cr debt as of Q4 from the IPO proceeds. This should bring down interest cost this year to 45 Cr vs 78 Cr last year. There will be a 700 Cr capex this year but very likely it will be funded by the cash on the books of 464 Cr and internal accruals (OCF this year could be 400-450 Crs). My guess is next year also will need good investments of around 700 Crs or so.
Commercial molecules identified so far - AbbVie’s Qulipta/Ubrelvy (migraine), GSK’s Blujepa (uti), Tradipitant (motion sickness), Lorundrostat (hypertension), Bilastine (allergic cold) are all large volume molecules and with the exception of Bilastine, all in the very initial stages of scale-up and long patent lives. Treprostonil (Tyvaso inhaler), Musredo (sold only in Japan), Axitinib (Pfizer cancer drug) and the two molecules @manpritaurora has found (Tryptyr and Ogsiveo) as well have decent market size. I think at some point of time this year Sai could be doing 10-15 out of the 30 commercial molecules at the same time at decent volume. So I am quite hopeful of this commercial scaling and all the above things serving as levers for growth.
Disc: Invested