Supriya Lifescience Ltd - pure play API

Stock Opportunities Untested - but worth a good look
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https://youtu.be/Ih7dZBAV-uk?si=VWYOr4wXM04KgQYA.

Supriya life 39 years old company,Complete backward integration, 87% from export supply in 86 countries, CDMO CMO not generate any revenue at this point, shifted from China to Europe, one product dependency on China is now lesser , china cfda also visit the our GMP certified plant with minimal observation, expanding our anaesthetic portfolio, 300 million dollar global opportunity size with 4-5% of CAGR, 28-30% EBITDA,120-150 cr profit & 100 cr capex all capex funded by internal approvals, 20% growth, 1000 cr sales targets fy27, DSM fair ( Europe) get 10 year contract of vitamin sole supplier , globally contact mfg from next 2-3 years expected 60 cr revenue per years, inventory day is below 150 days is our Target, pls watch video also.:pray::tada:.

Disc invested recently added, no reco

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One of their top 3 products has market size of 250-300 MT (as per CRISIL). Supriya’s capacity is 60-70 MT.

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Investment Thesis-Supriya Lifesciences Limited.pdf (819.9 KB)

A report made on Supriya Lifescience by me a few days back.

Financial projections are rough and are done at a very basic level.

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Very interesting piece on Indian CDMO Future

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Hi All,

The 4 promotor/WTDs were paid around 18 crores in salaries in FY23 while PAT was around 90 crores. This violates the 10% rule by a huge margin (double the ceiling) as stated here Managerial remuneration under section: 197

This is a red flag, right?

Regards,
Ashutosh

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Although, salaries more than stipulated limits can be paid by Special Resolutions, I will take above info as some negative flag for higher valuations and can be monitored as company progresses.

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FY24 Results and Commentary

image

Strategic Expansion into Regulated Markets

  1. Regulated Market Penetration:
  • The company has strategically filed for approvals in regulated markets for their existing product portfolio, which previously generated revenue primarily from semi-regulated markets.
  • Over time, the company has successfully increased its market share in these regulated markets. This is evidenced by the rise in revenue contribution from regulated markets to 41% of the total topline, up from 31%.

Investment in CMO and CDMO Business

  1. CMO and CDMO Expansion:
  • Capital Investments: Significant investments are being made in capital expenditures, approvals, and research & development to bolster the CMO (Contract Manufacturing Organization) and CDMO (Contract Development and Manufacturing Organization) segments.
  • European Contract: The company has secured a substantial contract with a European company to supply 20-30 tonnes of material this year, with potential revenue peaking at ₹200 crores.
  • Future Projects: Two additional projects are in the final stages of approval, promising further growth.
  • Market Positioning: By creating a strong brand presence, the company has successfully captured market share from Chinese competitors.
  • Vertical Integration: Plans are in place to achieve full backward integration for new niche products, positioning the company as one of the few global manufacturers (excluding a Chinese competitor) capable of producing these products from scratch. This strategy will also facilitate forward integration for certain products.

Product Line Expansion

  1. Leveraging Expertise in Anti-Histamines:
  • The company is leveraging its expertise in anti-histamines to introduce new products in related fields such as anti-congestants, anti-diabetics, and anti-anxiety medications, which have significant growth potential in targeted geographies.
  • Several new products (4-5) are lined up for launch, expanding the company’s product portfolio.

Revenue Guidance and Long-Term Growth Plan

  1. Revenue Guidance to ₹1000 Crores by FY27:
  • The management has outlined an ambitious plan to achieve a topline of ₹1000 crores by FY27.
  • This growth will be driven by increased capacities at existing locations and strategic collaborations.
  1. Innovation in Diagnostic Solutions:
  • In collaboration with Kalinga University, the company has developed an oral detection kit, which they plan to launch within the next two years.
  • Patents have been filed in India, and a partnership with a local company for sales and development has been established.
  • Clinical trials are set to commence soon, with expected completion in the next two years.
  • There is also significant interest in this product from Southeast Asian countries such as Malaysia, Singapore, and Indonesia.

CAPEX and Capacity Utilization

  1. CAPEX and Enhanced Capacity:
  • The company plans to invest around ₹100 crores in FY25 for capacity expansion and debottlenecking at the Ambernath plant, Module E.
  • Current Capacity: The existing capacity is approximately 597 KL per day.
  • Post-CAPEX Capacity: After the planned investments, the capacity will increase to approximately 1020 KL per day at Lote Parshuram and 200 KL per day at Ambernath.
  • Utilization: The current capacity utilization is at 86%, the highest level achieved to date.

In summary, the company’s comprehensive growth strategy for FY25 includes expanding into regulated markets, significant investments in CMO and CDMO businesses, leveraging expertise to launch new products, ambitious revenue targets, and substantial CAPEX plans to enhance capacity and utilization. These initiatives position the company for robust growth and increased market presence in the coming years.

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Strange, market didn’t like the results. I thought the results were decent.

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Q4 2023 V/S Q4 3024 may not be good. Could be a reason. Any way good to hold for long term by looking future plans

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Majority of their sales are anti histamines and anti allergics. Q2 and Q4 are generally strong quarters for this and Q1 and Q3 are weaker. So better to compare yoy than qoq sequentially

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Article talks about setting an academy in Ahmedabad To Set Up Global Academies In Ahmedabad, Hyderabad

  1. “Ensuring good manufacturing practices is now a priority over pricing,” said Jain. Prices of pharma drugs are about 65% lower in India than in other big countries, Jain said, citing a study by IPA. Hence, the body has dealt with the pricing already, according to him. However, IPA is planning to improve its partnership and supply chain with the US to make drugs more affordable in both nations.

  2. The overall percentage of OAIs on Indian pharmaceutical companies had halved to 13% in 2023 from 26% in 2014. Although gaps in practices, maintenance of facilities and ancillaries, and investigations not being done versus the written procedures have risen to 23%, there is a drop of 3–4% seen in violations found in capability, training, lab controls and core manufacturing processes.

Read more at: Indian Pharmaceutical Alliance To Set Up Global Pharma Academies In Ahmedabad, Hyderabad

Disclosure: Invested in Supriya Life science, Aarti Pharmalabs and Natco Pharma.

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Supriya Lifescience Limited-Q1 FY25 result updates are as follows:

Company profile: The company has a niche product basket of 32 APIs with a reactor capacity of 597 KL/day. It has a presence across 128 countries and has 1700 customers.

a) Q1 FY25 results: The following are the Q1 FY25 result highlights for the company:

  1. The company’s Q1 FY25 revenue from operations stood at Rs 160 crores, up 21.7% YoY (gross margins stood at 69.7% versus 64.2% YoY), whereas EBITDA stood at Rs 62.5 crores, up 40.6% YoY. EBITDA margins stood at 38.9% versus 33.7%, up 524 bps YoY.

  2. PAT stood at Rs 44.6 crores, up 56.6% YoY. The PAT margin stood at 27.8% versus 21.6%, up 620 bps YoY.

  3. On a sequential basis, revenue/EBITDA/PAT increased by 1.5%/12.7%/22.7% respectively. EBITDA margins also improved sequentially by 385 bps.

  4. The company has significantly improved its working capital days from 215 to 168 days YoY. This was led by the reduction in inventory holding period.

  5. The company’s asset turnover ratio also improved to 0.68 in Q1 FY25 versus 0.63 YoY. The company has no long-term debt.

  6. The company’s strong performance was a result of enhanced market penetration and expansion into highly regulated markets, coupled with a broadened product portfolio. It is also widening its product basket through the infusion of newer molecules and therapeutic solutions.

  7. The company is also securing an increased number of regulatory approvals while simultaneously focusing on backward integration to deliver high product quality.

  8. In Q1 FY25, exports formed 84% of the total revenues versus 80% YoY. And regulated market sales were 54% versus 45% YoY.

  9. Backward integrated products formed 69% of Q1 FY25 revenues. It is in the process of backward integrating three more products.

B) Revenue contribution by region/product: The following is the company’s split of business by region/product:

  1. As of Q1 FY25, the company’s revenue split by regions stood as follows: Asia-33%, Europe-51%, LAC-9%, North America-3%, Others-4%.

  2. The revenue contribution from Asia dropped from 41% to 33% YoY, whereas that of Europe rose from 34% to 51% as it strengthened its presence in the regulated markets . North America’s contribution dipped from 9% to 3% YoY.

  3. Once the new product launches start contributing to revenues, the contribution from North America and Latin America will go up.

  4. As of Q1 FY25, the company’s revenue split by therapy areas stood as follows: Anesthetic-48.5%, Anti-histamine-11.6%, Vitamins-11.1%, Anti-Asthmatic-7%, Anti-allergic-4.6%, Anti-hypertensive-4%.

  5. The revenue contribution from anti-histamine category dropped from 19.5% to 11.6% YoY, whereas the contribution from anti-asthmatic therapy rose from 5.8% to 7% YoY.

  6. The company did not provide the revenue contribution from the top 3 APIs.

C) Future outlook: The following is the future outlook provided by the management:

  1. The management is strategically shifting its focus towards the regulated markets, which is poised to enhance the company’s overall profitability by expanding into regions with stringent regulatory framework.

  2. The company has developed a pipeline of new products to include anesthetics, antianxiety, antidiabetic, and other therapeutic areas which are slated for launch in the upcoming quarters. It is targeting products with backward integration, which has less competition, and is not being currently manufactured in India. Two product launches are expected by FY25.

  3. The company will expand its CDMO portfolio with the addition of ‘Module E’ which will provide an additional 340 KL of capacity. The company is set to double its capacity to 1020 KL by October’24.

  4. The performance seen over the last several quarters reflect the company’s transition of its business model from being predominantly focused on prime APIs to a healthy combination of APIs and CMO/CDMO segment.

  5. For the new products, the company is going with backward integration due to which it will be able to keep the competition out there as well.

  6. On the revenue front, the company has provided a 20% guidance for the next two years, but the management feels it can do much better than that. 22-23% revenue growth for FY25 seems easily possible.

  7. Q1 FY25 margins were high because matured products did really well in the regulated markets. The company had guided margins between 28-30% for FY25. However, it will easily be able to achieve 30% plus margins for FY25 (FY24 was 30%). It will be able to give a concrete guidance post Q2 FY25 results.

  8. Revenues from the CMO business will start kicking in from Q3 FY25. However, material revenues from the segment would start flowing in from FY26 onwards.

  9. The new facility at Ambernath (200 KL/day) is for finished formulations and CMO/CDMO where the company has different lines such as injectables, capsules, bottling, etc. Within the line, there is product fungibility as well. Besides, an R&D facility has also been set up at Ambernath where the research will go on for APIs which the company plans to launch in the future.

  10. Within the next 3-4 years, the company aims for a 20% contribution to revenues from the CMO business.

  11. The DSM contract is moving well. The company is in the process of registration of products in the European, Japanese, and the US markets. Once the registration comes through, there will be a good scale up in the contract.

  12. The company is also seeing a couple of other opportunities in the CMO space which are at advanced stages, and it will hopefully announce something positive soon.

  13. On the oral cancer detection kit, the company is applying for patents in various countries such as Korea, Taiwan, and Thailand. It expects to receive these approvals within the next 1-1.5 years. Complete commercial production process would also take at least 2 years.

  14. The Brazil government has also given an ultimatum that by December’24, all goods entering the country should be GMP compliant (which is currently coming from Chinese suppliers who are non-compliant). The company is ready to tap on this opportunity.

D) Key monitorables: The following are the key monitorables for the company:

  1. The company will launch the new APIs in the non-regulated markets first. As a result, the EBITDA margins there will be a little lower than the regulated markets. This could lead to a slight margin compression for 2-3 years until the product matures.

  2. The company will have USFDA audits and NMPA China audits in the latter half of the year.

The company trades at a TTM PE multiple of 33x.

Disc: Invested.

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Supriya Lifesciences( very bullish commentary ) -

Q1 FY 25 concall and results highlights -

Revenues - 161 vs 132 cr, up 21 pc
Gross Margins @ 69 vs 64 pc ( massive expansion )
EBITDA - 63 vs 44 cr, up 41 pc ( margins @ 39 vs 34 cr )
PAT - 45 vs 29 cr, up 56 pc

Therapy wise business mix -

Analgesics / Anesthetics - 48 vs 46 pc
Anti - Histamines - 11 vs 19 pc
Vitamins - 11 vs 12 pc
Anti - Asthmatics - 7 vs 6 pc
Anti - Allergics - 5 vs 5 pc
Anti - Hypertensives - 4 vs 1 pc

Company has a niche product basket of 32 APIs. 15 products have a high degree of backward integration. They represent 70 pc of company’s revenues. Company is in the process of integrating 3 more products

Geography wise sales mix -

Asia - 33 vs 41 pc
Europe - 51 vs 34 pc
Latin America - 9 vs 10 pc
North America - 3 vs 9 pc
Others - 4 vs 6 pc

Top 10 customers account for 50 pc of sales

Exports constitute 80 pc of company’s sales

Company is the largest exporters of - Chlorpeniramine Maleate ( Anti - Histamine ), Ketamine Hydrochloride ( Anaesthetic ) and Salbutamol Sulphate ( Anti -Asthmatic ) from India

Currently, the top 3 products contribute to 45 odd pc of the revenues. In the next 3 yrs or so, company expects this to come down to 25 pc of revenues as other products ramp up. Expecting to add 3-4 new products / yr for the next few yrs

Surge in revenue contribution from regulated mkts ( EU ) has been margin accretive in Q1

Growth in future will be led by more molecule launches. Company initially launches their molecules in unregulated mkts and then introduces them to regulated mkts - over a period of time. Hence the business from new launches is likely to be margin dilutive - to begin with

The newer molecules that company intends to get into are going to be higher volume molecules ( vs their existing molecules ). Company will ensure high degree of backward integration to keep the competition at bay in these molecules

Company should be able to maintain EBITDA margins > 30 pc for full FY 25. Exactly how much above 30 pc can’t be said

With the new launches lined up in H2, share of business from North and Latin America should definitely move up

Revenues from the new CMO segment should start flowing in from Q3/Q4. Will see larger contributions from CMO business in FY 26

In the next 3-4 yrs, company expects CMO operations to contribute to 20 pc of their topline !!! ( this should mean rapid growth in CMO vertical )

Generally H2 is always better for the company vs H1. Likely to be the same for this FY too

Company new launches are in the areas like - anti-anxiety, anti-diabetics and aesthetics. These r likely to be large molecules ( in volume terms ) and are mostly part of China + 1 strategy of the customers. Full impact of these should be visible by next FY

Company has given a 20 pc topline growth guidance for this FY ( although they admitted that its on the conservative side )

**Company expects its Ambernath facility to commence commercial production - sometime in Q3. This facility will also cater to CMO of formulations. They r setting up large lines for bottling, tablets, capsules and Injectables at Ambernath. Total capital outlay for the Ambernath facility should be around 130 cr **

Company has been awarded a 10 yr CMO by a European player - DSM Fermenich. Supplies should start in H2. Have another 2-3 opportunities which are in final stages of discussion. Expecting positive outcomes on these before end of Q2

Disc: holding, biased, not SEBI registered, not a buy/sell recommendation

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Super. was bullish by reading their annual report 1 year back. brought at 280 then share went down to 180 then back and doubled now. 1 year back pharma was hated sector. seems now people are interested.

Disc - Invest and being like a sleeping partner to see their 1000 crore revenue target for 2027

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Assuming the co. indeed hits 1600Cr by 2030, thats a CAGR of 19%. How much valuation to give for a 19% grower? If we go by PEG ratio of 1 for e.g, then a PE of 19/20 in 2030. Assuming 20% NPM, the NP will be 320Cr, and a PE of 20, mcap comes to 6400Cr. Current mcap is 4800Cr. That will be absolute price appreciation of 33% in 6 years. Looks like the market is already pricing the 1600Cr sales in current price.

Disc: Invested, not an advice, only for discussion purpose

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