Supriya Lifescience IPO Review: Analysts Recommend Subscribe

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Supriya Lifescience IPO has opened for subscription and will close on Monday. Priced in the range of INR265 – 274 per share, the offer aims to mobilize INR700 crore through a fresh sale and an Offer for Sale (OFS). Several brokerage house analysts have taken a positive view in Supriya Lifescience IPO review. Let’s take a closer look.

Angel One analyst Yash Gupta outlined backward integration, along with high exports and niche product offerings as major strengths of the company.

“Based on FY2021 numbers, the IPO is priced at an EV/EBITDA of 11.2 times and price to earnings of 16.2 times at the upper price band of the IPO. Supriya Lifescience Limited focuses on research & development and having a diversified niche product portfolio of API’s. Companies 77.5% of revenue comes from the Export market, companies’ key market are USA, Europe, China and India. We believe that the company’s new manufacturing unit and product launch will be growth drivers for the company in future. Hence, we are assigning a SUBSCRIBE recommendation to the Supriya Lifescience Limited IPO,” said its IPO note.

The company has a backward integrated model which helps in boosting margins and reducing dependence on external vendors as well as on import of raw material. As on 31 October 2021, 12 of its existing products are backward integrated, accounting for 67.1% of revenue.

Another positive Supriya Lifescience IPO review came from Elite Wealth which sees further upside in the company’s business operations as a result of China plus one policy.

“Supriya plant has certification from all the top Pharma Agencies in the world and has a very strong R&D capability and are regularly entering niche products. Company has shown strong financial performance in last three years and this trend is expected to continue due to china plus one policy and government initiative of becoming self-reliant in API space. At the higher price band of INR274 Company will trade at P/E of 17.81x post issue FY21E which is inline with other API Company, so we are recommending SUBSCRIBE to this IPO,” noted its research report.

Supriya Lifescience IPO Review: Backward Integration, Export Major Strengths

Exports is yet another pillar of strength for the company and it contributed 77.5% of FY2021 revenues. The company exports to 86 countries like Latin America, Europe, China and Cambodia, among others.

BP Wealth finds the offer attractively priced compared to its peers. “SLL demonstrates a sustained improvement in its scale of operations and profit margins and efficiently manages its working capital requirements, thereby reflecting notable improvement in utilization levels and free cash balances. Moreover, the issue is attractively priced at the upper end of the price band at a 16.2 P/E (based on FY 21 earnings), significantly discount to its listed peers with similar return and margin profile. Hence, we recommend a “SUBSCRIBE” rating on the issue,” noted the brokerage house.

The company boasts of high ROE and the one of the lowest D/E ratios which is expected to drop further after utilizing proceeds from the IPO. This hasn’t escaped from Samco Securities which also has a positive view on the upcoming IPO.

“With a P/E of 15.2x based on the annualized FY22 earnings, at the upper price band, which is lower than the industry average, the issue seems to be fairly priced. Considering the tailwinds in the industry, especially the ‘China Plus One’ strategy, the company has strong growth potential. Thus, we recommend investors to SUBSCRIBE to this IPO” recommended Samco Securities in its review of Supriya Lifescience IPO.

Supriya Lifescience IPO Review: Concerns Remain

While no major brokerage house has an Avoid rating on the IPO, SMC Global has offered 2.5 stars to the IPO out of maximum 5 while highlighting its excessive dependence on a few customers and intense competition as risk factors. According to information disclosed in Supriya Lifescience RHP, top-10 customers contributed nearly 47% of its revenues in the first six months of FY2022.

It helps to know that the offer is also trading in the grey market at attractive premium.

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