Sai Life Sciences IPO analysis

Sai Life Sciences IPO (initial public offering) will open for subscription on December 11, 2024, and close on December 13, 2024. Below is a breakdown of the pharmaceutical contract research and manufacturing company's strengths, weaknesses and growth prospects to help investors make an informed decision. Sai Life Sciences IPO in a nutshell Quality: Between FY22 and FY24, Sai Life Sciences reported an average three-year ROE and ROCE of around 4 and 5 per cent, respectively. Growth: During FY22-24, its revenue and net profit grew annually by nearly 30 and 265 per cent, respectively. Valuation: At the upper price band of Rs 549, the stock is valued at a P/E and P/B ratio of 92 and 6 times, respectively. Overview: Sai Life Sciences is a contract research, development and manufacturing organisation (CRDMO) that is set to benefit from increased pharmaceutical outsourcing, especially for R&D. Complex development processes, high costs, supply chain disruptions and regulatory compliance is expected to drive penetration of global R&D outsourcing services, benefitting Sai Life. However, the intense competition in the industry is a challenge. About Sai Life Sciences The company provides end-to-end services for small molecule new chemical entities (newly discovered chemical compounds) to global pharma and biotechnology companies. It derives nearly 43 per cent of its revenue from new drug discovery research and the rest from contract development and manufacturing. The company is export driven and derives 97 per cent of its business from the US, UK, Europe and Japan. Strengths of Sai Life Sciences Integrated services: It provides services across the drug discovery, development and manufacturing value chain. This allows the company to provide end-to-end support and also acquire customers in the intermediate stages. Strong customer base: Its customer base includes global pharmaceutical giants, including 18 of the world's top 25 players by revenue (as of 2023). These include Pfizer, Johnson & Johnson, among others. Weaknesses of Sai Life Sciences Client concentration: As of FY24, of the total 329 customers, the top 10 clients together contributed 46 per cent to company's revenue. This exposes it to adverse risk in case of any outsourcing demand disruption from any key clients. High employee expenses: The company's three-year average employee benefit expenses were a staggering 34 per cent of its revenue. As a result, the company has the lowest EBIT margin at 11.3 per cent among peers, despite having high gross margins. Sai Life Sciences IPO details Total IPO size (Rs cr) 3,043 Offer for sale (Rs cr) 2,093 Fresh issue (Rs cr) 950 Price band (Rs) 522-549 Subscription dates December 11-13, 2024 Purpose of issue Debt repayment Post-IPO M-cap (Rs cr) 11,419 Net worth (Rs cr) 1,995 Promoter holding (%) 35.2 Price-to-earnings ratio (P/E) 92.3 Price-to-book ratio (P/B) 5.7 Financial history Key financials (Rs cr) 2Y annual growth (%) TTM FY24