Stockwire Wealth Insight - Apr 2024

Analyst's Diary: Speed bumps on the growth highway

Exploring the recent struggles of a small-cap pharma leader

Analyst's Diary: Speed bumps on the growth highway

How often have you seen a company being listed on the stock exchange at high premiums, only for its share price to tumble after the initial IPO euphoria? Typically, such businesses have a history of unprofitability, poor growth, etc.

It is rare to find a high-quality company on such a list. However, we came across a small-cap pharma company with a five-year median ROCE of 43 per cent and annual revenue and profit after tax growth of 17 and 59 per cent, respectively. Interestingly, its share price declined nearly 40 per cent within six months of its listing in December 2021. Surprising, right? This has been the journey of Supriya Lifesciences.

An overview

The company manufactures 38 APIs in nine therapeutic areas and has a market presence in over 80 countries. Run by technocrat promoters, the company has carved a niche for itself in some therapeutic regions owing to years of R&D and backward integration, making it the largest exporter of certain APIs in anti-histamine (common cold) and anaesthetics from India. The company has cultivated long-term relationships with many major domestic and international clients. The revenue concentration from its top 10 clients increased consistently over the last decade, standing at 45 per cent in FY23.

Notably, the company has been profitable since its incorporation in FY09. Moreover, its revenue and profit have increased in every subsequent year. However, all streaks are meant to be broken, and Supriya Lifesciences was no exception. In FY23, the company's revenue and profit after tax fell YoY by 13 and 41 per cent, respectively. Valuation-wise, the company trades at a P/E of 23 times compared to the BSE Healthcare index's 44 times as of 7th March 2024.

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