KR Choksey Bullish On This Small Cap Pharma Stock, Sees 45% Potential Upside, Buy

Leading brokerage firm KR Choksey is bullish on Supriya Lifescience Ltd., recommended "buy" for Rs 348 per share target price. According to the given target price, the stock can jump 45% from its current level. It is a small-cap Pharma company listed on the Stock exchange on 28 December 2021. It has a market cap of Rs 1,947.68 crore.

During Q2FY23, Supriya Lifescience Ltd (SLL) reported Revenue of INR 1,120 Mn (-25.33% YoY / +10.89% QoQ). According to the brokerage, such growth was mainly driven by strong sales from Analgesic/Anestetic segment which contributed 56% to the topline against 36% in same period last year.

Stock Outlook & Returns

The shares of Supriya Lifescience last traded at Rs 241.70 per share on NSE, 0.92% down compared to the previous close. In 1 month it gave 12.07% negative returns, and in 3 months it gave 31.82% negative returns. The stock since its listing has given 38.16% negative returns. Its 52-week high level is Rs 601.90 and its 52-week low is Rs 240, respectively.

 

Muted customer response dented topline growth

During Q2FY23, SLL reported Revenue of INR 1,120 Mn (-25.33% YoY / +10.89% QoQ). Such growth was mainly driven by strong sales from Analgesic/Anestetic segment which contributed 56% to the topline against 36% in same period last year. The business for its key therapy antihistamine and key market China, remained muted due to the continuous lockdowns in China because of which the operating revenue has remained similar to H1 FY '22. SLL's top 12 products contributed around 71% of the revenue. Overall the demand for its product remains strong and the good order book in hand would support growth.

Higher other expenses weighed on the performance

On operational front EBITDA in Q2FY23 stood at INR 516 Mn (-46.17% YoY) and dipped (- 2.16% QoQ), OPM declined by 1,784 bps YoY and was impacted QoQ by 615bps which came at 46.07% in Q2FY23. Increase in the power and lab expenses weighed on the EBITDA margins during the quarter. Net Profit in Q2FY23 stood at INR 168 Mn against 580 Mn in Q2FY22 and it was down by 3.33% on QoQ basis. NPM came at 15%, contracted by 2,367 bps YoY and down by 995 bps on QoQ basis. Increase in power and lab expenses was primarily on account of 'D' manufacturing block that was commissioned in Q1FY22 is now running at peak capacity. Also the impact on the margins was due to slowdown in its key margin generating market.

 

Update on CMO/CDMO project

The two of its CMO projects are expected to be ready for regulatory filing in the Q4 FY23. In order to increase capacity, development is under underway on a major block with a 350 KL reactor capacity. At Ambernath, a new manufacturing block with a capacity of 70 KL is being built beside a new R&D facility with a pilot plant. In order to boost the capacity of its running goods, SLL is actively debottlenecking its existing manufacturing blocks.

 

Valuation and view

KR Choksey said, "We believe SLL is well placed with its ability to register products in regulated market that could help deliver decent topline while maintaining steady margins in the coming quarters. We expect increased penetration in key margin generating markets with expansion of product portfolio by focusing more on the anti-diabetic and CNS therapeutic areas to add fuel to the growth story. Currently it is trading at 11.91x/10.10x on FY23E/24E earnings. The stock had rallied and achieved our previous target post recommendation. In last couple of months the stock price has corrected drastically due to short term headwinds including surprise resignation of CEO, external uncertainty, consignment issue in terms of logistics because of the shutting down of the airports and seaports. At CMP we recommend "BUY" rating on the stock with a target price of INR 348/share, applying PE multiple of 14x on FY24E EPS, giving upside of 38.60% on CMP."

Disclaimer

The stock has been picked from the brokerage report of KR Choksey. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.