Supriya Lifescience - No margin of safety

17% historic growth and 19% future growth available at a PE of 22

Jul 18, 2023

Company Overview

Established in 1987, Supriya Lifescience Ltd. is a leading manufacturer of Active Pharmaceutical Ingredients (APIs). Its manufacturing facility is located in Khed, District Ratnagiri and is headquartered in Mumbai.

The top three products that we manufacture which is Chlorphenamine Maleate, Ketamine, Hydrochloride, and Salbutamol Sulphate, we control a large percentage of exports from India. Chlorphenamine Maleate is about 45% to 50%, Ketamine is 50% to 65%, and Salbutamol Sulphate is about 30% to 40%.
Management commentary in earnings call

Share Details

NSE:SUPRIYA( supriyalifescience.com)

Quality: Returns on capital employed in cash

As an average the return ratios are solid but they have clearly deteriorated since FY21.

Growth

Top-line growth has been average at around 17% though bottom-line grown has increased at a faster pace due improvement in profitability.

Growth Momentum

The growth momentum has not only slowed down but also turned negative, specially for the bottom line growth

Outlook

The company is going back on it growth guidance. It had guided for doubling revenue by FY2026 in the Q3-23 earnings call and then said revenue will double by FY '26-'27 i.e. FY2027 in Q4-23 earnings call. Doubling of revenue has been delayed by a year within a quarter. Additionally doubling from FY23 to FY27 implies a growth rate of 19% which is nothing extra ordinary against the historic top-line growth of 17%.

Overall company’s growth strategy of doubling the topline by FY2026 remains the same with a healthy and sustainable margin.

So, yes, we are still maintaining that for the financial year FY '26-'27. We are still confident that we would be able to achieve the guidance what we have given in terms of revenue

Guidance for top-line growth in FY24 is 20%+ and 20% for subsequent years

The general 20% guidance is for all the regular years, this year since the base is lower; the increase would be looking on a higher side. So this is only for this current year, this will be holding good.

PAT margin guidance

The margins at a conservative level between 28% to 30% is what we are confident of achieving in the near future

So What????

If I currently hold the stock, I may continue holding it based on my past returns, expectations for future returns, and the availability of alternative stock ideas. We should watch out for further delays in doubling the company.

If I don't currently own the stock, I may not want to enter it. Weakening return ratios, guidance on doubling company top-line pushed out by a year is contributing to the decision. There is no margin of safety in the stock, 17% historic growth and 19% future growth available at a PE of 22 which is not an attractive price.

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It is an analysis of the company data and not a stock recommendation
My analysis can be completely wrong and can change the next minute based on changes in my understanding of the company
I look to own good companies at prices where there is a path to market beating returns over decades

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