Supriya Lifescience Has Big Expansion Plans | Know Your Company | NDTV Profit - video Dailymotion

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- Can Supriyra Lifescience maintain a margin of 28%-30%? - How confident is the company about their European CDMO?   Varsha Chandnani walks you through the company's plans for the future on 'Know Your Company'  __________________________________________________________   For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia Visit NDTV Profit for more news: https://www.ndtvprofit.com/ Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports Follow NDTV Profit here Twitter: https://twitter.com/NDTVProfitIndia , https://twitter.com/NDTVProfit LinkedIn: https://www.linkedin.com/company/ndtvprofit Instagram: https://www.instagram.com/ndtvprofit/ #ndtvprofit #stockmarket #news #ndtv #business #finance #mutualfunds #sharemarket Share Market News | NDTV Profit LIVE | NDTV Profit LIVE News | Business News LIVE | Finance News | Mutual Funds | Stocks To Buy | Stock Market LIVE News | Stock Market Latest Updates | Sensex Nifty LIVE | Nifty Sensex LIVE

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00:00 Hello and welcome. You're watching NDTV Prophet. I am your host Varsha Chandrani. I'm standing

00:13 in front of Supriya Life Sciences facility. Let's see what are the KPIs and what the KPIs

00:18 the company is doing. Let's understand from the management what are the growth prospects

00:23 going forward. We'll speak with management and deep dive into the company. So let's go.

00:30 API is the main ingredient in the medicines that we use every day. Supriya Life Sciences

00:36 is engaged in manufacturing of APIs and has a niche product basket of 38 APIs. Company

00:42 has a global footprint that extends across 86 countries. We at NDTV Prophet visited their

00:49 plant at Lotte Parshuram in Ratnagiri district, Maharashtra, which is spread across 23,806

00:56 square meters. Company has undergone significant expansion, introducing new facilities within

01:01 their existing premises. The facility has R&D team of 26 scientists focused across the

01:08 value chain of API process development. Supriya Life Sciences was listed in 2021 and we asked

01:15 Dr. Satish Bhak, Chairman and Managing Director of the company about its journey.

01:20 So sir, it's been like three years. I mean, in December 2021, you listed. And so what

01:28 has been your journey and what are the changes that you have seen after listing in your strategies

01:35 and your business? See, business as far as it's concerned, I always believe that anybody

01:42 would like to be on the number one position in API manufacturing. You should never depend

01:48 upon the intermediates also. You have to do complete backward integration. Then the customer

01:53 is always satisfied with you because you understand that there won't be any disruption in the

02:00 supply, which is my main motto. And I'm going ahead with the same thing. And so post listing,

02:10 what were the changes that you made in your business when it comes to adding up new products

02:17 or changing these strategies? Or like you said that as far as I know, you are backward

02:24 integrated in 12 or 13 of the products which makes top contribution. So any changes that

02:31 you've seen in sense of strategies after listing? See, after listing, of course, there are major

02:38 changes because the angle which the industry is looking at you is a different angle. You

02:46 have to be a professionalism. You have to bring good professional people in the organization

02:52 and company has to give a target and should plan next five years vision. That is much

03:00 more required as far as the listing is concerned. And after listing, I'm looking at that and

03:06 I'm going ahead. So now speaking about your new facility that you're scaling up over here

03:13 where we are standing, what are the products that you would be concentrating on? And when

03:20 can this facility be online? See, basically, wherever we are strong, we always try to increase

03:29 the basket. Our main focus is always on anaesthetics. So there is a wide range of anaesthetic, which

03:37 we are working on it. And we always look that wherever we bring any anaesthetic or any API,

03:44 see API is manufactured by everybody. But my vision and my focus is that with manufacturing,

03:53 you must have a substantially good sizable profit that is EBITDA, which I was taught

04:00 by the chairman of Saraswat Corporate Bank, Mr. Ekanath Thakur. When I met him, he understood

04:06 me and he immediately said, Mr. Vag, you must understand the balance sheet and EBITDA. So

04:13 that EBITDA word is in my brain. So I always tell my people, we manufacture good, niche

04:21 products where we can become very strong. We can go up to backward integration. Now

04:27 we look for a forward integration also in the solid doses form for our own APIs, where

04:33 we see that the formulation unit is coming up in additional number not. And that will

04:38 start by September 24. Validations, of course, will start earlier, but the things will be

04:45 started rolling out by September 24. And so China has been your, I mean, pre-COVID, China

04:53 was your top contributor when it comes to revenue. But after what happened, I mean,

04:59 during COVID, you shifted from China to European markets. And now, if I'm not wrong, European

05:04 markets contributes almost 47% of your revenues. So now, are you going to go back to China

05:11 because now things are like settling up or you're going to expand into different geographies?

05:17 No, not at all. We're expanding in China. Only the thing, the one product which we were

05:24 depending upon China, today also we catered to that China market. But of course, little

05:31 EBITDA margins have gone down, but it's a temporary phase because China also needs good

05:38 GMP manufacturing sites. I'm very happy to say that Supriya Life Science site at Lotte

05:45 was audited by China CFDA and with minor observations, it was cleared. So we understand what Chinese

05:54 authorities require and we are working with four or five other products, which we are

05:59 already registering in China. And we are confident that these all three, four products along

06:05 with our old product, we will take some percentage of business with good margins. But you know,

06:13 we cannot depend upon one country. We have to focus on many more countries where you

06:19 can go with a big way. So Europe, now we are concentrating more in Brazil and the Latin

06:26 American market. As I told you, we just cleared on MISA site with zero findings. It's a good

06:31 opportunity in Latin America, that is in Brazil, because the MISA has come with the rules and

06:37 regulations that they need the current supplier of API who are coming from China with the

06:44 GMP track record. And this is very less in China, which is giving advantage to us for

06:52 more and more our APIs to penetrate into Brazil and few Latin American countries which are

06:59 connected with Brazil.

07:01 Okay. And one more question I had was you are top exporter and I mean, you export a

07:10 lot when it comes to your top three products. And you've got good market share in that.

07:16 But my point is, what is that mode, that competitive advantage that other players are not entering

07:21 into those products? So any kind of mode that you have, especially in those top three products

07:27 where you have huge market share?

07:29 Yes, first is a total backward integration. Second, if you see Supriya site for almost

07:36 more than 12 years is a USFDA site. It has 28 accreditations. And whenever one company

07:44 focuses for vendor approval to any company, they look with a long vision. They don't have

07:51 people to continuously send and get audited. They would like to see that the company is

07:58 getting audited and they get more and more APIs manufactured from that site. So the people

08:05 who are working in the purchase in the various companies, they want one source to give four,

08:12 five, six products. So the audit is less. And the confidence, you know, Supriya is 39

08:18 years in the business. That's the confidence. Supriya sells 87% in the global market is

08:25 in exports. So you can understand the quality and sustainability and continuous supply is

08:33 the main motive of the company, which the suppliers or our customers accepted by us.

08:40 And so last question would be to you, this Red Sea crisis that we are seeing, any impact

08:47 on your business considering you export almost like 70-80% of your business is coming from

08:52 export? Yes, 87%. So yeah, so I'm sorry for that. So 87% of your business is from export

08:59 and any impact of Red Sea crisis you're seeing because I cannot I mean, I didn't see that

09:05 in your quarter three results of FY24. But anything any that risk you're seeing for regarding

09:12 this Red Sea crisis? See, majority of our exports are going by air. Some of the exports

09:20 are going also like Brazil and Latin America by sea. But wherever we are getting these

09:27 problems, the customers are voluntarily coming up and are asking how much contribution they

09:35 should do excess to pay the freight. So we have a bonding with these customers because

09:40 these customers are with us for almost more than 20-22 years. And there's a good friendship

09:47 developed. See, business is of course required. But besides business, friendship is a must.

09:54 That strengthens the relations between the two companies. And I strongly believe on that.

10:01 That was Chairman taking us through the journey so far. From the journey to the road ahead,

10:07 let's understand the company's growth drivers from the whole time director, Miss Saloni

10:12 Vagh. Before speaking about business, you know, I just want to ask you this question.

10:19 So in chemical industries, and as far as I have seen, this is a male dominated industry,

10:26 especially from the technical side. So what were the challenges that you face? Because

10:32 you're really, I mean, you're doing really good. So what were the roadblocks that you

10:37 had? What were the challenges that you faced? So like you rightly pointed out, the chemical

10:42 pharmaceutical industry is very male dominated, specifically the technical areas, like production

10:49 quality, they are more male dominated. I think one of the biggest challenges was to sort

10:54 of explain to everyone and to establish myself that yes, you know, I have the said knowledge,

11:01 and I'm able to perform. So I think that kind of acceptance to get from my own team initially

11:06 was difficult. But you know, I learned from them literally from the shop floor. I spent

11:11 a lot of time at the factory. So when that happened, and when they saw that, you know,

11:16 I'm now able to grasp very quickly, I sort of got that acceptance, and that respect from

11:21 my own team. So I think acceptance was one of the most difficult things to get in a technical

11:26 field. That's great. I mean, I am actually a big fan of you. So now coming back to business

11:33 Saloni, so I want you to walk me through the CDMO and CMO space that you are venturing

11:39 into. Currently, is there any revenue contribution from the same and going forward, how you're

11:47 seeing this business and any customers that you've acquired? So currently, so as far as

11:53 CMO CDMO goes, I think Supriya is one of the right companies for this kind of opportunity,

11:59 especially because we have the kind of regulatory approvals. We are present across 100 countries,

12:04 we already have a customer base, and we have an impeccable reputation when it comes to

12:09 quality. So I think we are the right candidate for a CMO opportunity, which we are seeing

12:13 in terms of business and the opportunities that we are getting. Currently, CMO does not

12:18 contribute anything to our revenue, because most of these opportunities are fairly new,

12:23 and they are under development. But you will see that in the next, I would say three to

12:27 four years, almost 15 to 20% of the revenue will be contributed by the CMO CDM opportunities

12:33 that we have. And one of the large ones, which I would like to mention here, is the one that

12:40 we announced a couple of months back, which is with a European company called DSM Ferminage.

12:46 It's a long 10 year old contract where we would be the sole suppliers for a vitamin

12:51 product. So we have co-developed the product with them and we would be their contract manufacturers

12:56 globally for this product. This particular contract in the next two to three years, would

13:02 generate a revenue of about 60-70 crores per year. And it's a 10 year contract. So that's

13:07 a sizable contract. So revenue visibility is there. Absolutely. Yes. So Saloni, talk

13:13 to us about your new business segment that is dosage filings. Correct me if I'm wrong,

13:20 you are doing Capex in Amarnath for the same. So how you are expecting this business in

13:26 coming few years? And also, will this be an import substitute product? Because as far

13:32 as I know, China has been dominating into this product. So please let us know about

13:38 that. So yes, we are doing about 60 crores of Capex in Amarnath in the next two years.

13:44 This is mainly because we already have an expertise and core strength in an aesthetic

13:49 segment. We have a leadership position there. So we wanted to expand on that leadership

13:53 position and expand our an aesthetic portfolio. So we are launching a new an aesthetic product

13:59 whose global market currently is about 300 million US dollars. And it is growing at about

14:04 4.5% CAGR for the next 10 years. So that product we are launching. And the initial target is

14:11 that in the next two to three years, at least 20% of that market share we should get. The

14:17 finished dosage comes because this particular API itself is bottled as a finished product.

14:22 So we are setting up a bottling line in Amarnath. This would be about 5 million bottles a year.

14:28 And like I said, you know, the revenue contribution can be significant. So that is the progress

14:34 that we are making on the CMO at Amarnath site.

14:37 And when does this new formulation business when this will be online?

14:42 So basically the site will be ready by August. I mean, the site would be ready a little bit

14:46 earlier, but the validation and everything would be completed around August. So you can

14:51 expect the revenues starting from FY 26.

14:54 Okay. And also I wanted to know about your regulated versus unregulated market share.

15:01 And I believe that the current quarter, quarter 3 of FY 24, we saw this huge margin expansion.

15:07 Was this because of you penetrating into more regulated market?

15:11 Absolutely. I think since the inception of the company, my father, our chairman, his

15:16 vision has always been to focus more on exports. And that is reflected in the company's revenue

15:22 even today. 80% is coming from exports. And in this 80% also 50% comes from regulated

15:27 markets. That has been our strategy for the last 5-6 years to file maximum number of DMFs

15:33 and CEPs and enter into more regulated markets where the price realization is far better.

15:39 So I think that is one of the reasons why you will see that the ratio of the regulated

15:43 markets would grow. Similar to what happened in quarter 3, if you look at our Europe sales,

15:49 they went from almost a 27% to 42%. So we are getting more traction for some of the

15:55 therapies in European market. I think that's one of the reasons why you're seeing better

15:59 margins as well.

16:00 And so you've been always guiding the range of margin between 28 to 30% and that you have

16:06 delivered in the recent quarter. But now my question comes, you are penetrating more into

16:10 regulated markets. You are going into CMO, CDMO business, which is again a high margin

16:16 business. So are you guiding us, I mean, with respect to EBITDA margin, is it a conservative

16:22 guidance of 28 to 30%? I mean, would margin go up in future?

16:27 So I would say that yes, in certain projects, if I look at it, the margin profile could

16:33 be significantly higher. But as we are a growing company and we'll be adding more and more

16:38 products into our portfolio, initially these products will scale up in the semi-regulated

16:44 markets. So that cycle of addition of new products, first scale up in semi-regulated,

16:49 then regulated will continue to happen. So that's one of the reasons why we believe that

16:54 28 to 30% on the annualized basis on the complete product basket is something that we're confident

17:01 of achieving. Of course, we have achieved far better and we have benchmarked ourselves

17:06 to those numbers and there is a possibility we might achieve those, but 28 to 30% is something

17:11 that I would like to guide going forward.

17:14 My last question would be on CAPEX. So overall, if I see in FY25, what would be the CAPEX

17:22 of Supriya Life Sciences plus the facility that we are now, like we have expanded this

17:27 facility. So what is the rationale behind expanding this facility? What are the growth

17:32 drivers that you are envisaging and CAPEX for the same?

17:35 So basically the site where you are at today, we are doing almost a 60-70 crore CAPEX. We

17:41 have put in a new production block, which has a capacity of about 250 to 300 KL. So

17:47 our total capacity of this particular site would be now at around 900 KL, which is pretty

17:52 large. This we have done because we see tremendous growth in our existing portfolio, because

17:58 now we have done the filings in regulated markets. So that scale up will happen. Plus

18:02 all the CMO opportunities in terms of API, advanced intermediates, which are coming our

18:07 way, they will also be scaled up here. So that is why we are creating that kind of capacity.

18:12 Amarnath, like I said, in the next two to three years would be around 60 crores again.

18:16 So if I have to give like a two, three year guidance, you can expect about a 100 crore

18:20 CAPEX to the tune of that.

18:22 Oh, that's great. So I would say Supriya Life Sciences are into CAPEX mode for us.

18:28 Absolutely. I would say they are into a growth mode. We are into a growth mode. And the CAPEX

18:33 is done to service the growth that we are envisaging.

18:37 But how were the financials and what lies ahead for the company? Krishna Raghunathan

18:42 will help us understand Supriya Life Sciences growth targets.

18:46 So now as you know that Supriya is doing a lot of CAPEX and I would just want to know

18:54 whether this CAPEX will be led by debt or internal accruers are sufficient to cater

18:59 this on?

19:00 See, as of now, my profits are in the range of around 120 to 150 crores. So and my CAPEX

19:07 would be in the range of around 100 crores every year max. So I think I should be able

19:12 to manage out of my internal accruers and might be if I see down the line after a couple

19:17 of years, we might look at debt as an option if at all, if all the formulation ideas what

19:23 we are thinking is going to work, then I think we will be we might go in for a debt, but

19:28 that should be around two to three years down the line, not immediate.

19:31 Okay, so no debt?

19:33 Yeah, in the immediate future.

19:36 And so my next question would be for FY25, what sale number or for that matter, what

19:44 is the growth that you are expecting in terms of revenue?

19:49 Looking at the top line, I think we will be growing somewhere around 20 to 23%. I think

19:55 you can safely assume around 20 to 21%. That would be the growth which we will be looking

20:00 at.

20:01 And also Supriya has a target for 1000 crore sale. So when this I mean, when you're seeing

20:09 this number in your top line, I mean, by when can I expect this 1000 crores of sales?

20:13 Should be in FY27. I think that was the plan which we had committed and that we are sticking

20:18 to step.

20:19 So that is three years down the line.

20:20 Three years down the line.

20:21 And sir, we do know that Supriya has been guiding for about 28 to 30% in terms of margins.

20:29 But if you see in current quarter, your cost of raw material has gone down, I guess it

20:33 was 39% with respect to revenue versus 48% last year. So how do you see this number going

20:40 forward?

20:41 See, on the margins front, gross margins front, it would be very difficult to guide because

20:47 see, it depends on molecule to molecule and also the sale mix also determines that number.

20:53 So this is not an easy number to be what do you call a guide. So that's why we are guiding

21:00 on the EBITDA side wherein which we are always saying that we will be making around 28 to

21:05 30%. Gross margin guidance would be very difficult for sure.

21:09 Okay, sure. And sir, considering CAPEX, so now we do know what our sale number will look

21:15 like, we do know EBITDA number, how it will look like. But considering we are doing a

21:20 lot of CAPEX, so there is a depreciation which will come into place. So, I mean, please help

21:27 me understand this, will your part be suppressed for maybe short term or for two to three years?

21:33 There would be some short term suppression. See, to mitigate this, what we are also trying

21:39 to do is we are doing the formulation part phase wise. So that whatever we are, that

21:44 is going to generate revenue will be coming first and then all the rest will be coming

21:49 at a later point in time. So that is something which we are using to mitigate this risk.

21:54 But yeah, there will be a slight dip if at all if possible on the return on equity or

22:00 any of the other ratios for a shorter period of time.

22:03 Okay. And sir, I just wanted to know about since we are B2B business, we need to keep

22:10 inventory, a lot of inventory when it comes to raw material and finished goods. How do

22:15 you manage working capital? Because in FY23, your inventory days were quite high. So how

22:21 do you manage this? I mean, what are your strategies when it comes to managing working

22:26 capital? See, when it comes to working capital, specifically

22:29 in FY23, we had got a lot of materials from China and we had kept. I think that was an

22:35 important question. In fact, a couple of quarters ago, we had guided that we will be able to

22:40 correct this and specifically in December quarter, we were able to correct this inventory.

22:45 Inventory days were back to somewhere around 134 days. So I think we will be having around

22:51 150 days of inventory. I think that would be a safe bet to have.

22:55 Okay. And sir, my last question would be, I want to know how you look at return on equity

23:01 per se for maybe for next 2 to 3 years? I mean, how your ratios will look like?

23:07 See all the other ratios will be perfect. I do not think we will have problems on liquidity

23:14 or any problems on the EBITDA margins. Only the return on equity might fall a bit and

23:20 also the asset utilization will be falling a bit. Till the time we are, what do you call

23:25 the capacity utilization is going to be around say 70 or 80%. So once on module E as well

23:32 as the formulation plan, we are reaching the capacity. I think we should be back to our

23:37 asset turns somewhere around 2.6 to 2.7x. I think that should be a possible number.

23:42 2.7 to 2.8x is the asset turn over? Yeah, that we can always achieve.

23:47 Great. Thank you so much, sir. Thank you so much for answering the questions. I wish you

23:52 all the best. Thank you, Varsha.

23:53 Thank you.

23:55 Thank you.

23:56 (dramatic music)

Supriya Lifescience Has Big Expansion Plans | Know Your Company | NDTV Profit

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