IPO Size: Rs. 3,043 cr

• Fresh Issue of Rs. 950 cr for Rs. 720 cr debt repayment (to become debt free)
• Offer For Sale (OFS) of Rs. 2,093 cr – 61% of OFS by TPG (39% stake to reduce to 25%), 16% of OFS by HBM PE (5% holding to drop to 2%) and 17% of OFS by the promoter (42% stake to shrink to 35%).  

Price band: Rs. 522-549 per share

M cap: Rs. 11,419 cr, implying 27% dilution

IPO Date: Wed 11^th Dec to Fri 13^th Dec 2024, Listing Wed 18^th Dec 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Pharmaceutical CRDMO Company

Sai Life Sciences is a Hyderabad-based innovator-focused contract research, development and manufacturing organization (CRDMO), generating 97% revenue from international clients. Contract research accounts for 35% of company’s Rs. 1,500 cr revenue, whereas development and manufacturing activities are at 65%. Company has 4 manufacturing facilities in India, with an aggregate installed capacity of 5.3 lakh litres per day and 60% utilization in H1FY25.

Interest Cost Savings in Future

On FY24 revenue of Rs. 1,465 cr, Sai Life clocked 21% EBITDA margin and 6% net margin. H1FY25 revenue was at  Rs. 675 cr, with 22% EBITDA margin and 4% net margin. EPS stood at Rs. 4.5 and Rs. 1.5 for FY24 and H1FY25 respectively.

As of 30.9.24, net worth stood at Rs. 1,046 cr, with debt seen high at Rs. 764 cr, leading to Rs. 85 cr annual interest cost. Entire debt will be repaid from fresh issue proceeds, which will boost net margin to about 9-10% going forward.

Exorbitant Pricing

Estimating an optimistic 75% utilization in FY26E and penciling in an EPS of Rs. 8 for the next fiscal, IPO is priced at a one-year forward PE multiple of 69x, which is unjustified, as company’s RoE will remain in single-digit, even going forward.

Listed Indian CDMO peers, also undertaking generics, like Innova Captab, Glenmark Life, Akums, Windlass are ruling at a PE multiples of 30-45x. Sai Life’s focus on pure innovation does not lead to superior margin / return ratios, making its pricing aggressive.

• Innova Captab, with Rs. 1,200 cr topline, 10% net margin, 17% RoE is trading at a PE multiple of 45x
• Glenmark Life with Rs. 2,200 cr topline, 19% net margin, 21% RoE is trading at a PE of 30x.

Selling Pressure, post listing

Post IPO, promoter holding will be only at 35%, with a huge selling overhang, as 2 PE investors (invested for 6+ years in the company) will continue to hold 27% stake, combined. Thus, shares will be subject to selling pressure, post expiry of 6 month lock-in period.