KRChoksey has reaffirmed a ‘Buy’ recommendation for Supriya Lifescience Ltd. following its Q2 FY25 performance, with a target price of Rs644, indicating a potential upside of 16.2% from the current market price of Rs554. The pharmaceutical company’s growth was bolstered by strong revenue contributions across therapeutic segments, a favorable shift in product and geographical mix, and higher operational efficiency achieved through backward integration. Below is a detailed analysis of KRChoksey's report on Supriya Lifescience.

Overview of Q2 FY25 Performance

Revenue and Profit: Supriya Lifescience posted an 18.6% YoY revenue growth to Rs1,661 million, though slightly missing KRChoksey’s estimates by 1.2%. EBITDA surged 103.8% YoY, while PAT climbed 93.2% YoY due to effective cost control and an advantageous product mix.

Target Price and Valuation: KRChoksey increased Supriya’s PE multiple to 29.0x, up from the previous 25.5x, attributing it to growth in regulated markets and the potential in high-margin, niche segments. The revised target price of Rs644 reflects confidence in Supriya's backward integration strategy and expanding CDMO (contract development and manufacturing organization) business.

Key Growth Drivers

Strategic Expansion in Regulated Markets: Supriya has expanded into regulated markets in North America and Europe, where it has garnered new clients by meeting stringent quality standards, particularly in analgesics. The regulated market strategy is projected to maintain high demand and pricing power, enhancing the company’s revenue.

Backward Integration: By producing advanced intermediates in-house, Supriya has effectively reduced costs and improved its EBITDA margin, now forecasted to be between 32.0%-34.0% for FY25E. This is an increase from previous guidance of 30.0%, which illustrates the company’s ability to sustain high margins in competitive markets.

CDMO Expansion: Supriya's entry into the CDMO space is expected to drive revenue growth and diversify its income streams. As pharmaceutical companies increasingly rely on external development and manufacturing, Supriya’s strategic focus on CDMO is anticipated to increase revenue potential and capitalize on industry trends.

Segment-Wise Performance

Analgesics: With 54.9% of Supriya’s total revenue, the analgesics segment grew 16.2% YoY, reflecting robust demand in international markets. The company’s regulatory compliance and high-quality standards have fueled growth in this segment.

Anti-Histamines: The anti-histamine segment recorded exceptional growth at 451.3% YoY. This increase reflects expanded penetration in semi-regulated and regulated markets, supported by efficient cost control and wider market reach due to backward integration.

Vitamins and Anti-Asthma Products: The vitamins segment rose by 25.0% YoY, while anti-asthma products recorded a 9.1% YoY increase. Supriya’s partnership with DSM in the vitamin segment has allowed for multi-phase launches, supporting product diversification.

Regional Performance and Revenue Distribution

Supriya Lifescience’s growth strategy has expanded its presence in Latin America, which contributed 19.0% to total revenue in Q2 FY25, up from 13.0% in the previous year. This increase is largely due to effective registration processes and distribution strategies, particularly in Brazil. Additionally, higher revenue contributions from North America and Europe reflect the company’s success in regulated markets.

Guidance and Financial Outlook

Revenue Growth: Supriya’s management expects revenue to grow by over 20% in FY25, aiming to double its revenue to Rs10,000 million by FY27 through new product launches, growth in regulated markets, and CDMO opportunities. The robust growth outlook is supported by Supriya’s increased production capacity and strategic focus on regulated markets.

Earnings Per Share (EPS): KRChoksey projects an EPS of Rs19.8 for FY25E, which is expected to increase to Rs22.2 for FY26E, showing steady progress in profitability through strategic market penetration and operational efficiencies.

Investment Rationale and Valuation

Supriya Lifescience’s long-term prospects are underpinned by several favorable factors, including its focused expansion into regulated markets, backward integration, and product diversification. KRChoksey’s upgraded target price of Rs644 is based on the company’s 21.4% CAGR in revenue and 22.5% CAGR in adjusted PAT between FY24 and FY26E. These projections reflect confidence in Supriya’s growth strategy and operational leverage.

Risks and Considerations

While the report remains optimistic, it outlines key risks that could impact Supriya’s growth. These include regulatory compliance challenges in new markets, reliance on favorable market conditions in Latin America, and competitive pressures in the CDMO sector. The company’s ability to effectively manage these factors will be essential in sustaining its growth trajectory.

KRChoksey’s recommendation to ‘Buy’ reflects its positive outlook for Supriya Lifescience, bolstered by the company’s expanding footprint in high-margin segments and its aggressive entry into regulated markets and CDMO. This positioning, alongside its enhanced operational efficiency and backward integration, makes Supriya a promising investment in the pharmaceuticals sector. Investors are advised to consider the stock’s potential for upside growth as Supriya executes on its strategic initiatives and continues to deliver strong financial performance.