Senores Pharmaceuticals Ltd. (Subscribe)

Highlights

Senores Pharmaceuticals Limited (SPL) incorporated on 2017, is global research driven pharmaceutical company engaged in developing and manufacturing a wide range of pharmaceutical products predominantly for the Regulated Markets of US, Canada and United Kingdom across various therapeutic areas and dosage forms, with a presence in Emerging Markets.

SPL Regulated Markets Business is carried out through two subsidiary companies, Havix, which houses US FDA approved oral solid dosage (OSD) facility at Atlanta, US and, SPI, a US based company holding the intellectual property used by the Company, specifically fo ANDA approvals and enters into agreement with marketing partners.

The company has adopted 2 business models for their Regulated Markets Business: (I) Marketed products (Marketed Products) which includes ANDA Products and Sourced Products; and (II) contract development and manufacturing operations (CDMO)/ contract manufacturing operations (CMO).

SPL entered into long-term marketing arrangements for a period ranging between 5-7 years with major generic pharmaceutical and marketing companies which operate in the Regulated Markets including Alkem Laboratories Limited, Lannett Company Inc., Prasco LLC, Jubilant Cadista Pharmaceuticals Inc., Sun Pharmaceuticals Industries Limited etc. Their revenue model includes (i) an inlicensing fee on a negotiated basis based on various milestones; (ii) transfer price; and (iii) profit share which is ascertained at the time of finalizing the agreement.

Out of the total proceeds of Rs. 5821 mn, ~Rs. 1070 mn utilize towards funding CAPEX of the subsidiary, Rs. 937 mn would go towards loan repayment of the company and its subsidiaries, Rs.1,028 mn would go towards funding working capital requirement of the company and its subsidiaries, Rs ~Rs. 1,965 mn would go towards inorganic growth through acquisition and other strategic initiatives and general corporate purposes and Rs. 821 mn would go towards existing promoter selling shareholders of the company.

Key Highlights

• The US Pharmaceutical market is valued at USD 711 bn in CY23 and it is estimated to reach USD 1010 bn by CY28F. US accounted for nearly 43 pct of the global market, 56 pct of the regulated market, and 91 pct of the North American market, and it is expected to maintain its dominance during the forecast period.
• With an emphasis on research and development, the company has consistently demonstrated its capability to propel products from initial conception to successful commercialization. Their strength lies in taking a product from conceptualization to market launch, ensuring tangible results and delivering solutions to market successfully.
• As of H1FY25 SPL marketed their products in 43 countries in the Emerging Markets and have obtained product registrations for 205 products and have filed product registrations for 406 products. Their Chhatral Facility has received approvals from the regulatory bodies of 10 countries.
• They launched their Critical Care Injectables Business in August, 2022 for supply of critical care injectables across India to various hospitals through their distributors which was launched to leverage injectable manufacturing capabilities.
• The company believe their ability to serve Regulated Markets through US FDA-approved formulation manufacturing facility in the US provides them with a distinct competitive advantage. This approval not only ensures compliance with stringent regulatory standards but also enhances SPL credibility and market reach, positioning them favourably against competitors.
• SPL’s key growth strategies include (i) Enhance market presence of their Marketed Products in North America and other Regulated Markets (ii) Launch of products in the US with New Drug Applications (NDA) approval (iii) Expanding into new Regulated and Emerging Markets (iv) Strategic alliance for CMO/ CDMO in Regulated Markets (v) Pursuing an integrated approach to business by enhancing capabilities for greater backward integration (vi) Inorganic growth through synergistic acquisitions.
• During FY24, company reported sales of Rs. 2,145 mn which grew by 507 pct YoY due to Acquisition of Havix while EBITDA grew by 171 pct YoY to Rs. 444 mn. As of FY24 the company reported profit of Rs. 252 mn which was grew 283 pct YoY. As of H1FY25 company registered sales/EBITDA/Profit of Rs. 1,810 mn/Rs. 469 mn/ Rs. 137 mn.

Key Risk

• The company derive a major portion of their sales from the United States. A reduction in demand for products in these regions could adversely affect SPL business.
• The company has contingent liability of Rs. 1,187 mn which is 1/3^rd of its book value.
• The capacity utilization of the company very low and stood at 21 pct in FY24 and 48 pct in H1FY25.

Financial Performance

Peer comparison based on FY24 Financials

Valuation

Senores Pharmaceuticals is a thought-leading pharmaceutical company all set to leave its footprints in the global market and currently developing niche, complex and specialty pharmaceuticals products. At the upper end of the price band of Rs. 391 the issue is priced at a PE of ~28 its FY25E annualised earnings. The issue looks fully priced. One can subscribe this issue from a longer term perspective.

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