IPO Overview

Sudeep pharma is a good quality company. However, the IPO ask valuation of 13x P/S doesn’t give much comfort to invest at this point of time. India being one of the largest producers of APIs depends heavily on import (~80%) for its excipient requirements (formulations used alongside API to make drugs). Sudeep Pharma has been manufacturing excipients for over 35 years and supplies to well-known clients such as Pfizer, Danone and Mankind. The company has delivered steady growth (28% sales CAGR for 10 years) and has consistently maintained ROCE > 20% (over 9 years). Its margins doubled in the last 2 years driven by a better product mix and focus towards domestic markets. The management plans on increasing business in the high growth and high margin products such as Special ingredients and Battery-grade mineral compounds. The promoter has skin in the game – He bought the entire stake of its JV partner JRS Pharma through a promoter entity in 2024.Based on the current GMP of ~20%, one can expect decent listing gains, provided the GMP sustains.While the business quality is good, the stock is expensive at current levels. A few quarters of performance and a more reasonable valuation could offer a better entry point.