Sudeep Pharma Ltd.

Encashing margin expansion – an aggressively priced IPO

Sudeep Pharma Ltd (SPL) is a technology-driven manufacturer of pharmaceutical excipients and specialty nutrition ingredients with a strong focus on mineral-based products. Its operations are structured under two key verticals:

• Pharmaceutical, food and nutrition segment

• Specialty ingredients (micronutrient premixes, encapsulated ingredients, granulated minerals, triturated blends)

The company exports over 58% of its revenue and serves over 1,100 customers across nearly 100 countries. Its client base includes leading global and domestic names such as Pfizer, Intas, Mankind Pharma, Merck and Danone. Sudeep operates three plants in Gujarat and one in Ireland (acquired), with a combined manufacturing capacity of 72,000 TPA, certified by the USFDA and other global regulatory bodies.

SPL is also among the largest global producers and exporters of food-grade iron phosphate, a critical ingredient used in infant nutrition, medical nutrition and beverage applications. Repeat business exceeds 78%, with customer relationships averaging over seven years, indicating strong confidence and stickiness.

For the quarter ended 30^th June 2025, revenue contribution from the top five customers stood at 34.08%. Any loss of a major client or a sharp reduction in order volumes could materially impact the company’s revenues and profitability.

It plans to deploy Rs 76 crore from the fresh issue towards capacity expansion. Its strong R&D engine, backed by proprietary technologies in encapsulation and advanced processing, positions it in high-entry-barrier segments and supports premium pricing. Since 2023, SPL has undertaken more than 400 R&D projects, leading to the commercialisation of 125 products including both new formulations and enhanced variants of existing products.

IPO details:

Promoter holding will reduce from 89.4% to 76.2%. The firm issued two liberal bonus issues ahead of the IPO — 1:1 in June 2024 and 1.2:1 in October 2024. Owing to these liberal pre-IPO bonus issues and favourable preference-share conversion terms, the promoters’ weighted cost of holding is less than one rupee, compared to the upper OFS price band of Rs 593.

Financial performance:                                                   (Rs. in crore)

SPL recorded moderate single-digit revenue growth of 8.2% at Rs 502 crore in FY25 as compared to Rs 429 crore in FY23. Its net profit delivered an impressive CAGR of 49% as EBIDTA margin expanded sharply from 22.7% in FY23 to 39.8% in FY25.

Comparison of Sudeep Pharma with Mid-Size Pharma Peers:

As stated in the RHP, the company does not have any direct peer in the pharma space, as it operates primarily in Specialty Ingredients and Excipients, differentiating its financial profile from generic formulation and API-focused mid-cap pharma firms.

At the upper price band, Sudeep Pharma’s post-IPO market capitalization stands at ~ Rs 6,698 crore, placing it alongside mid-size companies such as FDC, Marksans and Akums Drugs, though their business models differ significantly from Sudeep.

Sudeep has the highest profit margins among these peers. FDC, which is nearly four times larger than Sudeep, is valued at 3.3 times its revenue whereas Sudeep is valued at 13.3 times revenue in its IPO. The key reason is Sudeep’s EBIDTA margin, which is nearly twice that of FDC.

The company’s high margins stem from its focus on high-value Specialty Ingredients such as encapsulated minerals, liposomal preparations and specialized excipients. These products have high entry barriers, limited pricing pressure and structurally superior profitability compared to basic generics.

Major risk factor as defined in the RHP:

The company operates in a regulated pharmaceutical and food ingredients industry where its manufacturing facilities undergo strict, periodic inspections and audits by global regulatory bodies such as the US FDA, as well as by customers. Any manufacturing or quality-control lapses or an inability to clear these audits could lead to regulatory action, cancellation of orders, and significant reputational damage.

Margin expansion, despite modest topline growth, is already factored into the IPO pricing. There is no assurance that such margin expansion will sustain in the future.

Anchor Investors:

Out of the total anchor allocation of 45,27,823 equity shares, 36,05,799 shares were allotted to 14 domestic mutual funds. Tata AIA Life Insurance and SBI Life Insurance have also participated along with Prashant Jain’s 3P Investment in the anchor book.

While the presence of prominent anchor investors adds confidence, it does not guarantee listing gains or future returns. Many investors, however, derive comfort from their participation.

The IPO of Sudeep Pharma Limited is widely seen as backed by strong business fundamentals but considered aggressively priced, making it more suitable for medium to long-term investors.
The unofficial and unreliable grey market indicates moderate to decent listing gains.

Disclaimer:

The writer is not a SEBI-registered analyst. He and his friends or relatives may or may not participate in the IPO. This article is purely for educational purposes. Investors should consult their financial advisors before making any investment decisions. Grey market premiums should be used only as indicative measures and not as reliable benchmarks for listing performance.