SPC Life Sciences Limited IPO

SPC Life Sciences Limited has filed its DRHP with market regulator SEBI on March 29, 2023 to raise capital through IPO. The IPO of the Company consists of Fresh Issue and Offer for Sale both. The size of Fresh Issue is up to [●] Equity Shares aggregating up to ₹ 300 crore and Offer for sale of up to 8,938,870 Equity Shares aggregating up to ₹ [●] crore. As part of OFS, the selling shareholders is Snehal Ravjibhai Patel who will affload up to 8,938,870 Equity Shares.

Business Model of the Company

SPC Life Sciences Limited is one of India’s leading manufacturers of advanced intermediates for certain key active pharmaceutical ingredients (“APIs”), including Pentoxifylline, Amiodarone HCL, Cilostazol, Trazodone, Tramadol and Paroxetine (Source: F&S Report). The Company is a research and development (“R&D”) driven chemical manufacturing company focused on chemistries involving long chain multi-stage reactions.

The advanced pharmaceutical intermediates (“Pharma Intermediates”) which are manufactured by the Company are used in certain growing therapeutic areas including cardiovascular, vasodilator (anti-platelet), anti-psychotic and anti-depressants, with significant market share both in India and globally for some of the products. (Source: F&S Report). Equipped with a US FDA approved facility for 6-Chloro-Hexane-2-One, the Company can develop Pharma Intermediates and work with pharmaceutical companies who seek US FDA compliant manufacturing facilities as a part of their supply chain. The Company is the world’s largest manufacturer of 6-Chloro-Hexane-2-One (an intermediate for cardiovascular (hemorheological) drug Pentoxifylline) in Fiscal 2022 with 93% market share. (Source: F&S Report)

The Company is the only supplier for 2-N-Butyl-3-(3,5-Diiodo-4-HydroxyBenzoy) Benzofuran (which is a key structural componentof Amiodarone HCL) and associated sub products in India with 20% global market share in Fiscal 2022 (Source: F&S Report). The Company is a manufacturer of 2-Di Ethyl Amino Ethyl Chloride Hydrochloride (which is also a key structural component of Amiodarone HCL) with 13% global market share in Fiscal 2022. (Source: F&S Report). Such intermediates manufactured by the Company (which are used in the manufacturing of Amiodarone HCL) are categorised as import substitutes. (Source: F&S Report)

Globally, the Company is one of the major manufacturers of all the key intermediates of Central Nervous System (“CNS”) anti-depressant, anti-psychotic drug Trazodone, and was second largest Indian supplier in Fiscal 2022 of two key intermediates of Trazodone, namely,1-(3-Chlorophenyl)-4-(3-Chloropry) Piperazine Hydrochloride with an 18% global market share and 1,2,4- Triazolo [4,3-A] Pyridin-3(2H)-One with a 11% global market share (Source: F&S Report).

Management of the Company

(i) Snehal Ravjibhai Patel is the Promoter and Managing Director of the Company. He holds a master’s degree in business administration from Shivaji University, Kolhapur. Prior to joining the Company, he was a partner at Snehal Pharma Chem, until it was dissolved in April, 2006. With effect from April 3, 2006, he was appointed as the Managing Director of the Company.

(ii) Ravjibhai Dudabhai Dudhat is a Whole-time Director of the Company. He holds a master’s degree of science in chemistry from Saurashtra University, Bhavnagar. Prior to joining the Company, he was employed as the junior scientific assistant at the Department of Medicinal Chemistry, Food and Drug Laboratory, Vadodara. He has been a director in the Company since its incorporation. With effect from March 21, 2023, he was appointed as a Whole-time Director of the Company.

Object of the Issue

Offer for Sale
The Company will not receive any proceeds from the Offer for Sale by the Promoter Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. The Promoter Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Fresh Issue

The net proceeds are proposed to be utilized in the following manner:

1. Re-payment/Prepayment of certain outstanding borrowings availed by the Company;

2. Funding of capital expenditure requirements of the Company towards setting up Phase – 2 at its Dahej Facility to expand product offerings of pharmaceutical intermediates;

3. Funding working capital requirements; and

4. General corporate purposes

Further, the Company expects to receive the benefits of listing the Equity Shares on the Stock Exchanges, which will result in enhancement of visibility and brand image among its existing and potential customers.

Risks in the IPO

Subject to strict quality requirements

The Company is subject to strict quality requirements, regular inspections and audits by the customers, and any failure to comply with quality standards may lead to cancellation of existing and future orders and could negatively impact the business, financial condition, results of operations and prospects it may impact the reputation as well.

Subject to certain risks consequent to its operations

The manufacturing processes involve storage and transportation of various hazardous substances such as Thionyl Chloride, Sodium Azide, Bromine, Sodium Methoxide, Phosphorus Penta Chloride, Aluminium Chloride, Phosphorus Oxy Chloride, Nitic Acid, Sulphuric Acid amongst others, and the Company is required to obtain approvals from various authorities for storing, disposing, discharging and releasing hazardous substances. The occurrence of any accident may result in the shutdown of one or more of manufacturing facilities and expose the Company to civil and/or criminal liability which could have an adverse effect on the business, financial condition and results of operations.

Risk of losing major customers

The Company depends on the success of relationships with its customers. The Company derives a significant part of its revenue from the major customers and the Company does not have long term contracts with these customers. If one or more of such customers choose not to source their requirements from the Company, the business, financial condition
and results of operations may be adversely affected.

Significant portion of Revenue is dependent on few products

The Company derives a significant part of its revenue from a few products such as intermediates for Pentoxifylline and Amiodarone HCL. If the products lose favour with the customers or APIs produced using the products lose market share or favour with end users or if the Company is unable to protect its intellectual property in respect of these products or processes, the business, financial condition and results of operations may be adversely affected.

Lack of long term agreement with raw materials suppliers

The Company does not have long-term agreements with suppliers for its raw materials and an increase in the cost of, or a shortfall in the availability or quality of such raw materials could have an adverse effect on the business, financial condition and results of operations.

Financial Performance

As per the financial statements of the Company, here are Financial Highlights for FY22 compared to FY21:

1. Total revenue in FY22 increased by 7% to Rs. 146 crore compared to Rs. 136 crore in FY21.

2. Total expenses in FY22 increased by 6% to Rs. 120 crore compared to Rs. 113 crore in FY21.

3. Profit before tax in FY22 increased by 16% to Rs. 25 crore compared to Rs. 22 crore in FY21.

4. Net profit in FY22 increased by 18% to Rs. 19 crore compared to Rs. 16 crore in FY21.

5. Total assets in FY22 increased by 34% to Rs. 138 crore compared to Rs. 102 crore in FY21.

6. Total equity and liabilities in FY22 increased by 34% to Rs. 138 crore compared to Rs. 102 crore in FY21.

7. Total cash generated from operating activities in FY22 remained unchanged at Rs. 13 crore compared to FY21.

8. Total cash used in investing activities in FY22 increased to Rs. (33) crore compared to Rs. (5) crore in FY21.

9. Total cash generated from financial activities in FY22 was Rs. 14 crore compared to Rs. (2) crore used in FY21.