Senores Pharmaceuticals is 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.

Identifies and develops a diverse range of specialty, underpenetrated, and complex pharmaceutical products, and manufactures critical care injectables and APIs. As of September 30, 2024, the company has launched 55 products in key therapeutic areas, including antibiotics and anti-fungal treatments.

The product portfolio consists of Amphetamine Sulfate Tablets, Hydroxychloroquine Sulfate Tablets, Ketoconazole Tablets, Butalbital, Acetaminophen and Caffeine Capsules, Mexiletine Hydrochloride Capsules, Ketorolac Tromethamine Tablets, Diclofenac Potassium Tablets, Diclofenac Potassium Tablets, Nicardipine Hydrochloride Capsules, Escitalopram Tablets, Prochlorperazine Maleate Tablets USP, Terazosin Capsules USP, Morphine Sulfate Tablets, Methadone Hydrochloride Tablets, Cyclobenzaprine Hydrochloride Tablets, Irbesartan Tablets, Risperidone Tablets Topiramate Capsules, and Ivermectin Tablets for regulated markets.

In H1 FY25, Regulated Markets contributed 60.97% to revenue, Emerging Markets 32.37%, Critical Care Injectables 1.45%, API 3.41%, and Others 1.80%.

As of September 30, 2024, operates three dedicated facilities capable of producing a wide range of pharmaceutical products in various dosage forms across several major therapeutic areas, including complex oral solids and injectables, oral liquids, ORS, and APIs, and is in the process of consolidating these into a single proposed facility in Ahmedabad.

Regulated Markets business is operated through two subsidiaries: Havix, which has a US FDA-approved oral solid dosage (OSD) facility in Atlanta, and SPI, a US-based company that holds the intellectual property for ANDA approvals and partners with marketing firms. This business mainly serves the US, Canada, and the UK, and is expanding its reach into other regulated and semi-regulated markets.

The regulated market is served through two business models: (1) marketed products, which accounted for 78.08% of regulated market revenue in H1 FY25 and include ANDA and sourced products; and (2) contract development and manufacturing operations (CDMO), contributing 21.92%.

Revenue model includes: (i) an in-licensing 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.

As of September 30, 2024, received approvals for 19 ANDAs and have commercialized 21 products in the US and Canada markets on the basis of these ANDAs.

Between January 2018 and May 2024, 40% of the company‘s approvals received Competitive Generic Therapeutic (CGT) designation, exceeding the industry average of 29.2%. This designation provides six months of marketing exclusivity for these products.

Caters to the emerging market business through a WHO-GMP approved manufacturing facility located in Chhatral (Ahmedabad), Gujarat. The company undertakes its emerging markets business through its subsidiary, RPPL. As of September 30, 2024, it markets products in 43 countries within the emerging markets, having obtained product registrations for 205 products and filed registrations for an additional 406 products.

The emerging markets are served through four business models: (1) Distributor Model, which accounted for 36.41% of emerging market revenue in H1 FY25, where distributors distribute the products under their own brands; (2) P2P Model, representing 60.05%, which involves manufacturing formulations for major Indian pharmaceutical companies; (3) CDMO, contributing 3.54%; and (4) Own Brands, a business model currently in the process of being established to manufacture and market products under the company‘s own brand names.

Launched Critical Care Injectables Business in August 2022 for supply of critical care injectables across India to various hospitals through its distributors to leverage injectable manufacturing capabilities.

Commenced the business of manufacturing APIs with the objective of having an API manufacturing facility as a backward integration activity. While API business currently caters to the domestic market and SAARC countries, in the medium to long-term it intends to manufacture APIs for the Regulated Markets and in the semi-Regulated markets as a direct product sale.

Manufactures APIs through the Naroda facility and is in the process of setting up a new Greenfield unit for the manufacture of APIs at Chhatral, Gujarat. As of September 30, 2024, successfully commercialized 16 APIs, including oncology APIs.

Intends to enhance the market presence of its marketed products in North America and other regulated markets. In H1 FY25, it derived 74.4% of its revenue from exports. Additionally, it plans to enter the NDA products segment in the US market.

Offer and its objects

The IPO comprises fresh issue of equity shares worth up to Rs 500 crore and an offer for sale of 21,00,000 equity shares aggregating up to Rs 82.11 crore by Swapnil Jatinbhai Shah, Ashokkumar Vijaynsinh Barot, Sangeeta Mukur Barot and Prakash M Sanghvi.

Price band for the IPO is Rs 372 to Rs 391 per equity share of face value Rs 10 each.

The objectives of the fresh issue include Rs 107 crore for investment in one of its subsidiaries, Havix, to fund capital expenditure requirements for setting up a manufacturing facility for the production of sterile injections at the Atlanta facility, Rs 93.7 crore for repayment/prepayment of certain borrowings, Rs 43.25 crore for funding working capital requirements, Rs 59.48 crore for investment in its subsidiaries, namely SPI and Ratnatris, and the remaining amount for general corporate purposes.

The promoters are Swapnil Jatinbhai Shah and Ashokkumar Vijaysinh Barot. The promoters and promoter group hold an aggregate of 2,21,76,079 equity shares, aggregating to 66.67% of the pre-offer issued and paid-up equity share capital. Their post IPO shareholding is expected to be around 45.76%.

The issue, through the book-building process, will open on 20 December 2024 and will close on 24 December 2024.

Strengths

Robust R&D capabilities help develop and manufacture a portfolio of underpenetrated and complex pharmaceutical products.

Established partnerships with both foreign and Indian pharmaceutical companies, including Prasco LLC, Lannett Company, Jubilant Cadista, Alkem Laboratories, Sun Pharmaceuticals, Dr. Reddy’s Laboratories, and Cipla USA.

Focused on low-competition markets, which helps reduce price erosion and allows it to capture a larger market share. It was the first globally to identify the CGT designation for Chlorzoxazone 250mg and launched the product in 2021 with six months of exclusivity. As a result, it achieved a 60.9% market share by volume during the first 11 months of 2023.

The strategy to manufacture its own APIs will enable vertical integration, helping the company source products cost-effectively while ensuring the quality and availability of essential raw materials.

Well-prepared to capitalize on growth in the pharmaceuticals market by pursuing strategic acquisitions, and focusing on expanding capabilities.

Extensive experience of promoters and senior management personnel.

The Atlanta Facility has a strong regulatory track record of compliance having been audited and approved by the US FDA four times since commencement of its operations, with the latest audit being completed in April 2024.

Weaknesses

Subject to extensive regulation. Any failure to comply with the existing and future regulatory requirements in the pharmaceutical market could adversely affect the business.

A significant portion of its revenue comes from a few customers. In H1 FY25, the largest customer and the top 5 customers contributed 20.56% and 56.84% of revenue, respectively. Losing one or more of these customers could negatively affect the business.

Experienced negative cash flows from operating activities in the last three Fiscal years and may continue to have negative cash flows in the future, which could have an adverse effect on business.

There are outstanding legal proceedings (including criminal proceedings) involving its directors, and Subsidiaries. An adverse outcome in any of these proceedings could negatively affect the business.

Derives the majority of its revenue from the United States, which represented 59.8% in H1 FY25. This significant dependence expose the business to risks associated with exchange rates, regulatory changes, or geopolitical factors.

The erstwhile statutory auditors have issued a qualified opinion in connection with their audit report for Fiscal 2022.

The business requires a substantial amount of working capital to maintain its operations, which can strain financial resources and limit flexibility.

There have been instances of delays in the payment of statutory dues in the past. Any future delays in payment of statutory dues may result in penalties.

Havix, its subsidiary in the United States depends solely on one supplier for each API in an ANDA product; loss of such supplier may have an adverse effect on business.

Valuation

Havix was acquired on May 3, 2023, and its impact is reflected in the restated consolidated statement of profit and loss for Fiscal 2024. Additionally, since RPPL became a subsidiary on December 14, 2023, its impact is included in the restated consolidated statement of profit and loss for the six months ended September 30, 2024, and Fiscal 2024. As a result, the restated consolidated statement of profit and loss for Fiscal 2024 is not directly comparable to those for Fiscal 2023 and Fiscal 2022.

The H1 FY25 annualized EPS on post-issue equity works out to Rs 10.23. At the upper price band of Rs 391, P/E is 38.

Listed peers such as Ajanta Pharma traded at TTM P/E of 41, Alembic Pharmaceuticals trades at TTM P/E of 32, Caplin Point Laboratories at TTM P/E of 37, and Gland Pharma at TTM P/E of 42 as on 19 December 2024. The OPM and ROE stood at 19.39% and 23.6% respectively, in FY 2024. These were 27.85% and 22.87% for Ajanta Pharma, 14.99% and 12.78% for Alembic Pharmaceuticals, 32.55% and 20.39% for Caplin Point Laboratories and 23.53% and 11.59% for Gland Pharma, respectively.