Viewpoint

Shilpa Medicare Limited

Niche API player; Reasonable valuations

Shilpa Medicare Limited (SML) is a niche active pharmaceutical ingredient (API)

Sector: Pharmaceuticals player and is building its presence in formulations space also. The company has
strong manufacturing capabilities in oncology therapy whilst being present in the
New Idea non-oncology side as well. SML supplies more than 30 oncology APIs to various
regulated markets, including US, Europe, and Japan. The API segment constitutes
Change 55% of revenue, while the formulations segment accounts for around 27%. Leveraging
its capabilities in the API space, SML has forward integrated into formulations.
View: Positive SML has set its focus to grow the high-margins formulations business,backed by a
sturdy product pipeline and increasing geographic reach. The share of formulations
CMP: Rs. 511 in total sales has increased meaningfully and is set to increase going ahead as
well. SML has launched two new products in the US, taking the total formulations
Upside potential: 33-35% product count to 8. The company is gaining market share in these segments. SML
expects additional launches in the US in FY2021, which would support growth.
The company has also commenced the commercializationof generic products
á Upgrade  No change â Downgrade
in EU markets, which would further boost the formulations segment’s growth. A
shift in sales mix in favor of high-margin formulations segment augurs well for the
Company details company. SML’s API business is also standing strong. Array of opportunities lie
ahead for the API segment, including search for alternate source of procurement
Market cap: Rs. 4162 cr by global players. This is complemented by expanded capacities with regulatory
approvals in place and a strong product pipeline, which would unfold going ahead.
SML has also recently acquired a research-focused drug development company,
52-week high/low: Rs. 692/225 which is expected to strengthen its R&D capabilities and, in turn,increase the new
product pipeline. The company has also stepped in the biopharmaceutical space,
NSE volume: (No of with products that offer substantial market opportunities for growth. Further,
2.36 lakh capacity expansion plans lined up by the company provide ample visibility on the
shares)
growth going ahead and is likely to contribute to topline FY2023 onwards. SML
BSE code: 530549 expects biologics business to provide value unlocking opportunities going ahead.
Moreover, management has stated that it would continue to explore organic and
inorganic growth opportunities. If pursued, it could provide a sizeable growth
NSE code: SHILPAMED potential.

Sharekhan code: SHILPAMED Valuations:

Initiate Viewpoint coverage with a 33-35% upside: SML is aniche API player and an
Free float: (No of emerging company in the formulations space. The company has a strong presence
3.7 cr in the oncology segment and is gradually expanding to other areas. Leveraging its
shares)
capacities in APIs, the company has forward integrated in the formulations segment.
SML is emphasizingon growing the formulation business, which yields higher margins
as well as opens up an array of opportunities. Higher sales contribution from the
Shareholding (%) formulations segment is likely to be a growth driver for SML. The API business, in
which SML has a strong foothold, is also expected to grow in double digits, backed
Promoters 53.8 by emerging opportunities in this space. This coupled with a strong product pipeline
and expanded capacities would support topline growth.Expansion plans lined up by
the company provide ample visibility on growth going ahead. Newer areas of bio
FII 19.0 pharmaceuticals would contribute to growth though over the long term. Benefits of
operating leverage andfavorable mix would result in margin expansion and drive
DII 7.8 earnings. SML’s sales and PAT are expected to post 17% and 22% CAGR over FY2020-
FY2022. At the CMP, the stock trades at an attractive valuation of 22x/17.8x its FY2021/
Others 19.4 FY2022E EPS. Strong growth prospects, earnings visibility, and sturdy balance sheet
due to lower debt, healthy return ratios, and reducing proportion of promoters’ pledge
are key positives and could support multiple re-rating. We initiate viewpoint coverage
on the stock and expect an upside of 33-35%.
Price chart
Key Risks
700
600 Š Any adverse change in the regulatory landscape can impact the earnings
500
prospects.
400 Š Slower than expected pick up in the formulations segment.
300
200 Valuation Rs cr
100 Particulars FY19 FY20 FY21E FY22E FY23E
May-20
Sep-19

Sep-20
Jan-20

Total Sales 733.4 907.9 1069.1 1244.0 1460.8

EBIDTA 169.6 236.7 290.2 353.9 428.7
OPM (%) 21.2 24.2 25.4 26.8 27.8
Price performance Reported PAT 92.4 156.9 189.3 233.0 287.7
(%) 1m 3m 6m 12m EPS (Rs) 11.3 19.2 23.2 28.6 35.3
PER (x) 45.0 26.5 22.0 17.8 14.5
Absolute -13.3 19.7 12.9 120.5 EV/EBIDTA(x) 24.9 18.7 15.1 12.1 9.8
P/BV (x) 3.5 3.1 2.8 2.4 2.1
Relative to ROCE (%) 8.8 11.1 12.4 13.7 14.9
-15.1 6.8 13.0 116.1
Sensex
RONW (%) 9.4 11.8 12.6 13.5 14.4
Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates

September 04, 2020 8

 Viewpoint
Global pharma industry well set to grow at a healthy pace:The global pharmaceutical market is expected
to exceed $1.5 trillion by 2023 from an estimated $1.2 trillion in 2018. US, with a share of 38%,is the largest
pharmaceutical market in the world. The global API market is estimated to reach $245.2 billion by 2024
from $182.2 billion in 2019, translating to a CAGR of 6.1% for the period. Global small molecule API market
is expected to rise from its initial estimated value of $151.30 billion to an estimated value of $254.38 billion
by 2026. This translates in to CAGR 6.7% for the period. The Indian generic industry is expected to post
15% growth to achieve a size of $55 billon by the end of 2020. APIs for these generics are expected to be
manufactured and sourced from countries such as India and China.

Concentration of API Manufacturing Facilities by Region

Rest of world, 13%

Canada, 2% EU, 26%

US, 28%

China, 13%

India, 18%

Source: Company, Sharekhan Research

India is one of the top formulation drug exporters in the world, but its pharmaceutical industry relies heavily on
imports of bulk drugs, which are a key input for formulations. As the industry matured and grew, Indian players
graduated to the highly lucrative formulation part of the value chain compared to API. Imports from China
have been on a steady rise over the years due to low-cost advantage enjoyed by Chinese manufacturers.
With high import dependency on a single nation, the domestic pharmaceutical industry is at high risk of
supply disruptions and unexpected price movements. This calls for a pressing need for self-sufficiency in the
API industry and reduce the dependence on imports. In line with this, the government is taking measures to
boost API production in the country and this is likely to benefit companies such as SML, which have a higher
presence in the API space.
Emerging Opportunities; Strong product pipeline and expanded capacities to drive the API segment’s
growth: SML’s API segment’s revenue hasstaged a remarkable performance. Revenue increasedby 11.5% for
FY2020 after a decline in the FY2019. Strong momentum continued in Q1FY2021 with API sales growing by an
impressive 33% y-o-y. Better performance in oncology API business drove growth. Going ahead, the strong
performance is expected to sustain as the API segment is opening up to multiple emerging opportunities,
world over. China is a major supplier of pharmaceutical raw materials including - key starting materials (KSM),
intermediates, and APIs. The COVID-19 related disruption has certainly raised concerns in terms of sourcing
of inputs for the global pharma industry, as the dependency on Chinawas substantial for intermediates and
APIs. Consequently, companies world over are hunting for an alternate source for procurement of APIs as
the trend now shifts in favour reliable supplies, which takes precedence over pricing. Players such as SLM
with a substantial presence in the API space (the API revenue accounts for 55% of FY2020 revenue) and a
leadership position in the niche segment of oncology are set to be one of the key beneficiaries.

September 04, 2020 9

 Viewpoint
Patent Filling Pipeline - as of June 2020
Patents Fillings Granted Pending
API 201 35 166
Formulations 104 11 93
Films - Topicals& transdermal 46 2 44
Biologics 7 2 5
Others 22 1 21
Total 380 51 329
Source: Company; Sharekhan research

SML has a strong pipeline of patent fillings. As of June 2020,SMLhas filed for 201 patents, while ithas been
granted approvals for 35. Thus, it is awaiting clearance for 166 patents. Moreover, the company plans to
commercialise3-4 new molecules every year. In addition to this, of the total development pipeline, around
34% of the assets are Oncolytics.Thispoints at a strong product pipeline, which is expected to bear the fruits
in the time to come.Further, the company had increased capacities for various APIs in FY2020.Moreover, the
company is in the process of debottlenecking oncology production blocks by enhancing capacity by 40-70%.
The same is likely to come on stream by FY2021. Moreover SML’s key plants are approved by regulators
across the world. The company has clearance from various regulatory agencies - USFDA, WHO-GMP, EUGMP,
TGA, PMDA, KFDA, and TPD.Moreover, these plants have a multi-product capability for oncology andnon-
oncology,thus pointing at minimal regulatory hindrances. An array of opportunities lies ahead for SML’s API
segment. This is complemented by expanded capacities with regulatory approvals in place and a strong
product pipeline. Cumulatively, these levers are expected to drive the API segment’s performance, which is
expected to report double-digit growth over the next two years.
Formulations segment gaining momentum backed by increased geographic expansion and strong
pipeline: SML is an emerging player in the formulations space. The companyis leveraging its capabilities
in the API space to forward integrate in the formulations segment.In the recent years,the company has
successfully entered regulated markets with formulations products. SML commenced supplies to the US
generic formulations market through the launch of Capecitabine and Azacitidine in FY2017. Since then, the
segment has staged a strong performance. For FY2020, revenue at Rs. 191 crore have almost doubled as
compared to Rs. 89 crore in FY2018. Q1FY2021 performance was also phenomenal with the segment’s topline
growing by an impressive 78% y-o-y. Going ahead, SML has plans to focus on the fast growing and lucrative
formulations space. Management has identified multiple levers that are expected to propel growth for the
segment going ahead.

Formulations Product Pipeline - as of June 2020

Patents Fillings Approved Pending
US ANDAs
By SML 22 13 9
By Customers 20 12 8
Total (US) 42 25 17
EU Filings 19 13 6
Total (US +EU) 61 38 23
Source: Company; Sharekhan research

During FY2019-FY2020,SML has received regulatory approval for ANDAs of the generic versions of
Pirfenidone, Zoledronic Acid, Busulfan,Erlotinib and Bortezomib. In the same year, the company filed for four
ANDAs and one NDA, including one as FTF (First to File). The approved products are expected to be launched
in the US in the near term. A meaningful traction is likely from these in FY2022.In addition to this, the company
has a strong product pipeline with total fillings across US and EU at 61 as of June 2020. Of this, the company
has received approval for 38 products and is awaiting approval for 23. Off the 23 products awaiting approval
17 are filed with the USFDA, while sixare in EU. In FY2019-FY2020, the company filed for fourANDAs and one
NDA, including one as FTF, thus pointing at the strong pipeline. Given the strong in-house R&D, management
looks to file for more products in Europe, especially in the oncology space, in which it has a strong foot
hold. Apart from recent launches and a strong new product pipeline, emphasis on geographical expansion
is also likely to aid growth in the segment. SML is expanding its sales and distribution network for generic
formulations. Recently, the company has established wholly owned subsidiaries in Canada and Spain and is
September 04, 2020 10
 Viewpoint
in the process to develop a marketing team across Russia, Europe, Brazil, and other geographies. Therefore,
a strong product pipeline, expanding geographical penetration coupled with enhanced emphasis laid by the
management on growing the formulations business make us optimistic on new order wins in the segment.
The formulations segment yields better margins as compared to the API segment due to better operational
efficiencies. With increased traction in formulations sales, contribution of the segment in the company’s sales
is expected to increase, thus pointing at better operating margins.
Foray in Biologics, OTC, to open up a new growth avenue, provides potential value unlocking opportunities:
In the recent past, SML forayed in the new areas of bio pharmaceuticals (biosimilars). The company sees huge
potential going ahead from this segment. With a view to unlock value in the biologics business, SML has formed a
100% subsidiary company – Shilpa Biologicals, which houses all the biologics assets currently. The subsidiary
company has sixbiosimilars and one new biological entity in its pipeline, with fourof the top 10 biologics in its
pipeline.The company is in advanced stage for setting up of a state-of-the-art biologics manufacturing facility
for Monoclonal antibodies and biologics in Belur, Dharwad. The facility consists of two production lines for
drug substance. SML is awaiting an approval from drug controllers’ office to commercialiseits first molecule
from this facility. Phase I of the facility is on schedule to be commissioned in quarter 2 of 2020. The Dharwad
facility commissioning with a strong in-house R&D would enable the company to vertically integrate in the
biopharmaceutical space, which would be a key plus point from a growth perspective. SML is in the process of
doing clinical trials on 1 Monoclonal antibodies (MAb), 1 fusion protein, and 1 NBE (new Biological entity). The
combined market size of these drugs is around $20 billion. In addition to these, two more are expected to be
added in FY2022 to the clinical trial pipeline, with market size of around $12 billion. The humongous market
opportunity points at a robust growth potential for the segment. SML expects revenue from the biosimilars
segment to kick in from FY2022-FY2023.Moreover, recently, the company has forayed in the OTC segment
with the launch of ready-to-drink Green Tea Films (Oral dissolving films), which management expects to be
moreeffective and safe as compared to competition. Though the OTC segment is currently at a very nascent
stage, over the long run, it could ramp up and constitute for a sizeable share of revenue. Moreover, the other
new areas of transdermal and albumins provide new growth avenues for the company.

SML - Key Growth Strategies

Strategic Priorities Achievements in FY2020 Plans for forthcoming year
Capacity Expansion / Capex to aid Increased capacity of API facility for In the process of debottlenecking oncology
future growth in APIs and Formulations Tranexamic Acid by nearly 100%. production blocks by enhancing capacity
and R&D. In FY2020-FY2021 acquired FTF Pharma by 40-70%.
an integrated drug development company.
Launching new products/formulations Launched the first Indian Branded Generic Pursuing growth from biologicals, oral
across the globe. of LenvatinibMesylate under the brand dissolving films, transdermal products, and
name Lenshil, which is used for the dermatological formulations.
treatment of differentiated thyroid cancer
(DTC) and hepatocellular carcinoma.
Expanding sales distribution network Stepping into FY2020-FY2021 established Expanding sales partnerships for sales
for generic formulations. wholly owned subsidiaries in Canada of generic formulations. Developing a
Looks for 8-9 ANDA filings every year. andSpain. marketing team across Russia, Europe,
In FY2019-FY201920, SML filed four Brazil, and other geographies.
ANDAs and one NDA, including one as 16 ANDAs pending approval as on
FTF. Received approval (including tentative December 31, 2019. Expecting to launch
approval) for its ANDAs for the generic soon in US.
versions of Pirfenidone, Zoledronic acid,
Erlotinib, Busulfan and Bortezomib in
FY2019-FY2020.

Research focuses on developing As on March 31, 2020, total patents filing

APIs with non-infringing process and stands at 357 with 47 granted. Formulation
development of finished dosage forms. product pipeline consists of 61 products
with 38 approvals.
Source: Company; Sharekhan research

September 04, 2020 11

 Viewpoint
Healthy compliance consistency bodes well for SML: SML has a healthy compliance track record. Most of
the plants it operates are compliant with guidelines from multiple regulatory authorities across the globe. The
company has undergone 8 USFDA inspections till date at its Raichur and Jadcherla plants. Raichur plant is
an API facility, while the Jadcherla plant is a formulations unit.

Compliance Track Record

Plant Inspection / re-inspection date Status
Raichur (API Plant) March-15 Issued Form 483 with 5 observations
February-16 Compliance Letter received
January-18 Issued Form 483 with 3 observations
July-18 Received EIR
February-20 Zero Observations
Jadcherla (formulation plant) August-15 Issued Form 483 with 5 observations
July-16 Zero Observations
November-17 Issued Form 483 with 10 observations
March-18 Received EIR
February-20 Issued Form 483 with 15 observations
Source: Industry reports; Sharekhan Research

As depicted in the table above, SML has a consistent compliance trackrecord. The Jadcherla plant, which
houses formulations manufacturing plants, has received form 483 with 15 observations. SML is working with
the USFDA to address the observations in a comprehensive manner. The receipt of USFDA clearance for this
plant is critical from the growth perspective.
Favourable product mix to aid margin expansion; Earnings to stage strong double-digit growth: SML’s
management has set its sight on growing its formulations business. The company’s strong capabilities in the
API space would enable it to forward integrate in the formulation segment. This augurs well for the company
as the formulations segment commands higher margins as compared to the API business. Further, in the
formulations segment, SML is looking to gain a foothold in the niche, oncology space. Moreover, it is looking
to tap other therapy areas in formulations.

Segment Mix (2018 and 2020)

FY2018 FY2020
Others,
Others, 10% Service & 4.90%
Service & License
License Income,
Income, 12.70%
6.60%

Formuations,
16.40%
API, 55.20%
Formuations,
27.20%
API, 67%

Source: Company, Sharekhan Research

September 04, 2020 12

 Viewpoint
Revenue from the formulations segment has risen to Rs. 191 crore as of FY2020 from a level of Rs. 89 crore as
of FY2018. This has also led to increased contribution from the segment in total sales, resulting in favourable
mix. Due to increased growth opportunities and better operational efficiencies for the formulations segment,
operating margins are likely to expand. Going ahead, the share of revenue from the formulations business
is expected to substantially increase and so would margins. We expect SML’s operating margins to expand
260 bps by FY2022 to 26.8%.
Strong Financials; Improving return ratios bode well: SML has a strong financial muscle aided by likely
strong earnings growth and an improving balance sheet position. Double-digit revenue growth of 17% CAGR
over FY2020-FY2022, coupled with margin expansion, would result in sturdy earnings growth of around
22% CAGR over the same period. Consequently, return ratios are also expected to improve sharply with RoE
expected to touch around 13.6% by FY2022 as compared to around 9.4% as of FY2019. Further, SML has lined
up investments over the next two years towards capacity enhancements, including de-bottlenecking. Despite
this,debt:equity is expected to remain lower, around 0.2x, thus strengthening the balance sheet. Further,
healthycashflows would enable the company fund expansion plans internally. Management has hinted at
inorganic expansion possibilities, astrong cashflow, and lower debt:equity ratio provide ample headroom to
pursue in organic growth opportunities.

September 04, 2020 13

 Viewpoint
Financials in charts

Sales Trends (Rs cr) Revenue Mix - Geography wise

1600 % of FY20 Sales
1400
1200 ROW, 24.0%
India, 32.5%
1000
800
600
400
200 Eu, 22.2%

0
US, 21.3%
FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

Operating Profit - PAT Trends OPM’s to improve

500 30.0
450
400 25.0 27.8
26.8
350 25.4
20.0 24.2
300 20.6 21.2
18.7 19.7
250 15.0 17.7
17.3
200
150 10.0 13.3 12.6
100 5.0
50
0 0.0
FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E

Operating Profit (Rs Cr) PAT (Rs Cr) OPM(%) PATM(%)

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

ROCE (%) Return rations to improve

16 16.0
14 14.0
14.90
12 13.65 12.0 14.4
13.5
12.41 12.6
10
11.07
10.0 11.8
10.76
8 8.0 9.7 9.4
8.83
6 6.0
4 4.0
2
2.0
0.0
0
FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E FY2018 FY2019 FY2020 FY2021E FY2022E FY2023E

ROCE (%) RONW (%)

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

September 04, 2020 14

 Viewpoint
Outlook
Well set to capitaliseon opportunities: SML is one of the leading API and formulations manufacturers with
strong capabilities in the therapeutic area of oncology. The company has an established presence in APIs
and is an emerging player in formulations. The API segment, which accounts for around half of the company’s
revenue,is standing strong. An array of opportunities liesahead for SML’s API segment, including the dual
sourcing mandates from global players. This is complemented by expanded capacities with key regulatory
approvals in place and a strong product pipeline, which would unfold going ahead. The formulations segment
is also gaining traction, backed by a sturdy product pipeline in increasing its geographic reach. The share of
formulations in total sales has increased meaningfully and is set to increase over the next two years. A shift
in sales mix in favourof high-margin formulations segment augurs well for the company as it would push the
company in a high-growth trajectory. SML has also recently acquired a research focused drug development
company, which is expected to strengthen R&D capabilities. SML has also stepped in the biopharmaceutical
space, with products offering substantial market opportunities,although the benefits are likely to accrue over
the next two years.
Valuation
Initiate Viewpoint coverage with a 33-35% upside: SML is one of the leading players in APIs and an emerging
player in the formulations space. The company has a strong presence in the oncology segment and is
gradually expanding to other areas. SML is emphasisingon growing the formulation business, which yields
higher margins as well as opens up array of opportunities. Higher sales contribution from the formulations
segment is likely to be a growth driver for SML. The API business, in which SML has a strong foothold, is also
expected to grow in double digits, backed by emerging opportunities in this space. This coupled with a strong
product pipeline and expanded capacities would support topline growth. Newer areas of bio pharmaceuticals
would contribute to growth, though over the long term. Benefits of operating leverage andfavourable mix
would result in margin expansion and drive earnings. SML’s sales and PAT are expected to report 17% and
22% CAGR, respectively, over FY2020-FY2022. At the CMP, the stock trades at an attractive valuation of
22x/17.8x its FY2021/FY2022E EPS. Strong growth prospects and earnings visibility andsturdy balance sheet
due to lower debt and healthy return ratios would support multiple re-rating. We initiate viewpoint coverage
on the stock and expect an upside of 33-35%.
One-year forward P/E

100
90
80
70
60
P/E (x)

50
40
30
20
10
0
Jul-11

Jul-12

Jul-13
Oct-11

Jul-14
Oct-12

Jul-15
Oct-13

Jul-16
Oct-14

Jul-17
Oct-15

Jul-18
Oct-16

Jul-19
Oct-17

Jul-20
Oct-18
Apr-11

Oct-19
Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17

Apr-18

Apr-19

Apr-20
Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

P/E (x) Avg. P/E (x) Peak P/E (x) Trough P/E (x)

Source: Sharekhan Research

Peer valuation
CMP O/S P/E EV / EBITDA RoE (%)
MCAP
Particulars (Rs / Shares
(Rs Cr) FY20 FY21E FY22E FY20E FY21E FY20E FY21E FY20E FY21E
Share) (Cr)
Shilpa Medicare 511 8.2 4,162.0 26.5 22.0 17.8 18.7 15.1 12.1 11.8 12.6 13.5
Laurus Labs 1,182 10.6 12,673.0 49.3 28.1 22.2 24.0 16.0 13.2 14.4 20.2 20.4
Strides Pharma 598 9.0 5362 38.3 18.7 13.0 10.7 8.4 6.7 1.7 11.9 13.0
Sciences
Source: Company, Sharekhan estimates
September 04, 2020 15
 Viewpoint
About company
Shilpa Medicare Limited (SML) was incorporated in 1987 at Raichur, Karnataka, India. SML is one of the
leading API and formulations manufacturers with strong capabilities in the therapeutic area of oncology.The
companyis also present in the non-oncology therapy areas and has recently forayed in into formulations,
biologics, oral dissolving films,and transdermal patches. SML supplies more than 30 oncology APIs, including
key products such as Capecitabine, Gemcitabine Hydrochloride, Axitinib, Erlotinib Hydrochloride, and
Irinotecan Hydrochloride for various regulated markets, including US, Europe, Japan, South Korea, Russia,
Mexico, Brazil, and other emerging markets. The companyalso derives a small part of its revenue from sale
of non-oncology APIs,with key products being Ambroxol (Mucolytic agent) in Europe and Tranexmic Acid
and Ursodeoxycholic acid in India.SML operates fivemanufacturing units with fourof them being in India
and onein Austria. SML’s product range includes over 44 oncology and non-oncology APIs. The company’s
formulation product range consists of 16 injectable dosage forms, 19 oral solid dosage forms under SML,
and 13 formulations under SMLs wholly owned subsidiary Shilpa Therapeutics Private Limited.With respect
to geographical mix, India accounts for 32.5% of FY2020 sales. While the US, Europe, and RoW markets
constitute 21.3%, 22.2%, and 24%, respectively.

Investment theme
SML has an established presence in APIs and is an emerging player in formulations. The API segment, which
accounts for around half of the company’s revenue, is standing strong. An array of opportunities lies ahead
for SML’s API segment, including the dual sourcing mandates from global players. This is complemented
by expanded capacities with key regulatory approvals in place and a strong product pipeline, which would
unfold going ahead. The formulations segment is also gaining traction, backed by a sturdy product pipeline
and increasing geographic reach. The share of formulations in total sales has increased meaningfully and
is set to increase over the next two years. A shift in sales mix in favour of high-margin formulations segment
augurs well for the company as it would push the company in a high-growth trajectory. SML has also
recently acquired a research focused drug development company, which is expected to strengthen the R&D
capabilities. SML has also stepped in the biopharmaceutical space, with products offering substantial market
opportunities,although the benefits are likely to accrue over the next two years.

Key Risks
Š Any adverse change in the regulatory landscape can impact the earnings prospects.
Š Slower than expected pick up in the formulations segment.

Additional Data
Key management personnel
Omprakash Inani Chairman
Mr. Vishnukant Chaturbhuj Bhutada Managing Director
Mr. Sharath Reddy Whole time Director
Mr. Amit Chander Independent Director
Source: Company Website

Top shareholders
Sr. No. Holder Name Holding (%)
1 BARCLAYS MERCHANT BANK (SINGAPORE) LIMITED - ODI 1.98
2 BARING INDIA PRIVATE EQUITY FUND III LISTED INVEST 1.36
3 TA FII INVESTORS LIMITED 3.71
4 TANO MAURTIUS INDIA FVCI II 7.58
5 DURO ONE INVESTMENTS LIMITED 1.42
6 PIVOTAL ENTERPRISES PRIVATE LIMITED 2.91
7 PIVOTAL BUSINESS MANAGERS LLP 1.09
8 CLSA GLOBAL MARKETS PTE. LTD. 0.98
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

September 04, 2020 16

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