What you must know about Sunrest Lifescience IPO?

Sunrest Lifescience Ltd was incorporated in the year 2017 and offers a diverse range of healthcare and personal care products. In fact, its product portfolio encompasses medicines and also FMCG products like capsules, tablets, syrup, ointment, gel, mouthwash, solution, suspension, dry powders, and toothpaste. Some of the key drugs in the product portfolio of Sunrest Lifescience Ltd  include categories like anti-bacterial, anti-diarrheal, anti-fungal, anti- malarial, anti-diabetic, anti-protozoal, anti-hypertensive, anti-parasitic, anti-inflammatory etc. In addition, it also has booster drugs like multi-vitamin, multi-mineral, and nutraceutical; apart from some major FMCG products too.

Typically, the products of Sunrest Lifescience Ltd  are manufactured by third-party pharma product manufacturers. The company has 43 third-party manufacturers across the states of Gujarat, Punjab, Maharashtra, Haryana, Himachal Pradesh, Uttarakhand, and MP. The standard client base of Sunrest Lifescience Ltd includes stockists and super-stockists while its products are made available across chemist shops, dispensaries, hospitals, health centres, diagnostic centres etc. The company has a total of 18 registered trademarks for 32 products.

Key terms of the SME IPO of Sunrest Lifescience Ltd

Here are some of the highlights of the Sunrest Lifescience IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 07th November 2023 and closes for subscription on 09th November 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the fresh issue IPO has been fixed at ₹84 per share. Being a fixed price issue, there is no need for final price discovery, unlike in the book building process.
   
• The IPO of Sunrest Lifescience Ltd has only a fresh issue component with no book built portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, Sunrest Lifescience Ltd will issue a total of 12,91,200 shares (12.91 lakh shares approximately), which at the fixed IPO price of ₹84 per share aggregates to a total fund raising of ₹10.85 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will also comprise of 12.912 lakh shares, which at the fixed IPO price of ₹84 per share will aggregate to ₹10.85 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 65,600 shares. The market maker for the issue is SVCM Securities Private Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Nikhil Kumar Thakkar, Amit Bhai Shambhulal Thakkar, Bhagyesh Kirit Bhai Parekh, and Bharat Kumar Thakkar. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 69.91%.
   
• The fresh issue funds will be used by the company for working capital needs and for generate corporate purposes. Part of the issue proceeds will also go towards meeting the issue related expenses.
   
• Mark Corporate Advisors Private Ltd will be the lead manager to the issue, and Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue is SVCM Securities Private Ltd.

IPO allocation and minimum lot size for investment

Sunrest Lifescience Ltd has allocated 5.08% of the issue size for the market makers to the issue, SVCM Securities Private Ltd. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Sunrest Lifescience Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 1,600 shares. Thus, retail investors can invest a minimum of ₹134,400 (1,600 x ₹84 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 3,200 shares and having a minimum lot value of ₹268,800. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Sunrest Lifescience IPO (SME)

The SME IPO of Sunrest Lifescience Ltd IPO opens on Tuesday, November 07th, 2023 and closes on Thursday, November 09th, 2023. The Sunrest Lifescience Ltd IPO bid date is from November 07th, 2023 10.00 AM to November 09th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is November 09th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Sunrest Lifescience Ltd

The table below captures the key financials of Sunrest Lifescience Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenue spike has been sharp in the previous year, but has been lower in the latest year ended FY23. However, it remains to be seen how the growth in sales is sustained over the longer term.
   
• The net margins have grown to over 8% only in the latest year from much lower levels in the previous two years. This raises the issue of a sustainable PAT margins for the company. However, due to the low equity base, the ROE has been extremely attractive.
   
• Being a capital light business, the asset turnover ratio or the asset sweating ratio has been above 1 on a consistent basis. This may not be too representative as here the expenses ratio would matter more than the asset turnover ratio, in this sector as well as the margins that can be sustained over the long term.

The company has latest year EPS of ₹6.81 and that translates into a current P/E of around 12.3 times. That is not too high for the pharma sector, but it will be a function of how much of margins the company can extract from value addition. The stock remains a high risk bet on the mid-scale pharma segment and investors must be willing to take on higher levels of risk to invest in the stock.