Sai Life Sciences CFO sees scope for further margin improvement – CNBC TV18
In an interview with CNBC-TV18, Managing Director and CEO Krishnam Raju Kanumuri, and CFO Sivaramakrishnan Chittor said that they are their IPO proceeds to strengthen the company’s balance sheet and unlock growth potential.
By repaying ₹720 crore of debt, the company aims to nearly eliminate its borrowings, thereby reducing interest costs and improving profitability.
Over the past few years, Sai Life has enhanced its operating margins to 20% from 15% through strategic investments in infrastructure, and process optimisation.
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The IPO includes a fresh issue of ₹950 crore and an offer for sale (OFS) worth ₹2,093 crore. Shares are priced between ₹522 and ₹549 each, giving the company a market value of ₹11,420 crore after the issue.
These are the verbatim excerpts of the interview.
Q: What is the money that you are raising going to be used for?
Kanumuri:
We are using majority of the proceeds to pay down debt and lighten the balance sheet and give us the opportunity to expand as opportunities arrive in the market. We are working with a lot of our customers who indicated what they need from both the capacity and capability standpoints. So we will deploy these prudently at this point.
Q: Around ₹720 crore will be utilised to repay debt, will you be debt free post that, and on the ₹700 crore, will the interest savings be around ₹75-80 crore?
Chittor: I think, once you repay ₹720 crore of debt, we will have very negligible debt. So if you look at what, ₹7,580 crore of saving, that if you look at FY24 that almost translated around 5.5% of revenue. So they will all translate back into profit before tax.
Q: Your revenues are up around 60% in FY24 from FY22. But the earnings before interest, taxes, depreciation, and amortisation (EBITDA) has more than doubled, and so margins have moved to 20%-odd. Could you explain this happened? The doubling of EBITDA and margin improvement. Also, is there further scope for improvement?
Chittor: You are right that profit jumped from FY22 to FY24 while revenue wasn’t growing at the same clip. The reason is operating leverage, and our belief is that the operating leverage growth that you are seeing just kind of gives you the story in terms of how business can grow when operating leverage comes into play without getting into any forward statements. But the way we are looking at we have a lot of new molecules that we have picked up over the last, two or three years. Our product portfolio is very young which just tells us that as these products kind of get to market and kind of grow, there is a lot of potential for our business.
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Q: So, the margins at these levels are sustainable. Is that correct? Maybe 100 basis points lower, would that be a broad understanding with regard to the margin trajectory, because it’s improved from 15% to 20% which is phenomenal. Do you think it can be maintained at these levels?
Chittor: Our belief is that margins going forward should improve, even further from where we are. Just given the fact that the pipeline is younger, commercial products are getting into larger volumes for our end customer, which would then mean larger manufacturing which would mean more operating leverage in the business. We have incurred all upfront costs on our R&D businesses, particularly in UK and US and then when revenue starts flowing, and commercial revenue starts coming in, the overall expense ratio comes down, and that’s where leverage will kick it. We believe that these are exciting times for the business.
For full interview, watch accompanying video
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