Sai Life Sciences Gets 'Hold' As Jefferies Initiates Coverage, Flags High Valuation

Jefferies started coverage on the newly-listed Sai Life Sciences Ltd. with a 'hold' rating and a target price of Rs 720. The target price implies a 5% upside from the stock's closing price on Friday. Sai Life Sciences is trading at a high valuation, which is the main reason behind the limited upside projection, Jefferies said.

Sai Life Sciences is a mid-sized company with presence across both discovery and contract development and manufacturing organisation segments. It has established capabilities across the drug discovery, development, and manufacturing value chain. Sai Life Sciences provides support from the drug discovery level to commercialisation, giving opportunities to the company to interact with customers at multiple entry points, Jefferies said.

Sai Life Sciences has five molecules in its portfolio which were scaled from discovery to commercialisation. Out of these five, three are 'potential blockbuster molecules', which will be the key drivers of CDMO growth. Its portfolio comprises 28 commercial drugs and 11 phase-3 molecules, which give medium-term growth visibility, according to Jefferies.

Jefferies expects Sai Life Sciences to provide 15% revenue CAGR of Rs 800 crore over financial years 2025 to 2027. The projection is based on its five-year contract with Schrodinger, signed in 2023. Commercial molecule scale-up and new launches by partners should enable the company to clock an estimated 15% revenue CAGR for the CDMO business too.

Sai Life Sciences made a capital expenditure of Rs 900 crore to enhance capacity, capabilities and scientific talents, Jefferies said. The company has the third-largest contract research organisation in India, Jefferies said.

An increase in capacity utilisation should drive the operating leverage. Its net profit will rise four times to Rs 340 crore by the financial year 2027. Jefferies estimates a return on capital employed of 15% by the same financial year, which is 300 basis points higher than the ongoing financial year.

Jefferies has identified two major risks that could hinder Sai Life Sciences' growth. These are development and commercialisation setbacks, and a premature loss of patent protection for existing molecules.