Sudeep Pharma shares have surged nearly 75% from their initial public offering (IPO) price of ₹593 in less than a year, reflecting strong investor interest in the pharmaceutical company and its growth prospects. The stock made a robust debut on 28 November, listing at ₹730 per share on the NSE, a premium of 23.10% over its issue price. On the BSE, it debuted at ₹733.95, marking a 23.77% premium.
However, ICICI Securities believes the stock’s valuation has run ahead of its fundamentals, despite the company’s promising position in the battery materials segment. The brokerage has maintained its Hold rating on Sudeep Pharma while raising its target price to ₹1,000 from ₹700, based on its 13 October assessment. The revised target remains below the closing market price of ₹1,018 on 13 October.
Battery chemicals offer long-term growth potential
ICICI Securities said Sudeep Pharma is uniquely positioned in India’s battery materials market as the country’s sole producer of iron phosphate. Its proprietary green technology gives it an advantage over domestic peers, while its product has already received approval from eight customers ahead of the commercialisation of its first-phase facility.
The company’s 25,000-tonne-per-annum (TPA) facility is expected to become operational in early FY28. Sudeep Pharma plans to expand capacity to 100,000–200,000 TPA by FY31 to cater to an estimated 100–200 gigawatt-hours (GWh) of lithium iron phosphate (LFP) battery capacity.
The brokerage’s confidence in the company’s execution is supported by its existing food-grade iron phosphate business, which has more than a decade of manufacturing experience.
Valuations factor in aggressive execution, says ICICI Securities
Despite the growth opportunity, ICICI Securities cautioned that Sudeep Pharma’s valuation already reflects significant expectations for its nascent battery chemicals business.
The brokerage expects EBITDA from the company’s core business to rise to ₹3.3 billion by FY29, implying a compound annual growth rate (CAGR) of 15% over FY26–FY29. Applying an enterprise value (EV)-to-EBITDA multiple of 25 times to the core business yields an estimated enterprise value of ₹84 billion.
At the 13 October market price of ₹1,018, Sudeep Pharma’s total consolidated enterprise value stood at ₹119 billion. This implies that the market is assigning a residual enterprise value of ₹36 billion to its iron phosphate business, according to the brokerage.
Based on its estimated iron phosphate segment EBITDA of ₹0.9 billion in FY29 and ₹2.3 billion in FY30, ICICI Securities said the market is valuing the battery chemicals business at an aggressive 39 times FY29 EBITDA and 16 times FY30 EBITDA. These valuations, it noted, leave limited room for execution setbacks.
The brokerage has marginally revised its FY27 and FY28 estimates and introduced FY29 projections. Rolling forward its valuation to FY29 and retaining its target price-to-earnings multiple of 40 times has led to the revised target price of ₹1,000. Despite the increase in its target, ICICI Securities has retained its Hold recommendation.
Green manufacturing process offers a competitive advantage
ICICI Securities highlighted Sudeep Pharma’s proprietary, ammonia-free production technology as a key differentiator in a market dominated by Chinese manufacturers.
China has a strong cost advantage in iron phosphate production, supported by an established battery materials ecosystem and the use of ferrous sulphate, a low-cost byproduct of titanium dioxide manufacturing through the ammonia process. However, the brokerage noted that this route generates substantial wastewater and creates challenges related to byproduct disposal.
Sudeep Advance Materials, a wholly owned subsidiary of Sudeep Pharma, uses a different iron source and a proprietary production process that does not rely on ammonia. According to ICICI Securities, this approach significantly reduces effluent generation and offers a greener, potentially more scalable alternative to conventional manufacturing methods.
While this technology and the planned capacity expansion offer long-term opportunities, the brokerage believes the current valuation already reflects substantial optimism around the battery chemicals business. It therefore recommends a Hold rating, with a target price of ₹1,000 per share.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
