Suven Pharmaceuticals Ltd

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About the Company

Suven Pharmaceuticals Limited operates as a bio-pharmaceutical company in India, the United States, Europe, and internationally. It develops, manufactures, and sells new chemical entity based intermediates, active pharmaceutical ingredients, specialty chemicals, and formulated drugs under contract research and manufacturing services for pharmaceutical, biotechnology, and chemical companies. The company was incorporated in 2018 and is based in Hyderabad, India. Suven Pharmaceuticals Limited is a subsidiary of Jasti Property and Equity Holdings Private Limited.

Q3FY21 Updates

Financial Results & Highlights

Detailed Results

1. Consolidated revenues were up with 52% YoY growth. Profit has risen over 97% YoY in Q3. EBITDA has grown 69% in the same period.
2. The CDMO pharm segment has risen 2.74 times to Rs 217 Cr of sales in Q3. The CDMO spec Chem segment has declined around 50% to Rs 34.8 Cr. The formulation and others segment has fallen to Rs 23.25 Cr from Rs 33.19 Cr last year.
3. 9M figures for Suven were very good with 15% YoY revenue & profit growth while EBITDA rose 12.3% YoY in the same period.
4. EBITDA margin was at 51.11% in Q3 and 48.4% in 9M periods.
5. Overall EPS has grown to Rs 4.5 per share in Q3 from Rs 2.9 in Q2 and Rs 2.3 in Q3FY20.
6. The company has announced a dividend of Rs 1 per share.

Investor Conference Call Highlights

1. The management maintains its previous guidance of 15-20% revenue growth in FY21.
2. The current rise in CDMO and fall in the CDMO spec chem segment are in line with expectations according to the management.
3. The management states that it expects revenue growth to remain at the current guidance in FY22 as it has provided for FY21.
4. The company has filed for 12 ANDAs and has gotten approvals for 6 of them in FY21 so far. It is looking to launch a new product in Q4 and approvals for another 6 in the rest of 2021.
5. The management states that the difference between pharma CRAMS and specialty chemical CRAMS is that in the pharma one, there isn’t much visibility in terms of volumes guidance or response while in chemical CRAMS, you do get some indication of them. There isn’t much difference in the development cycle stage for both these segments.
6. The company is in talks with 2 big customers to manufacture for them in India. The management has stated that it will take at least 2-3 years for Suven to start delivering.
7. The management has stated that the company has always tried to employ green chemistry principles from the start and it doesn’t have to do any major pivot to bring this in.
8. The management has refrained from providing PAT guidance for FY22 and has stated that it maintains visibility for only 6 months.
9. The management admits that the pharma CRAMS model has revenues lumpiness ingrained in the revenue model as projects can be for 3-4 months’ duration or even for 5-6 months.
10. The profit share from the 2 ANDAs launched in H1FY21 is still small but it is growing well according to the management. The potential contribution from sale and profit share from these products may be from $0.5-4 million per product.
11. The lumpiness in the spec chem segment is not due to lost orders but due to delay in delivery. The management maintains that it will be smoothed out in the entire year numbers.
12. The breakup of the Rs 600 Cr capex announced by the management is as follows:

1. 1. 1. Relocation of the R&D center which can take 2-3 years.
      2. Replacement of a block in Suryapet.
      3. Warehousing equipment at a small block in Pashamylaram.

13. The company has not finalized the exact breakup of the capex amount yet and will announce it in the next investor concall. The capex activity will start in FY22. Around 80% of this capex is expected to be done in the relocation.
14. The company is looking to add a new contract in the spec chem segment in Q1FY22 and is on track to add another one in FY22.
15. The company earned Rs 35 Cr of profit share from Rising Pharma in 9M.
16. The company is still in talks for signup of new research projects and it expects to take at least 6 months in the initial stages.
17. The management believes that the company has enough capacity at present.
18. The management has stated that it is indeed expecting a rise in value from migration from intermediates to APIs but it is not possible to specify a number on this value appreciation right now. Incremental sales growth from this shift will take at least 2 years according to the management.
19. The company is looking to launch 3-5 ANDAs in FY22, all of which are small volume and value-based products.
20. The specialty chemicals business is expected to grow 5-10% in FY22.
21. The company is still on the lookout for a COO at the moment.
22. The management has admitted that project accumulation has been slow due to travel restrictions but this is an issue with the entire industry and not just Suven. The management is confident that the slowdown of 2 quarter will not have much material impact on the company’s long term growth.
23. The management remains optimistic about its pipeline and it believes that although customers are starting with low volumes, it will scale up in the long term.
24. The company has a debt of Rs 66 Cr from Suven Life Sciences and Rs 1004 Cr of debt from term loans.
25. Most of the Rs 600 Cr capex is expected to be done using internal accruals.
26. The company is not doing anything in the biologics space currently.
27. The EBITDA margin is dependent on product mix which can change very easily in CRAMS and thus the management has stated that it doesn’t expect the margin to remain at the current level but it should be at 40% at least.
28. The cost of debt to Suven is at 5%.
29. The management has stated that the resurgence of COVID in many countries should not affect its operations in a great way and it can mostly increase logistics costs and raw material costs for no more than 3-4% at a time.
30. The management expects 20-25% growth in the formulations business in the next 1-2 years.
31. Around 90% of the company’s business comes from big pharma companies while the rest of the business comes from small ones. Most of the innovation and growth is led by the business with big pharma companies.
32. The company doesn’t have any first right of refusal arrangement with Rising Pharma.
33. Right now the company has 3 projects from Rising Pharma.
34. The management has stated that its vision for Suven Pharma is to remain on the innovation side in pharma and venture into APIs as innovators.
35. The management clarifies that it doesn’t have the first right to refusal with Rising Pharma and instead, it gets the first opportunity to bid for any new projects for Rising. But it can only take on opportunities where it can deliver here. It has also clarified that Rising will not necessarily give Suven the deal if it is getting better terms from someone else.

Analyst’s View

Suven Pharma is a fast-rising player in the CRAMS space in India. It has had a phenomenal quarter with >50% rise in revenues and 97% rise in profits. The management remains cautious on the fact that this performance should not be indicative of future performance as revenues are always lumpy in the CRAMS model. The company has indicated its intention to go into the innovation side in APIs but it will take some time for it to build itself up in this space. The management maintains that although the current EBITDA margin of 51% may not be sustainable, Suven can achieve at least a 40% margin going forward. It remains to be seen what obstacles Suven will face in its new business expansion and whether it will be able to successfully become an API innovator in the future, Nonetheless, given the rise of the CRAMS space in India, the company’s induction from smallcap into the midcap space by AMFI, Suven looks to be an exciting new pharma prospect for investors.

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