Suven Pharmaceuticals financial results – strong show in FY20; outlook upbeat: ICICI Securities

Suven Pharmaceuticals announced that its FY20 revenues (including OI) were at Rs 852 crore driven by 24 per cent YoY growth in the CRAMs segment to ~Rs 470 crore, 41 per cent growth in specialty chemicals segment (~Rs 300 crore) and 40 per cent expansion in the CTS & formulations business (~Rs 70 crore). EBITDA for the year came in at Rs 385 crore with strong EBITDA margin of 46.2 per cent. Net profit for FY20 was at Rs 317 crore with an NPM of 38.0 per cent.

According to ICICI Securities, in accordance with Suven Life Sciences (SLS) management’s endeavour to split its innovation and CRAMs businesses, the company had announced a demerger of its CRAMS business in January, 2020 to be held by the demerged entity, Suven Pharma (SPL), while SLS will continue to hold the discovery research segment and IPs. Subsequently, SPL shares got listed on Indian bourses on March 9, 2020.

Key Conference Call Takeaways

• Suven currently has 11 ANDAs filed in US (two from Rising Pharma), plans to file two, three more in FY21 with six molecules in development
• In Q4FY20, the company launched one more molecule in specialty chemicals and has two others in development (2021-22 launch) with a potential of Rs 50 crore each
• Out of the Rs 320 crore planned capex, ~Rs 220 crore has been completed (Rs 94 crore capitalised) while the rest is expected to be done by FY21
• Two ANDAs were launched in FY21, with one more to be commercialised. All products are on profit sharing basis (25-50 per cent). Each molecule may contribute between Rs 2 crore & Rs 4 crore to the bottomline
• The management saw fall in new projects, which may not impact FY21 due to existing orders but may hamper FY22 growth if the trend sustains
• Going ahead, likely profit contribution from Rising Pharma to be ~Rs 12- 15 crore per quarter

Valuation & Outlook
Post de-merger, the pharma business will be largely driven by two cash cow segments i.e. innovative CRAMS and speciality chemicals. With strong margin profile (+40 per cent) without the R&D burden of innovative pipeline, the free cash flow is likely to remain strong. Despite pandemic and high base, the company has guided 10-15 per cent growth based on strong order book position (albeit some expected delays). Despite a significant run up there is still scope for upside as the company is still trading at significant discount to some leading players in the space dealing with innovators. We emphasise on the strong execution capability and focused approach without the burden of success/failure of the innovative pipeline. We have a BUY rating on the stock with a target price of Rs 690 based on 20x on FY22 EPS of Rs 34.4.