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Published on 13/07/2020 12:53:53 PM | Source: Geojit Financial Services Ltd

Buy Suven Pharmaceuticals Ltd For The Target Rs.587 - Geojit Financial

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Future looking bright post de-merger

Suven Pharmaceuticals Ltd (SPL) is a pharmaceutical research expert that is in the business of Contract Development And Manufacturing Operations (CDMO).

* Suven Pharmaceuticals Ltd (SPL) demerged away from Suven Life Sciences in 2018 and was listed on 9th March 2020.

*During the year total revenues grew by 27% to Rs.834crs driven by 18% growth in CRAMS, 41% growth in Speciality chemicals and 40% growth in Formulations.

* In the formulation segment, the company has files 11 ANDAs with the USFDA out of which 2 have already commercialised, while 3 are expected to be commercialised in the coming year.

* SPL’s 25% stake in Rising Pharma yielded an unrealized profit of Rs.48crs during the year

* We recommend a “Buy” with a target price of Rs.587 based on 18x FY22 EPS

 

Focus on CDMO augurs well for Suven Pharma 

Suven Pharmaceuticals Ltd (SPL) demerged away from Suven Life Sciences in 2018 and was listed on 9th March 2020. Suven Pharmaceuticals focuses on Contract Development and Manufacturing Operations (CDMO) which includes CRAMS, Speciality chemicals and formulations, while Suven Life Sciences retained discovery research and clinical development of new molecules focused on Central Nervous System (CNS) disorders.

 

Revenue continues its upward trajectory

During the year total revenues grew by 27% to Rs.834crs driven by 18% growth in CRAMS, 41% growth in Speciality chemicals and 40% growth in Formulations. In the CRAMS segment, the company has been able to add new customers during the year and the segment is now 56% of total revenues. In the coming year, the management stated that new projects may be difficult to undertake owing to the ongoing Covid-19 scenario. In CRAMS, the company plans to integrate into APIs and later into formulations, in addition to intermediates, which it is currently focusing on. We expect a revenue CAGR of 13% for CRAMS over FY20-FY22E

 

Speciality Chemicals and Formulations to expand further

In the Speciality Chemicals segment, the company has so far commercialized two molecules which have seen good volumes during the year. The company plans to launch two more molecules in FY21E. The formulation segment has seen a 50% CAGR in the last years with a focus mainly on niche generic molecules. The company has files 11 ANDAs with the USFDA out of which 2 have already commercialized while 3 are expected to be commercialized in the coming year.

 

Rs.48crs unrealized gain from Rising Pharma In FY19, the company purchased a 25% stake for $35 million in Rising Pharma Inc, a U.S based generic pharma company, through its subsidiary, Shore Suven Pharma Inc. The investment was made after Rising Pharma filed for bankruptcy. Since then, the company has managed to turn around its operations and has yielded SPL a Rs.48crs profit from Rising Pharma’s total profits in FY20. Going forward, SPL may use the company to market its own ANDAs in the U.S.

 

Valuations...

Post demerger, the company is well poised to grow exponentially, with the future looking bright in all the segments in the CDMO business. R&D costs will now be more or less zero as those costs will now be only part of Suven Life Sciences and the company should continue to main its impressive EBITDA margins going forward. As a result, we expect the company to generate higher free cash flows as we assume a net profit CAGR of 14% over FY20-FY22E. On the back of these factors we recommend a “Buy” with a target price of Rs.587 based on 18x FY22 EPS

 

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