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Strong overall results led by pharma CRAMS...

Q4FY21 revenue grew 40.3% YoY to | 259 crore amid 51.3% YoY growth in pharma CRAMS sales to | 137.7 crore. Specialty chemical CRAMS also posted robust growth of 35.1% YoY to | 109 crore. However, formulation sales fell 36% YoY to | 12.1 crore. EBITDA margins declined 566 bps YoY to 36.2% mainly due to lower gross margin performance (down 658 bps YoY at 64.7%). Subsequently, EBITDA grew 21.3% YoY to | 94 crore. PAT was up 12% YoY to | 83 crore. Delta vis-a-vis EBITDA was due to higher tax rate and lower profit share from associates.

Key conference call takeaways

* Second Covid wave impact higher than last time o 15-20% personnel affected directly or indirectly

* Logistic challenges and container availability was impacted

* Some RM prices went up 4-5x as oxygen availability was impacted

* Situation is expected to improve, going ahead, with better traction unless a third Covid wave disrupts operations

* Gross margins should not be compared on a quarterly basis but on annual basis

* Manufacturing costs higher in Q4 due to product mix

* Planned capex of | 600 crore delayed, to start from Q2FY22

* Guidance for FY22: topline growth of 10-15%

* CRAMS Pharma: 10-15%, CRAMS specialty chemicals: 5%, formulations – 10-20%

* Margins to be maintained between 35% and 40% minimum

* Products: Six approved, five commercialised as of FY21, one ANDA commercialised in Q1FY22

* six more filed with some to be approved in FY22, to file 5-6 in FY22.

Valuation & Outlook

Suven’s topline performance was in-line with I-direct estimates whereas profitability was lower due to lower-than-expected gross margins. Going ahead, the company hopes to achieve 10-15% growth in FY22 based on order book position. It plans to invest | 600 crore for modernisation, technology upgradation, which likely stems from the need to cater to the changed priorities and requirements of its clients, the benefits of which may be visible in the long run.

Cautious guidance notwithstanding, we continue to emphasise on the strong execution capability and focused approach without the burden of success/failure of the innovative pipeline (now part of Suven Life Sciences). We maintain BUY with a TP of | 560 (earlier | 575) based on 28x FY23E EPS of | 20.0.

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