Buy Suven Pharmaceuticals Ltd For Target Rs.530 - ICICI Direct
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Pharma CRAMs muted but non-Covid inquiries start
About the stock: Dedicated CRAMs supports the global life sciences industry and fine chemical majors in their NCE development endeavours. Its services include custom synthesis, process R&D, scale up and contract manufacturing.
* In Q2FY23, CRAMs pharma vertical contributed 39% of sales. Besides pharma CRAMs, Suven has also developed and supplied intermediates/technical for specialty chemicals CRAMs, which accounted for 54% of sales. Generic formulations accounted for 7% of sales
* Suven is currently on a three pronged investment plan, 1) relocating R&D centre, 2) replacement and upgradation of blocks at Suryapet facility and 3) additional new block in line with FDA regulations at Pashamylaram facility
Q2FY23 Results: Muted Q2 numbers due to de-growth in pharma CRAMs, which was offset by growth in speciality chemical CRAMs.
* Revenue declined 7.5% YoY to | 278 crore
* EBITDA was at | 100 crore, down 18% YoY with margins at 35.9%
* Consequent PAT was at | 72.2 crore (down 25.6% YoY)
What should investors do? Suven’s share price has grown by ~1.4x over the past two years (from ~| 320 in November 2020 to ~| 446 levels in November 2022).
* We upgrade from HOLD to BUY as recent correction in the stock provides reasonable upside in the backdrop of a revival in pharma CRAMs inquiries and stable outlook for specialty chemicals CRAMs
Target Price and Valuation: Valued at | 530 i.e. 30x P/E on FY24E EPS of | 17.7.
Key triggers for future price performance:
* Focus on research by global innovators has intensified post Covid and augurs well for pharma CRAMs operations that remains a key growth driver
* Progress of molecules across the development journey and high-value, high-margin business, involving the commercial supply of intermediates (for five molecules) to clients
* Progress on specialty chemicals on the CRAMs fronts with current execution of two molecules. Ongoing development of other molecules
* Formulations: Supplies from OSD facility of Casper Pharma and subsequent operational performance in ramping up filings in this segment
Alternate Stock Idea: Apart from Suven, in our coverage we like Syngene.
* Syngene with years of experience in operating in the niche of CRO/CRM. The company is well poised to capitalise on growing opportunities globally
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