Hold Suven Pharmaceuticals Ltd For Target Rs.555 - ICICI Direct
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CRAMs strong; another formulations foray on cards…
About the stock: Suven Pharma is a CRAMs player that supports global life sciences industry & fine chemical majors in their NCE development endeavours. Its services include custom synthesis, process R&D, scale-up & contract manufacturing.
In FY21, CRAMs Pharma vertical contributed 62% of sales. Besides CRAMs Pharma Suven has also has developed & supplied intermediates / technical for specialty chemicals CRAMs, which accounted for 30% 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
Q3FY22 Results: Suven reported strong Q3 numbers driven by strong traction in Speciality Chemical CRAMs.
Sales were up 42.4% YoY to | 391.6 crore
EBITDA was at | 186 crore, up 34.7% YoY with margins at 47.5%
Consequent adjusted PAT was at | 160.1 crore (up 40.9% YoY)
What should investors do? Suven’s share price has grown by ~1.7x over the past two years (from ~| 316 in July 2020 to ~| 538 levels in February 2022).
Changed from BUY to HOLD due to uncertainty regarding acquisition of Casper Pharma, a generic OSD formulations company which is yet to start generating revenues and which is waiting for USFDA inspection, in the backdrop of challenging environment in the generics space
Target Price and Valuation: Valued at | 555 i.e. 28x P/E on FY24E EPS of | 19.8
Key triggers for future price performance:
Focus on research by global innovators has intensified post Covid & augurs well for pharma CRAMS operations, which remain a key growth driver
The company has announced a | 600 crore investment – in upgradation of facilities, absorbing new technology & moving its R&D – executable over a two to three-year horizon, benefits of which may be visible in the long run
Formulations: 17 ANDAs filed, however proposed acquisition of OSD facility of Casper pharma and subsequent operational performance in ramping up this segment amid various challenges would be a key monitorable
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.
BUY with a target price of | 710
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