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Pharma CDMO continues growth momentum

Suven Pharmaceuticals Ltd (SPL) is a pharmaceutical research expert, primarily operating in Contract Development And Manufacturing Operations (CDMO).

• Suven Pharma’s total revenues grew by 40% YoY to Rs.364cr with the CRAMS (Pharma) and Formulations segments recording a phenomenal growth of 51.8% and 52.4% YoY respectively.

• EBITDA rose 68% to Rs.157cr despite increased employee costs and raw material expenses. Resultantly, adjusted PAT was Rs.92cr up 10% YoY. However, on a sequential basis, net profit was down –43% QoQ.

• Under Formulations, the company has filed 17 ANDAs (including 2 from Casper Pharma); 9 approved and 8 launched.

• With a strong order book, customer base in the CDMO segment and focus on expansion, the company is poised to sustain its growth momentum in the long term.

• However, since the positive factors have already factored in for the short term, we downgrade our rating to ’Accumulate’ with a rolled forward target price of Rs.602 based on 25x FY24E EPS.

Strong performance in CRAMS (Pharma) and Formulations

Suven Pharma’s total revenues grew 40% YoY to Rs.364cr with the Formulations and CRAMS (pharma) reporting steller growth this quarter on a YoY basis. Specialty chemicals reported growth of 24% in Q4FY22 (YoY) while registering a 51% growth in FY22. As result, EBITDA grew by 68% YoY despite elevated employee cost and raw material expenses. Cost of raw materials was up 10% on account of input cost inflation and supply chain constraints. However, despite the cost pressure and higher tax rate, Suven Pharma reported a PAT of Rs.92cr with 10% YoY growth. On a sequential basis, net profit was down –43% QoQ. Suven Pharma has a strong balance sheet with debt equity ratio of 0.02 as of March 2022.

Acquisition of Casper Pharma

Suven Pharma acquired Casper Pharma for USD 20.5mn by way of purchase of entire share capital from the shareholders of Casper Pharma Private Ltd., a Hyderabad based SEZ company engaged in Formulations business. Suven plans to file 15 more ANDAs during the financial year which is currently under development while 2 that are already filed are awaiting USFDA inspection. The company expects their USFDA inspection in the near term in order to start generating revenues at the facility.

New capex plans in action

The capex of Rs.600crs,which is going to be spread across 3 years, is going to start with the Suryapet facility. The amount will be spent by the end of this year. This will be followed by the addition of the new block as per FDA regulations in the Pashamylaram facility in the next 2-3 months. The capex would be mainly used for modernization of manufacturing facilities, relocation of R&D facilities and acquisition of new technologies which in turn will be beneficial in the long run.

Outlook and valuation

The CDMO businesses proceeded to show good traction in terms of strong order book and strong client base. The Rs.600cr capex that is planned for the next few years will enable the company to cater to the growing customer base as well as maintain its quality levels in the long term. With its focus on expansion, acquisition of a formulations company, strong balance sheet and existing strong order book & client base, Suven is poised to sustain its growth momentum in the long term. However, since the positive factors have already factored in for the short term, we downgrade our rating to ’Accumulate’ with a rolled forward target price of Rs.602 based on 25x FY24E EPS.

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