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A distinct CDMO in the making

Suven’s rapid ascendance in the CDMO space has been remarkable. It has journeyed from being a small-molecule-focused CDMO to achieving eminence as one of the few CDMOs in India that offers contract manufacturing of oligonucleotides and ADCs. Its merger with Cohance is slated for completion in Q1FY26. Cohance’s ADC payload capabilities complement NJ Bio’s (acquired 56% stake in Dec’24) expertise in linker/bioconjugation technologies. Separately, Sapala (67.5%) gets Suven a foot in the door in oligoneuclutides/nucleic acid building blocks segment. We peg Suven’s (combined entity) FY25–27E FCF at ~INR 11.5bn – an enabler to develop/acquire newer capabilities under its Horizon-2 targets. Management is keen to achieve USD 1bn in revenue by FY30 (27% CAGR over FY25–30E) and USD 2bn by FY35 – via M&As and organic growth.

Over FY24–27, we estimate the combined entity to register 18.8%/22%/21% revenue/EBITDA/PAT growth. We initiate coverage on Suven with a BUY rating and a DCF-based target price of INR 1,400.

Cohance merger: Amplifying scale and fostering capabilities Cohance is a privately held entity of Advent, a PE firm. In Feb’24, Advent acquired controlling stake in Suven. Post acquisition of controlling stake (~50%) in Suven, Advent announced the merger of Cohance with Suven – Suven shall issue 11 shares for every 295 shares of Cohance, advancing Advent’s shareholding in Suven to 66.7%. Cohance is the world’s first company to develop a synthetic route for large-scale production of its proprietary camptothecin-based payload platform. It has leadership in STrione – a key intermediate in camptothecin derivatives. We expect the merger with Cohance to boost revenue/PAT by 138%/108% on FY25E basis.

Cohance and NJ provide Suven an edge in ADCs Separately, Suven acquired 56% in NJ Bio in Dec’24 – at pre-money equity value of ~USD 100mn. Cohance’s extensive payload library covers ~75% of payload market; integration of NJ Bio's capabilities with Cohance allows Suven a prominent position among CDMOs for ADCs in India. NJ Bio’s expertise in linker and bioconjugation technologies complements Cohance’s leadership in payload chemistry and GMP-level manufacturing capabilities. Post NJ’s acquisition, Suven’s addressable market opportunity in the fast-growing ADC market (~25% over CY23–29) surged from USD 200mn to USD 1.4bn.

Sapala – Suven’s foray into oligonucleotides Acquisition of Sapala Organics (Sapala) marked Suven’s foray into oligonucleotides. Sapala is among the few CDMOs globally that supplies complex building blocks for oligonucleotides. It is capable of synthesizing a spectrum of modified amidites and nucleosides with excellent purity alongside high level of backward integration (15+ steps). Sapala has a diversified innovator customer base (CDMO and diagnostic) with a strong Japan presence. It is the only supplier of Tricyclo-DNA Amidites in the world and supplies multi-kilo scale synthesis of wide variety of GalNAc compounds to innovators with the highest purity profile. Sapala’s reported revenues were over INR 670mn and its adjusted EBITDA margins was ~45% in FY24. Sapala, currently, has projects in early-to mid-stage development with a few in phase-1 of development. Synergies from the acquisition are expected to bear fruit FY28 onwards.

USD 1bn FY30 revenue goal Under its Horizon-1 initiative, Suven has expanded its market presence in small molecules, ADCs, oligonucleotides and amidites and Protac. The company has acquired these capabilities at reasonable valuations with the pending merger of Cohance at 19.2x FY24E EV/EBITDA while the 67% stake in Sapala was acquired at 15x trailing FY24E EV/EBITDA and NJ Bio at 3.1x CY24E EV/sales (pre-money). Suven further aims to cement its footprint in flow chemistry, mRna, peptides and enzymatic synthesis under its Horizon-2 initiatives over the next few years. Management has also set a target of growing its revenues at a 27% CAGR over FY25–30 to USD 1bn by FY30 and USD 2bn by FY35 while CDMO revenue share is expected to rise from 60% (LTM Sep’24) to 80% in FY30 and 90% by FY35.

RFPs and commercial supplies to boost small-molecule growth Suven has a strong execution track record in small-molecule CDMO. It has a healthy mix of mid-phase to lateral-phase projects, including commercials along with a few new customers. The company currently has 16 commercial patented molecules and has ties with 14 of the 20 top innovators who contribute >80% to its revenues. Suven’s Phase-3 pipeline includes nine molecules, translating into 15 intermediates and one molecule received positive readout in FY25.

Further a non-ADC molecule, for which Cohance was supplying products, has received USFDA approval and management expects it to drive growth in the mid–long term. Suven is also witnessing a 2.2x increase in RFQs and its base CDMO business is generating strong operating cash flow with robust return ratios. Suven witnessed stabilisation in its specialty chemical business in Q3FY25 and management is hopeful of growing this business in FY26. It is also setting up a dedicated site for this business at its Vizag plant, which would cater to the segment’s growth needs. We expect revenue of Suven’s base business to grow at a 12.3% CAGR over FY25–27E.

Best in class operating metrics We expect the base biz of Suven to grow at 12.3% CAGR over FY24-27E driven by recovery in its CDMO biz and margins at ~41% in FY27. Cohance revenues are likely to grow at 11.1% CAGR over FY24-27E with EBITDA margins of ~34%. Revenue of the combined entity (Suven+Cohance) is likely to increase by ~10% in FY26E, as Suven fully consolidates Sapala and NJ Bio. While margins of Sapala, at 45%, are higher than combined entity margins of 32.1% (FY24), margins for NJ Bio were at 10% in CY24 and will likely increase to 20% in CY25E.

View and valuation Post Advent’s entry, it hired a marquee team of professionals to run all the different segments in which Cohance and Suven has a presence. The erstwhile promoters of Sapala and NJ Bio continue to be an integral part of these entities and shall be instrumental in driving growth. It has also set up a strong advisory team consisting of industry leaders who provide necessary guidance to the board and management team. Advent’s focus has also been on adding newer technical capabilities and has converted Suven into a CDMO that can match the capabilities of its global peers.

Under its Horizon-1 initiatives, Suven has been able to diversify the company’s presence from the large, though slow-growing, small molecules-segment (TAM of USD 971bn and likely to grow at 4.4% over CY23–28F) to the fast-growing and evolving biologics market. This includes ADC’s (TAM of USD 10.4bn to grow at 26.9%), oligonucleotide (TAM of USD 4.6bn to grow at 18.2%) and protein and peptide (TAM of USD 127.9bn to grow at 11.3%). Advent has also been prudent in identifying key assets and acquiring these at reasonable valuations, which has made the opportunity more lucrative for Suven’s existing shareholders.

Acquired entities Sapala and NJ Bio are at healthy stages of the cycle with FY24 revenues of INR 670mn and USD 32mn, respectively, accounting for a mere 10% of Suven and Cohance’s FY24 revenue. We believe, the revenue share of these acquired entities shall rise to 17% as the business gains momentum in ensuing years. To strengthen Suven’s base business, the company has hired industry professionals and efforts of these have started to yield results with the company witnessing a 2.2x rise in RFQs while the company’s phase-3 pipeline includes nine molecules translating into 15 intermediates and one molecule received positive readout in FY25.

Management is hopeful of a recovery in its specialty chemicals segment in H2FY25. It is also setting up a dedicated site for this at its Vizag plant, which would cater to the segment’s growth needs. Management has set an aspirational target of achieving revenue of USD 1bn by FY30, which shall be further scaled up to USD 2bn by FY35, signifying its commitment of creating Suven into a global CDMO power house.

We expect Suven to register 18.8%/22%/21% revenue/EBITDA/PAT growth over FY24–27E. The company is also likely to generate free cash flow of INR 18.3bn over FY25–27E, which should help meet its organic initiatives. RoE is likely to improve from 16.9% in FY24 to 18.6% in FY27E. At CMP, the stock trades at 50.4x FY27E earnings and 31.5x EV/EBITDA. We value the company on a DCF basis, which we believe would help capture the long-term potential of this business. We initiate coverage on the stock with a BUY rating and a target price of INR 1,400 (upside of ~19%).

Key downside risk: Slowdown in global R&D; loss of patent of commercial products may dent performance; delay in integration and synergies of the acquired assets; and geopolitical uncertainties.

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