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  • CMP : 538.5 Chg : 8.85 (1.67%)
  • Target : 555.0 (4.72%)
  • Target Period : 12-18 Month
Company Update

10 May 2022

CRAMs propels growth; formulations foray may be margin dilutive…

About The Stock

Dedicated CRAMs that supports the 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 FY22, CRAMs Pharma vertical contributed 59% of sales. Besides CRAMs Pharma, Suven has also has developed & supplied intermediates/technical for specialty chemicals CRAMs, which accounted for 35% 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
Q4FY22

Suven reported strong Q4 numbers driven by strong traction in both Spec Chem and Pharma CRAMs.

  • Sales were up 40% YoY to ₹ 364 crore
  • EBITDA was at ₹ 157 crore, up 68% YoY with margins at 43%
  • Consequent PAT was at ₹ 92 crore (up 10% YoY)
What should Investors do?

Suven’s share price has grown by ~3.8x over the past two years (from ~₹ 145 in May 2020 to ~₹ 530 levels in May 2022).

  • Maintain HOLD as strong CRAMs franchisee notwithstanding, expansion in formulations to bring its own set of challenges.
Target Price Valuation

Valued at ₹ 555 i.e. 30x P/E on FY24E EPS of ₹ 18.5

Key Triggers for future price performance
  • Focus on research by global innovators has intensified post Covid & augurs well for pharma CRAMS operations, which remains 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: 19 ANDAs filed (including two from Casper Pharma) but 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
New Stock Ideas

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 ₹ 730

Particulars

Particulars (₹ crore) Amount
Market Capitalization 20,601.2
Debt (FY22) 96.0
Cash & cash equivalents (FY22) 47.0
EV 13,540.0
52 week H/L (₹) 1,328.0/518.2
Equity Capital 25.5
Face Value (₹) 1.0

Price Chart

Recent Events & Key Risks

  • Acquisition of Casper Pharma
  • Key Risk: (i) Better execution in formulations (ii) B2B model with heavy reliance on guidance

Research Analyst

Company Update
ICICI Securities – Retail Equity Research

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 CAGR(FY20-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Revenues - 833.8 1,009.7 1,320.2 25.8 1,443.3 1,641.3 11.5
EBITDA - 384.8 442.4 579.4 22.7 606.2 668.8 7.4
EBITDA margins (%) - 46.1 43.8 43.9 - 42.0 40.8 -
Net Profit - 317.0 362.3 453.8 19.6 433.3 472.0 2.0
EPS (|) - 12.5 14.2 17.8 - 17.0 18.5 -
PE (x) - 42.6 37.2 29.7 - 31.1 28.6 -
EV to EBITDA (x) - 35.4 30.4 22.5 - 21.3 19.0 -
RoE (%) - 37.5 30.7 29.7 - 23.0 20.8 -
RoCE (%) - 35.6 31.2 37.5 - 28.5 26.0 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY22 Results: Margins steady amid CRAMS growth trajectory

  • Revenues grew 40% YoY to | 364 crore driven by 52% YoY growth in CRAMS-Pharma to | 209 crore and 25% YoY growth in CRAMS-Spec Chem to | 136 crore. EBITDA margins improved 700 bps YoY to 43% mainly due to higher gross margins (up 492 bps to 70%) and lower other expenditure. EBITDA grew 68% YoY to | 157 crore while PAT was up 10% YoY to | 92 crore. Delta vis-a-vis EBITDA was due to higher tax expense being partially offset by higher other income.
  • Suven’s quarterly results were better than I-direct estimates on all fronts. Suven posted 24% and 51% growth in FY22 for CRAMS Pharma and Spec Chem, respectively. For Suven, CRAMS-Pharma remain a high-value, high-margin business, involving the supply of intermediates for NCEs and CRAMS-Spec Chem has posted robust growth as supplies of intermediates for two specialty chemical products (agrochemical) and another molecule commercialised by customer ramps up. It has also planned 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. However, we continue to emphasise on the company’s foray into formulations and acquisition of Casper Pharma, a generic OSD formulations company, which is yet to start generating revenues and waiting for USFDA inspection

 

Q4FY22 Earnings Conference Call highlights

  • CRAMS-Pharma: Growth likely to be around 15%, going forward, as volumes go up only when molecules move to next phase. Currently, 35 molecules in phase II, five in phase III and five are commercialised
  • CRAMS Specialty Chem: Suven has three products and one development product. However, old molecules were introduced in combinations by customers and, thus, led to volume growth. The management expects Spec-Chem to post flat revenues in FY23
  • Suven Pharma acquired Casper Pharma for US$20.5 million through internal accruals. Casper Pharma has a formulation facility with capacity of 1.2 billion tablets/capsules in GMR Aviation SEZ, Hyderabad. Casper is yet to commence commercially viable operations and USFDA inspection is expected in H1FY23
  • Formulations: Suven ANDAs (filed:17, approved: nine, launched: eight, FY23E filings: seven to eight); Casper ANDAs (filed: two, FY23E filings:15). The management is awaiting USFDA inspection for Casper filings. It has guided for 25% EBITDA margins for US formulations business. In formulations, technical sales account for less than 10%revenues
  • Gross margins are largely dependent on product mix as the input cost has not come down from previous quarters level. The company is guiding for 40%+ EBITDA margins, going forward
  • The management aspires to deliver forward integrated services to its customers in two to three years
  • Capex guidance for FY23: | 250 crore. Suryapet facility work to begin and most of the spend will be incurred this year. R&D centre relocation work has not started yet while Pashamylaram facility block to start in three to four months
  • ETR for FY23 at 25%. FY22 tax expense was higher due to dividend income
Variance Analysis

  Q4FY22 Q4FY21 Q3FY22 YoY (%) QoQ (%)   Comments
Revenue 363.8 259.2 391.6 40.4 -7.1   YoY growth amid strong growth in CRAMS Spec Chem & Pharma business 
Raw Material Expenses 110.3 91.4 119.4 20.8 -7.6    
Gross margins (%) 69.7 64.7 69.5 492.5 17.6   YoY improvement amid inventory adjustment of | 20 crore
Employee Expenses 31.1 16.5 25.0 88.5 24.4   YoY increase on back of additional staff and increaments
Other Expenditure 65.4 57.6 61.1 13.5 7.0    
EBITDA 157.0 93.7 186.0 67.6 -15.6    
EBITDA (%) 43.2 36.2 47.5 700.5 -434.9   YoY improvement mainly due to lower margins in base of Q4FY21
Interest 2.2 1.9 0.7 17.0 195.1    
Depreciation 10.4 8.3 10.5 25.3 -0.8    
Other Income 16.9 3.3 64.7 411.5 -73.9    
PBT before EO & Forex 161.3 86.8 239.5 85.8 -32.6    
Forex & EO 0.0 0.0 0.0        
Profit from Associates 0.0 18.7 0.0 -100.0      
PBT 161.3 105.5 239.5 52.9 -32.6    
Tax  69.6 22.4 79.4 211.4 -12.3    
Net Profit 91.7 83.1 160.1 10.3 -42.7   Delta vis-a-vis EBITDA was due to higher tax expense being partially offset by higher other income
Key Metrics              
CRAMS - Pharma 209.1 137.7 266.2 51.8 -21.4   YoY growth due to increased demand from customers
CRAMS - Spec Chem 136.4 109.4 104.6 24.6 30.3   YoY growth due to increased demand from customers
Formulations & Others 18.4 12.1 14.4 52.5 28.0    

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