Suven Life Sciences Limited — Q1 FY20 earnings call

Call held 16 Aug 2019

Management summary

Suven Life Sciences reported a strong Q1 FY20 in terms of profitability, with EBITDA up 40% and Net Profit up 47% YoY, despite flat revenue. The company provided an optimistic outlook for its CRAMS and Specialty Chemicals segments, revising commercial CRAMS guidance upwards for FY20. Progress on the NCE pipeline, including SUVN-502 data release and SUVN-G3031 trial initiation, along with CAPEX plans and the Rising Pharma acquisition, were key discussion points.

Highlights

  • Q1 FY20 Revenue remained flat YoY, with a potential 1% growth.

  • EBITDA for Q1 FY20 increased by 40% YoY.

  • Net Profit for Q1 FY20 grew by 47% YoY.

  • Specialty Chemicals segment achieved a turnover of Rs. 100.53 crore in Q1 FY20.

  • Total CRAMS business recorded Rs. 91.77 crore in Q1 FY20, with commercial CRAMS contributing Rs. 35.39 crore.

  • Commercial CRAMS full-year guidance revised upwards to Rs. 160-180 crore for FY20, from an earlier Rs. 130 crore.

  • Overall CRAMS business is expected to grow by about 15% for the current financial year.

  • SUVN-502 top-line data is anticipated by the end of September or first week of October 2019.

Concerns

  • Unfavorable SUVN-502 clinical trial data

Key financials

  1. Revenue Growth 1% +1%YoY
  2. EBITDA Growth 40% +40%YoY
  3. PAT Growth 47% +47%YoY

What they filed

Q1 FY27: revenue up 100.0%, net profit down 6.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3 2 1 2 1 −67%3 +50%2 +100%4 +100%
EBITDA-14 -13 -15 -14 -18 −29%-15 −15%-16 −7%-21 −50%
Net profit-11 -13 -15 -15 -15 −36%-13 +0%-11 +27%-16 −7%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹291.43 Cr Total
  • Specialty Chemicals ₹100.53 Cr 34.5%
  • Total CRAMS ₹91.77 Cr 31.5%
  • Core CRAMS ₹56 Cr 19.2%
  • Commercial CRAMS ₹35.39 Cr 12.1%
  • Contract Technical Services ₹6.69 Cr 2.3%
  • Royalty ₹1.05 Cr 0.4%

Guidance & targets

Revenue

  • Commercial CRAMS Turnover Revenue · FY20 · High confidence ₹160-180 crore

    Previously ₹130 crore → ₹160-180 crore

    commercial CRAMS last time I said it can be around Rs. 130 crore for the year, but it looks like it can be compared to last year which is Rs. 80 crore where it will be Rs. 160 to 170 or 180 crore the way things are moving.

    — Venkat Jasti

  • Specialty Chemicals Turnover Revenue · FY20 · Medium confidence ₹215 crore
    Specialty, we have given a total guidance of about Rs. 215 crore more or less same

    — Venkatraman Sunder

  • Specialty Chemicals Full Year Turnover Revenue · FY20 · High confidence ₹215-230 crore
    the full year you expect Specialty to be around Rs. 215 to 230 crore.

    — Venkat Jasti

Growth

  • Normal CRAMS Growth Growth · FY20 · Medium confidence 10%-15%
    the normal CRAMS growth will be 10% to 15%

    — Venkat Jasti

  • Commercial CRAMS Growth Growth · FY20 · High confidence double or more than double
    the commercial CRAMS will be almost double or more than double

    — Venkat Jasti

  • Base CRAMS Growth Growth · FY20 · Medium confidence 5%-10%
    Base CRAMS will be about 5%-10% growth max compared to last year.

    — Venkatraman Sunder

  • Overall CRAMS Business Growth Growth · current financial year · High confidence 15%
    overall growth will be about 15%.

    — Venkat Jasti

  • Specialty Chemicals Growth Growth · FY20 · Medium confidence 5%-10%
    Yeah, 5% to 10% growth.

    — Venkat Jasti

Capex

  • Total CAPEX Capex · next 2-4 quarters · High confidence ₹310 crore
    our CAPEX is Rs. 310 crore

    — Venkat Jasti

  • Intermediates CAPEX Capex · next 2-4 quarters · High confidence ₹220 crore
    Rs. 220 crore is for intermediates

    — Venkat Jasti

  • Formulations CAPEX Capex · next 2-4 quarters · High confidence ₹90 crore
    Rs. 90 crore for the formulations

    — Venkat Jasti

Capacity

  • Intermediates Block 1 Operational Capacity · end of this year (FY20) · High confidence fully operational
    one block will be operational by the end of this year fully.

    — Venkat Jasti

  • Intermediates Block 2 Operational Capacity · middle or end of next year (FY21) · High confidence operational
    The second block the middle or the end of next year.

    — Venkat Jasti

  • Formulations Facility Operational Capacity · middle of next year (FY21) · High confidence operational
    Formulations will be middle of the next year.

    — Venkat Jasti

ANDA Pipeline

  • ANDA Filings ANDA Pipeline · before end of the year · High confidence 2 more
    another 2 more will be filed soon before the end of the year

    — Venkat Jasti

  • ANDA Approvals for Commercialization ANDA Pipeline · 2020-2021 · Medium confidence 4 ANDAs
    we hope to get 4 ANDAs for the commercialization in 2020-2021.

    — Venkat Jasti

  • Annual ANDA Filings ANDA Pipeline · every year · High confidence 3 to 5 ANDAs
    we will continue to look at say filing between 3 to 5 ANDAs every year, that is a game plan?

    — Venkat Jasti

Investment

  • Rising Pharma Valuation Return Investment · couple of years to 3 years, 4 years maybe · Medium confidence old valuation
    we hope to bring it back to the old valuation within couple of years to 3 years, 4 years maybe.

    — Venkat Jasti

Dividend

  • Rising Pharma Dividend Dividend · end of the year, last 12 months · Low confidence some dividend
    We hope to have some dividend by the end of the year, last 12 months.

    — Venkat Jasti

R&D Spend

  • Standalone R&D Spend R&D Spend · FY20 · High confidence $10 million
    Standalone will be roughly $10 million

    — Venkat Jasti

  • Subsidiaries R&D Spend R&D Spend · FY20 · High confidence $10 million
    subsidiaries will be about $10 million.

    — Venkat Jasti

Product Launch

  • New Specialty Products Product Launch · 2020-2021 · Medium confidence 2 products
    We are working on two more products, one may come in 2021, likely to come both of them in '20-'21 time.

    — Venkat Jasti

Sales

  • New Specialty Products Annual Sales Sales · per year · Medium confidence $7-8 million
    new products that are coming into picture will be around 7 to 8 million maximum sales per year.

    — Venkat Jasti

NCE Pipeline

  • SUVN-502 Data Results NCE Pipeline · end of September or first/second week of October · High confidence data results out
    sometime in the end of September or the first week or second week of October, we will get the data results out

    — Venkat Jasti

  • SUVN-G3031 Data Results NCE Pipeline · next year August timeframe · High confidence data by this time
    if everything goes well, you will see the data by this time next year August timeframe.

    — Venkat Jasti

  • SUVN-D4010 and SUVN-911 Phase-II Readiness NCE Pipeline · next 4 to 6 months · High confidence ready for Phase-II
    we will be ready in the next 4 to 6 months that are going into Phase-ll of proof of concept.

    — Venkat Jasti

Risks & concerns

  • Unfavorable SUVN-502 clinical trial data

    high

    Management acknowledges the uncertainty of clinical trial outcomes and discusses potential strategies like repurposing if data is not favorable, but also states 'we have just hope'.

    Analyst acknowledged

  • Raw material disruption from China

    medium

    Management states the problem still exists, causing delays, but they are catching up and exploring backward integration for some items next year.

    Analyst acknowledged

  • Cyclical nature of commercial CRAMS business

    medium

    Management notes that customers often buy multi-year quantities, leading to strong years followed by weaker ones, but expects a comeback this year.

    Management acknowledged

Q&A highlights

3 direct
Rising Pharma acquisition valuation and rationale Direct
I think your information is very wrong. Aceto has purchased one of the units at $150 million sales with $450 million value in 2016, not $80 million. ... we hope to bring it back to the old valuation within couple of years to 3 years, 4 years maybe.

Analyst challenged the acquisition valuation based on public information, and management clarified the historical context and future value creation strategy.

Asked by Piyush Goyal

SUVN-502 outcome and potential repurposing Direct
I mean certainly the learning will be useful for not only for us but also the community when developing the molecule for the unmet medical need. And since this has different indications which can be placed based on the data, as we know we have not only the main outcome methods there are another 7 outcome methods which we can see based on that so we can look this product it is not useful in one of the indications, it can be repurposed for the other indication presenting it to the what you call the FDA.

Addresses investor concern about a potential failure of SUVN-502 and highlights the company's strategy for leveraging R&D learnings and potential repurposing.

Asked by Piyush Goyal

Sustainability of commercial CRAMS growth Direct
It will always be like that as you rightly said they buy this year and we rarely have a repeat order in 12 months and sometime in 18 months depending on how the product moves and all that stuff. So CRAMS last year we compared to the previous year, it was less and now it has comeback.

Provides insight into the cyclical nature of the commercial CRAMS business, explaining why strong years are often followed by weaker ones, and confirming the current comeback.

Asked by Rohan Advant

2 min read 6 chapters

Detailed narrative

Q1 FY20 Performance Overview

Suven Life Sciences reported a Q1 FY20 with flat revenue YoY, showing a marginal 1% growth. Despite this, profitability saw significant improvement, with EBITDA increasing by 40% and Net Profit by 47% compared to the same quarter last year. The management attributed this to a favorable product mix with higher-value products, including strong performance from commercial CRAMS.

CRAMS and Specialty Chemicals Business Outlook

The Specialty Chemicals segment achieved Rs. 100.53 crore in turnover for Q1 FY20, with a full-year guidance of Rs. 215-230 crore, representing 5-10% growth. Total CRAMS revenue was Rs. 91.77 crore, including Rs. 35.39 crore from commercial CRAMS. The full-year commercial CRAMS guidance was revised upwards to Rs. 160-180 crore, nearly doubling last year's Rs. 80 crore. Overall CRAMS business is projected to grow by 15% for the current financial year, with normal CRAMS growth at 10-15% and base CRAMS at 5-10%.

CAPEX and Capacity Expansion

The company plans a total CAPEX of Rs. 310 crore, with Rs. 220 crore allocated for intermediates and Rs. 90 crore for formulations. One intermediates block is expected to be fully operational by the end of FY20, with the second block and the formulations facility becoming operational by mid-to-end of FY21. These expansions are driven by new customer requirements and additional capacity needs, with investments expected to be recovered within a couple of years depending on product mix.

Rising Pharma Acquisition Strategy

Suven invested $35 million for a 25% stake in Rising Pharma, valuing the company at $140 million. The acquisition includes working capital and covers liabilities to vendors, with no debt. Management aims to restore Rising Pharma's valuation to its 2016 level of $450 million within 2-4 years, driven by CRAMS revenue from ANDA development, manufacturing, supply, and profit sharing from new ANDAs. Rising Pharma has over 100 ANDAs and a strong distribution network.

NCE Pipeline Update

Top-line data for SUVN-502 is now expected by the end of September or early October 2019, following delays in data collection. The Phase 2 study for SUVN-G3031 has received US FDA permission, with patient randomization starting this month, and data expected by August next year. Two other compounds, SUVN-D4010 and SUVN-911, are progressing well and are expected to be ready for Phase-II proof of concept within the next 4-6 months. The company maintains 82 molecules in Phase-I, 32 in Phase-II, 1 in Phase-III, and 4 commercial.

ANDA Pipeline and Formulation Business

Suven has 12 ANDAs under preparation, with 4 already filed and another 2 expected to be filed before the end of the year. The company anticipates receiving 4 ANDA approvals for commercialization in 2020-2021 and plans to file 3-5 ANDAs annually. The Rs. 90 crore formulation facility is expected to be ready by mid-next year, aligning with anticipated ANDA approvals. The focus is on niche, smaller ANDAs, with initial costs for the facility being higher but future additions expected to be more cost-effective.

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