Suven Life Sciences Limited — Q2 FY20 earnings call

Call held 15 Nov 2019

Management summary

Suven Life Sciences reported strong H1 FY20 performance with significant growth in income, EBITDA, and net profit, driven by robust CRAMS revenue in Q2. The company provided updates on its key NCE pipeline assets, SUVN502 and SUVN3031, with results for the former imminent. Management also detailed CAPEX plans, the demerger timeline, and an optimistic outlook for FY21, while cautioning that Q2's strong numbers included some early sales.

Highlights

  • H1 FY20 income increased by 62% YoY.

  • H1 FY20 EBITDA grew by 115% YoY.

  • H1 FY20 net profit surged by 128% YoY.

  • Q2 FY20 total CRAMS revenue was Rs. 206 crore.

  • Commercial CRAMS contributed Rs. 107 crore to Q2 FY20 revenue.

  • Specialty Chemicals contributed Rs. 54 crore to Q2 FY20 revenue.

  • SUVN502 results are expected within 2-3 weeks, with presentation scheduled for CTAD 2019 (Dec 4-7).

  • Demerger final hearing is on Nov 29, 2019, with an expected effective date in January.

Concerns

  • Uncertainty of SUVN502 clinical trial results

Key financials

2 periods

Q2 FY20

  • Total CRAMS Revenue
    ₹206 Cr
  • Specialty Chemicals Revenue
    ₹54 Cr

H1

  • FY20 Income Growth
    62%
    YoY +62%
  • FY20 EBITDA Growth
    115%
    YoY +115%
  • FY20 Net Profit Growth
    128%
    YoY +128%

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

  • CRAMS
    ₹206 Cr Q2 FY20 Total Revenue₹107 Cr Q2 FY20 Commercial CRAMS Revenue₹99 Cr Q2 FY20 Regular CRAMS Revenue₹155 Cr H1 FY20 Core CRAMS Revenue
  • Specialty Chemicals
    ₹54 Cr Q2 FY20 Revenue₹155 Cr H1 FY20 Revenue
  • Technical Services
    ₹13 Cr Q2 FY20 Revenue

Guidance & targets

Revenue

  • Overall CRAMS Growth Revenue · next 6 months · Medium confidence 10-20%
    I keep telling you all the time my visibility is only around six months. As of now things looks good and as I was telling you all the time it is 10% to 15% to maximum 20% growth barring the success at the customer level, that is normal guidance I can give you.

    — Venkat Jasti

  • Commercial CRAMS Revenue Revenue · FY20 · High confidence Rs. 170-190 crore

    Previously Rs. 160-170 crore → Rs. 170-190 crore

    Compared to this quarter it will taper down and we expect that around Rs.170, Rs.180 crore in the total year may be goes up to Rs. 190 crore, but I do not have any other guidance at this time, so we are sticking with old guidance of Rs.180 to Rs.190 crore max all put together.

    — Venkat Jasti

  • Specialty Chemicals Revenue Revenue · FY20 · Medium confidence Rs. 210-220 crore
    Maybe 5% this or that way, about Rs. 210 crore will come, but it maybe another 5% maximum.

    — Venkat Jasti

  • Revenue Growth Revenue · FY21 · High confidence 10-15%
    As we said, 10% to 15% on growth and 20% to 25% on bottom line.

    — Venkat Jasti

Profitability

  • EBITDA Margin Profitability · general · Medium confidence 30-35%
    The guidance will be 30% to 35% at EBITDA level.

    — Venkat Jasti

  • Rising Pharma Breakeven Profitability · next year · High confidence 2021
    Breakeven is expected only next year, right Yes, 2021.

    — Venkat Jasti

  • Bottom Line Growth Profitability · FY21 · High confidence 20-25%
    As we said, 10% to 15% on growth and 20% to 25% on bottom line.

    — Venkat Jasti

R&D Spend

  • SUVN3031 R&D Spend R&D Spend · FY20 · High confidence $5 million (this year), $10 million (overall)
    clinical-development based numbers for Suven Neurosciences we may end up spending about another $5 million for this year and it is going to be $10 million for overall year, that is what is going to be there.

    — Venkatraman Sunder

  • Overall R&D Expenses R&D Spend · FY20 · High confidence Rs. 120-125 crore
    So your overall R&D in FY'20 would be around Rs.120-125 crore kind of? Yes.

    — Venkatraman Sunder

  • New Molecules R&D Expenses R&D Spend · FY21 · Medium confidence $5-6 million addition
    About $5-6 million may come in next year.

    — Venkatraman Sunder

  • SUVN502 Closure Payment R&D Spend · next quarter · High confidence $5 million
    This will be another 5 million for the closure.

    — Venkat Jasti

Capex

  • New CAPEX Capex · FY20-FY21 · Medium confidence Rs. 100 crore (FY20), Rs. 50 crore (FY21)
    Rs.160 crore pending, Rs.100 crore maybe before the end of the March and later rest of them will be later. We cannot exactly pin point the numbers. But broadly speaking it will be Rs. 100 crore this year, Rs. 50 crore next year ballpark? Yes, roughly.

    — Venkat Jasti

  • Maintenance CAPEX Capex · annual · High confidence Rs. 30-40 crore
    No-no, maintenance CAPEX is some Rs. 30-40 crore separate, that is always there. This is a new CAPEX.

    — Venkat Jasti

  • Overall CAPEX Capex · FY20-FY21 · High confidence Rs. 130-140 crore (FY20), Rs. 100 crore (FY21)
    So basically your overall CAPEX would be in the range of Rs.130-140 crore this particular year and next year probably in the range of Rs.100 crore? Yes.

    — Rashmi Sancheti / Venkat Jasti

ANDA Filings

  • ANDA Commercialization ANDA Filings · calendar 2020 · Medium confidence 3-4
    Very difficult to tell because nothing has come to the table, but during the calendar '2020, we can expect at least three, four to get commercialized.

    — Venkat Jasti

  • ANDA Filings Planning ANDA Filings · future · High confidence 5-6 years
    Around five to six years, that is our planning.

    — Venkat Jasti

Market Share

  • ANDA Market Share (Suven) Market Share · annual · Medium confidence $2-3 million minimum
    We expect $2-3 million minimum for us.

    — Venkat Jasti

Demerger

  • Demerger Timeline Demerger · Most likely January · Medium confidence January
    If everything goes well, it should be January, demerger, I mean, two separate entities.

    — Venkat Jasti

Risks & concerns

  • Uncertainty of SUVN502 clinical trial results

    high

    Management stated 'anything can happen' regarding the results, and the outcome (positive or negative) will dictate future actions and potential out-licensing.

    Management acknowledged

  • Lumpiness in CRAMS orders and revenue recognition

    medium

    Q2's strong performance included some sales ahead of schedule, making it not a direct parameter for future quarters, indicating inherent lumpiness in CRAMS business.

    Management acknowledged

  • Delays in new specialty molecules reaching commercial stage

    medium

    Two new specialty molecules are in very early stages, with commercialization timelines projected for '21 or '22, indicating limited near-term visibility.

    Management acknowledged

  • Attrition of older molecules in CRAMS portfolio

    low

    A normal part of the business cycle, with approximately 40% of the portfolio churning annually, offset by new molecule additions.

    Management acknowledged

  • US FDA regulatory actions for pharma companies

    low

    Management believes their CRAMS business is less exposed to direct FDA risk as customers are primary auditors with stringent requirements, and their products are not API-based.

    Analyst downplayed

Areas of evasion (3)

  • Speculative future valuations of SUVN502 out-licensing
  • Precise quarter-wise revenue pass-through for specific molecules
  • Exact financial details of Rising Pharma due to ongoing bankruptcy process

Q&A highlights

2 direct
Breakup of Q2 FY20 CRAMS revenue and future outlook Direct
This quarter, CRAMS is total Rs. 206 crore, out of that Rs. 107 crore is the commercial CRAMS, and Rs. 54 crore is Specialty Chemicals and technical services is about Rs. 13 crore. ... But as I was telling you earlier, things are going very well. I will leave the numbers to the question-and-answer session.

Provided granular detail on the strong Q2 performance, clarifying contributions from different CRAMS sub-segments and setting expectations that Q2's high numbers are not a direct parameter for future quarters due to early sales.

Asked by Ankit Gupta

SUVN502 results timeline, announcement, and potential impact Direct
Now, the [data] lock has happened, it should come within the next two to three weeks. And in anticipation of the results, we already have scheduled to present the data in the CTAD 2019 in San Diego during 4th to 7th of December 2019 and we hope to have these results before that.

Crucial update on the company's key NCE pipeline asset, SUVN502, providing a clear timeline for results and public disclosure, which is a major value driver for the company.

Asked by Harsh Parikh

Rising Pharma consolidation, financials, and future funding needs Partial
No, as per the new guidelines we need to do the consolidation, but at the same time this is being under the US Bankruptcy Procedure, the procedures have not ended, they have liability assessment that can be based on the judges discrimination I think which will end sometime in this quarter. After that only what you call the basic numbers will come out. So hence they could not give a balance sheet. So that is why we could not consolidate this quarter...

Clarified the complex situation with Rising Pharma, explaining why consolidation isn't happening yet due to ongoing bankruptcy proceedings and that it's an investment, not a direct revenue-generating entity for Suven's P&L, with no further funding required.

Asked by Saravanan V

3 min read 6 chapters

Detailed narrative

Strong H1 FY20 Performance Driven by CRAMS

Suven Life Sciences reported robust H1 FY20 results, with income increasing by 62%, EBITDA by 115%, and net profit by 128% year-over-year. The strong Q2 performance saw total CRAMS revenue reach Rs. 206 crore, comprising Rs. 107 crore from commercial CRAMS, Rs. 54 crore from specialty chemicals, and Rs. 13 crore from technical services. Management cautioned that Q2 numbers included some ahead-of-schedule sales and should not be taken as a direct parameter for subsequent quarters, but overall business traction remains positive.

Commercial CRAMS and Specialty Chemicals Outlook

For the full year FY20, Suven expects commercial CRAMS revenue to be in the range of Rs. 170-190 crore, an upward revision from the earlier guidance of Rs. 160-170 crore. Specialty chemicals revenue is projected to reach around Rs. 210 crore, potentially up to Rs. 220 crore, with an anticipated growth of 5-10% from this base in subsequent years. The company maintains a general EBITDA margin guidance of 30-35%, with potential for higher margins from value-added products.

SUVN502 and SUVN3031 Pipeline Updates

A critical update was provided on SUVN502, with data lock completed and results expected within the next two to three weeks. The company has scheduled a presentation at CTAD 2019 (December 4-7 in San Diego) and plans to issue a press release as soon as results are available. For SUVN3031, a rare disease molecule, 8 patients have been randomized and over 20 are in the screening stage, with results anticipated by the end of next year. R&D spend for SUVN3031 is projected at $5 million for FY20 and $10 million overall, with an additional $5 million for SUVN502 closure payments.

CAPEX and Demerger Plans

Suven has a pending CAPEX of approximately Rs. 160 crore, with Rs. 100 crore expected to be spent in FY20 and Rs. 50 crore in FY21. This is in addition to a separate maintenance CAPEX of Rs. 30-40 crore annually. The occupational exposure level facility in Pashamylaram is expected to be commercialized this quarter, and an additional block in Vizag will be ready by end of Q3 next year. The demerger process is progressing, with the final NCLT hearing scheduled for November 29, 2019, and the demerger expected to be effective in January.

Rising Pharma Investment and ANDA Pipeline

Suven's investment in Rising Pharma is currently under US Bankruptcy Procedure, preventing full consolidation of financials. The company expects to consolidate profit (25% equivalent) once the bankruptcy process concludes and certified numbers are available, likely by the next quarter. Rising Pharma is expected to break even in 2021. In the ANDA pipeline, Suven has 8 filings (3 own, 5 with partner), with one already commercialized. The company anticipates 3-4 ANDAs to commercialize in calendar 2020, targeting a minimum of $2-3 million in revenue for Suven from these.

Taxation and FY21 Outlook

The company is currently applying the higher tax rate (33%+) and will decide on adopting the new reduced tax regime (25.17%) by March 31, 2020, post-demerger. For FY21, management provided guidance of 10-15% revenue growth and 20-25% bottom line growth, reflecting continued confidence in the core CRAMS business and pipeline progress. This outlook suggests a stable growth trajectory following the strong H1 performance.

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