Suven Life Sci
BSE ID : 530239 NSE ID : SUVEN
RECOMMENDED PRICE 162.95
PEAK FROM RECO 311.18 90.97%
CURRENT PRICE 82.88 Resource id #18
We value the stock at 28x FY19 EPS of Rs.7.90 arriving at a target price of Rs 220 representing 35% potential upside.
Suven Life Sciences
Founded by Dr. Venkat Jasti in 1989, the company commenced its operations as a manufacturer of pharmaceutical ingredients and soon expanded into manufacturing and export of fine chemical intermediates.
Strong pipeline of CRAMS projects provides long term visibility:
The company at the end of Q2FY17, has 115 active CRAMS projects of which 71 projects are in Phase?1, 42 projects are in Phase?2, 2 projects are in Phase?3, and another 3 projects have reached the commercial phase. The Management expects this segment to grow at 10?15% for FY17 and FY18 without considering any positive surprises of success with the customers' molecule. Since, the company caters to NCE based CRAMS, the Management expects margins to sustain broadly in the long?run.
Strong financials provides cushion for further investments and expenditure:
The company spends usually more than 10% of the revenue towards research and development which takes away a chunk of their profits. The good part is that the R&D expenditure is expensed out on a run?time basis leaving no stress on the balance sheet. Further, the borrowings remain at quite low level of Rs.66 crore including the short?term working capital requirement – and the debt?equity ratio stands at 0.1x leaving a wide window, in case, if the company needs to spend on any of their verticals. Furthermore, the company has nearly Rs.250 cr cash which the company had raised to fund its research expenses to be incurred on SUVN?502.
SUVN?502 – A bet for a bonanza:
The current market size of Alzheimer’s disease which stands at $10 bn is likely to triple by 2022 in USA. Molecules similar to SUVN?502 like Lu AE58054 (Lundbeck, Otsuka) July, 2013 which is currently ongoing Phase? 3 had received $150 mn upfront for phase?2 program. Another, RVT?101 (GSK, Axovant) December, 2014 was bought post PoC from GSK for $5 mn plus future milestone payments and sales royalties. Raised $362 Mn in June, 2015. It is also currently ongoing Phase?3.
OUTLOOK & VALUATION
Suven Life Sciences has a fundamentally strong business model targeting the niche at the top of the pyramid – the CRAMS division which engages contract research rather than contract manufacturing and thus commands better margins unlike other CRAMS players. The long established relationships with over a score of global pharma giants and a robust pipeline of projects provides a good long?term business visibility. Additionally, the proprietary NCEs which includes promising molecules – SUVN? 502, SUVN?G3031, SUVN?D4010 presents huge opportunity value. Furthermore, the strong financial position ? low debt?equity ratio, of 0.1x, cash worth Rs.241 crore on balance sheet, visibility of stable revenue for the next couple of years with healthy profitability followed by substantial price correction presents an opportunity to re?enter the stock with long?term horizon. We value the stock at 28x FY19 EPS of Rs.7.90 arriving at a target price of Rs.220 representing 35% potential upside.
For the half year ended September 30, 2016, the top line stood at Rs.249 cr, representing a growth of 14.1% YoY and an EBITDA margin of 32.3% (post R&D) and 44.1% (pre R&D). The company has reported a net profit of Rs.59 cr in H1 FY17 as compared to Rs.46 cr in H1 FY16, a jump of 29.1% YoY. The EPS stands at Rs.4.65 on standalone basis as against Rs.3.60 in the first half of previous fiscal.
For full details, Click on the attachment.
Analyst Stock Ownership No
Stock Recommended to Clients Yes
Remuneration/Benefits received from company in 12 months No
Merchant Banking Market Making activities / projects No
Sushil Financial Services Pvt. Ltd and Group Companies Holding Yes
Sushil Financial Services Pvt. Ltd and Group Directors Holding Yes
Broking Relationship with the company covered No
Disclaimer: This report has been furnished to you for your general information only and should not be reproduced, re]circulated, published in any media, website or otherwise, in any form or manner, in part or as a whole, without the express consent in writing of Sushil Financial Services Private Limited. This Research Report is meant solely for use by the original recipient to whom it is sent and is not for circulation. Any unauthorized use, disclosure or public dissemination or copying of information (either whole or partial) contained herein is prohibited. This Report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice/offer for the purpose of purchase or sale of any securities mentioned herein. Past performance is not a guide for future performance, future returns are not guaranteed. Opinions expressed herein are subject to change without notice. Investor should rely on information/data arising out of their own investigations. Investors are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or making any investments. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investor may realize losses on any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by us to be reliable. Sushil Financial Services Private Limited or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information / opinions / views. None of the directors, employees, affiliates or representatives of company shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages/loss etc whatsoever from the information/opinions/views contained in this Report and investors are requested to use the information contained at their risk. We do not undertake to advise you as to any change of our views expressed in this Report. Sushil Financial Services Private Limited (SFSPL) and its connected companies, and their respective Directors, Officers and employees or their relative, may have a long or short position in the subject companies mentioned in the report and it may not be construed as potential conflict of interest with respect to any recommendation and related information and opinions. Reports based on technical and derivative analysis center on studying charts companyfs price movement, outstanding positions and trading volume, as opposed to focusing on a companyfs fundamentals and, as such, may not match with a report on a companyfs fundamental analysis. SFPSL has different business segments/Divisions with independent research separated by Chinese walls catering to different set of customers having various objectives, risk profiles, investment horizon, etc. and therefore may at times have different contrary views on stocks sector and markets. Research Report may differ between SFSPLfs RAs on account of differences in research methodology, personal judgment and difference in time horizons for which recommendations are made. User should keep this risk in mind and not hold ] SFSPL, its employees and associates responsible for any losses, damages of any type whatsoever. This Report is not intended to be a complete statement or summary of the securities, market or developments referred to in this document. SFSPL or its affiliates or employees are under no obligation to update the information. SFSPL or its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. SFSPL or its affiliates and/or its employees may have financial interest in the subject companies. SFSPL or its affiliates and/or employees may have beneficial ownership of one per cent or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report. SFSPL or its associates or its Research Analyst have not received any compensation or other benefits from the subject companies or third party in connection with the research report. SFSPL/its Associates/ Research Analyst/ his Relatives may have any other material conflict of interest at the time of publication of the research report SFSPL/its Associates/ Research Analyst/ his Relatives have not managed or co]managed public offering of securities, have not received compensation for investment banking or merchant banking or brokerage services, have not received any compensation for product or services other than investment banking or merchant banking or brokerage services from the subject companies in the last twelve months. There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities.