Suven Life Sciences - Embedded triggers

(P Sharma) #21


I lot of what i have written is based on my interaction with the management. The fund raising will be via private placement or QIP and not debt.

I agree with you on the EBIDTA margins. However, how much of it is because of the underlying business and how much of it was based on the one off order remains be seen. As i said, Q2 numbers will tell the story.

I might be completely wrong here, but the PAT guided by the management for FY 15 and FY 16 is on the higher end in my opinion. This of course is based on the information in the public domain. There might be some one off orders that could boost the bottom line again.

I would like to wait and watch.


(vivek bothra) #22

What is the dilution percentage we are talking about ?

(Siddarth D Asrani) #23

Hi Vivek,

Am glad that there is a thread solely for Suven !

You mentioned about theone time order to the tune of ~ 150 crore in FY14. Agreed. But have you heard about the same kind of orders in the last quarter of FY15. Mr. Jasti had in his recent interview mentioned about the same.

Further FY16 is going to replicate FY14 is what Mr. Jasti said. What I believe is the management has been very very conservative in terms of their commitments and so fay they have delivered.

The Company initiated the construction of a 110 crore greenfield facility at Vizag dedicated to the CRAMS business in FY14. Revenue Generation for which will start from March 2015.

Finally not to forget major recent achievements:

Suven Life Sciences bags Pharmexcilâs âGold Patent Awardâ for NCEâs and “Outstanding Export Performance Award” for Contract Research and Manufacturing

Suven Life Sciences is selected as one of the “Best Under A Billion” companies by Forbes Asia 2014.

Disc : Entered @ 75 levels

(vivek bothra) #24

Hi Siddarth,

No I am not aware of any new one time order like FY14. Thanks for providing latest updates

(vivek bothra) #25

Q2 results out as expected de growth, Fall in margings quite steep

Growth in revenue Rs 1412 Mn vs Rs 1515 Mn - down by 6.8%

Growth in PAT Rs 248 Mn vs. Rs 455 Mn - down by 45%

Growth in EBIDTA Rs 398 Mn vs. Rs 715 Mn - down by 44 %

Expecting market to punish stock severely

Details here

(Sagar Saxena) #26

I don’t think the numbers are ‘bad’.The management had already guided for a ‘lower PAT in FY15’.However,markets got excited after the stunning performance in Q1 & expectations might have been high.

On the Concall,Mr. Jasti stated that Speciality Chemicals revs. have grown from 29cr. to 69cr.,YoY.This helped offset the absence of pre-launch supplies this quarter.Also,27% is the base case EBITDA margins that should be expected.The company also stated that so far,there has been no guidance from their clients on the re-supply side(which was supposed to be 18 months…so,probably Q2FY16) The company will now concentrate on the Fund raising side,more aggressively.

Personally,I feel the performance has been in-line with what I was expecting.The EPS for FY15 might as well come at 10-11,which means that the CMP is discounting the earnings by about 20x.This is still lower than the valuations of its peers(ex-Ipca) So,I am happy to hold this one.The real story starts only from FY16.The lower base & predictability of earnings,both will kick in then.My greatest comfort from the start,has been the transparency of the company.Never misleading investors,or overstating performance,etc.

Disc.: Invested. :slight_smile:


The biggest problem I face is how to forecast earnings for these pharma companies. I have spent considerable time understanding their business model and generate some comfort but start faltering at the time of allocation. Can somebody throw light on approach to these pharma stocks

  1. How much to allocate in a concentrated portfolio?

  2. Does basket approach work ? I mean buying a few stocks to spread the risk.

I have zeroed on three stocks Suven, Maksans and Indoco for allocation but don’t know what is the best allocation strategy.

(vivek bothra) #28

Allocation Sumit is purely driven from conviction and our underlying understanding of business, What has worked for me in past is increasing allocation with increasing conviction and vice versa

From above basket of stocks I am positive on Suven but you are not going to get revenue predicatbility

In their AR14 the management has asked us to judge company in three year blocks, I dont think many investors would do that


(Aman Vij) #29

Had entered suven first at 70 levels and then continuously added till 160 levels. Reason for buying the company was more due to low valuations and high ROE. But as the sayings go you understand a company much more after buying the shares, I researched more and more on the company and had to take a tough decision but exited my positions at 222 levels. Reasons for the same are given below :-
1). Equity dilution of $20mn (120 crore) for Phase 2a for SUVN 502. If molecule was so promising someone should have funded it and maximum chance of failure is in 2a
2). Future 2 quarter earnings could be less as guidance for year is 460-480 crore revenue and 100 cr profit which will decrease eps from 12 to 9-10. At current valuations downside should be close to 150-170 levels. Even next year revenue guidance is 650 cr but profit would still be around 125 crore(EPS close to 11) or less than last yearâs profit
3). Price looked jacked as well as management would want to dilute less stakes via QIP for raising money
4). Management said in concall that q1 orders were for high margins which is expected to reduce to more volume and less margin

People normally say that Suven has lot of opportunities in front because it has huge pipeline of patents (Even I thought the same initially) Getting patents is not such a big thing as people believe it to be specially if it is from non US/EU countries. A similar analogy can be Auro as it has 5th highest ANDA filings in the world (for couple of years) but only when they started executing and commercializing the drugs the market rerated them so until suven can market/sell those molecules they are not worth much except some brownie points.

People should not compare valuations of Suven with the likes of IPCA, Alembic, Ajanta
Suven is mainly into CRAMS manufacturing which is dependent on the whims of the inventors while others like Ajanta, Alembic, IPCA are mainly into generics and have a stable business. Even after the latest concall I am not sure how much more Suven can appreciate as they will soon start the QIP process for raising 120 crore for phase 2a which I believe will further dilute the EPS. Besides that the management repeatedly told that their main business which is crams grew by only 10% YOY while Specialty business had 100% growth but that was a positive surprise for the management and also due to royalties from Taro which is expected to decrease in winter season.

Regarding their pipleine of 9 NCE molecules in CNS division. Getting through phase 1 is not that difficult as the phase 1 is basically a safety checking phase by giving dosage to healthy population and so chance of success is pretty high close to 75 % .It is the phase 2 where the drug is injected in target population (sample size is also increased) where the actual effectiveness of drug is tested which is a very risky stage as probability of passing this phases is less than 50%.

Disadvantages of selling (That is why it was a very tough decision)
1). Possible upside potential of successful phase 2a which could mean tie up with mnc and revenue close to 150mn similar to what happened in another case as said my mgmt
2). Suvenâs management seems pretty ethical.

May be Suven will prove me wrong and turn out to be golden goose but as of today the reward to risk ratio doesnât seem favorable to me. Not asking anyone to sell as decision should be entirely based on your own analysis. Will surely still keep tracking this company and see what happens in next 1-2 years.

(Ashish) #30

Suven featured in latest Motilal Wealth Creation Study as Potential 100x Bagger Stock


What is interesting is that MOFL is predicting that future wealth creators would mainly come from pharma sector. I do agree that some of them could definitely come but 4 out of 7 is little too high a no. to digest. They seem to have missed stocks from consumer or housing finance sector.

(Swaminathan) #32

Suven Life Sciences secures 4 (four) Product Patents for their NCEâs through New mechanism of action - H3 Inverse Agonist in Australia, Canada, Japan and New Zealand

(bomi karkaria) #33

Has the equity dilution occurred and if yes, at what price?

(vivek bothra) #34

@ Bomi - 191/ share

(ASPN) #35

Hi Vivek,

Kudos to your efforts and analysis.

The company is bagging patents in every other month. Are you aware about any plan from the company regarding monetization / commercialization of these patents?

The company is already trading at 22-24x TTM. Do we need to add the vast IP of the company while valuing it? Request help from seniors to understand this.

(vivek bothra) #36

Hi Advait - Patents to my knowledge are granted per geography for same molecule. So for a molecule X you will get one patent in Australia and other one in USA.

Filling patents would not translate to sales / monetization straight away though markets thinks otherwise :wink: Drug discovery & commercialization is a long process, top companies have strong pipeline Suven claims to have sound pipleline in niche space

The company is definetly not trading at bargain like it was in 2012-13, however as we pointed out that there are few embedded triggers with probability of them turning on side of investors.

hope it answered your questions

(Puneet) #37

(Rishi) #38

Patents are commendable and if successful immensely rewardingfor aPharma company to perform innovative research to launch new drugs. But monetization of patents in the Pharma industry has its owns issues as listed below. These are facts for the regulated markets (US, EU, Japan). But then they are the biggest markets and Regulators in other parts of the world take their lead.

1). The typical duration of Clinical Trials to market is 6 to 10 yrs. Clinical trials are conducted in Phases 1-3 to give drug regulators enough evidence for safety and efficacy of the drug before the regulators approve the drug to be marketed. Remember the molecule is patented as soon as it shows enough promise for the Pharma company but before Clinical Trials, thus the long gestation period.

2). The success rate of a molecule to pass all Clinical Trials and approved as a drug is very low. It runs mostly is single digit percentages and for some Therapeutic Areas like Neuro its still lower

3). The economics are staggering. The cost of getting drug to market could be hundreds of millions of dollars mostly getting close to billion dollars. The smaller companies mitigate the cost and risk by partnering with larger companies which also helps with knowledge base. Examples include Biocon tie-ups with Mylan and BMS, although in Biologics. That also means that they will share the revenue/profits with the partner.

4). There is enough and more litigation in this space where patents are overturned

I think its important to understand the industry dynamics to understand some of these news items regarding patents. The dynamics of a particular Pharma company might be immensely favourable from an economics point of view. That would need quite a bit of analysis tounderstand the monetization value, timing and risk.

Patents might be great news but their economic benefit is not guaranteed.

It isbetter to track the progress of various clinical trials that the Pharma companies are conducting. This has more near term_Potential_benefit especially if it is in later phases of Clinical Trials. You can find the progress on the company’s website.

(JKS) #39

Venkat Jasti, in every forum makes it clear that these patents won’t result in financial impact at all. That said, at some stage, Suven can dig into the treasure trove and start cashing it out, with the right partner.

The one I am betting on is Suven-502 Alzheimer’s disease drug. Here is some old news paper article on that

All said and done, Jasti - over the years has been extremely transparent, humble and above the board. He has a tendency to under commit and over deliver

Disc - Invested

Disclaimer - I am not a certified analyst and this is not a recommendation. Please do your research before acting and I am not responsible for your action

(Sagar Saxena) #40

Well said kalyan.Mr. Jasti has really been a very transparent corporate person right through.What impresses me,is the constant focus on high margin businesses.Even in Speciality chemicals,SLS has managed to gain decent margins.This tells two things: 1) The co. won’t compromise on pricing to get volumes,2) There is little complacency when it comes to business.Thus,even though pre-supplies were expected to resume in FY16.The co. didn’t take it for granted,& seems to be making the right investments in other verticals.

The company had guided for a PAT of ~100cr. for this fiscal.But they will easily do 120cr.+.As you said,they are underpromising and overdelivering…all very healthy signs on Management quality.However,the valuations are no longer cheap.The Joker in the pack has progressed very well so far,and their fund raising sailed through without hiccups.As FY17-18 approaches,this excitement regarding SUVN-502 will only increase.I do have high hopes too,but I will keep a keen eye on whether the Market cap goes out of hand.

Disc.: Invested.Views maybe biased.Kindly do your own discretion before investing.