“This is actually not an expense but a capital on NCE segment as it didn’t have any revenue”
No this is being treated as an expense by them - they will also get the corresponding tax benefits towards this .They could have capitalised r&d but as a sign of tremendous conservatism they have expensed it.This is to be welcomed for shareholders since in future revenue will (may) come but not these expenses incurred right now to achieve that future revenue
“I think because of this only suven return ratios are sky high”
No - if they take r&d to p/l then profit comes down and therefore return ratios also come down - so to the contrary to your understanding expensing r&d deflates their return ratios do not inflate it
“Now company using the money raised through QIP - Because of this returns ratios fall because of increase in Equity”
Not true - capital is raised at a multiple to book value - so capital employed (denominator) goes up - so contrary to your understanding qip reduces the return ratios do not inflate it
“Now company no need to show this R&D cost as an expense in their P&L statements so they can show more profits.So they have to pay more taxes also”
True showing r&d as p&l is a sign of extreme conservatism no compulsions at all to do it - for eg biocon capitalises r&d - But contrary to your understanding this does not help them show more profit but reduces their profits-similarly contrary to your understanding it does not mean more taxes rather it helps reduce their tax since r&d is tax deductible to the extent of 200% but provided clinical trials done in india
Finally from accounting perspective we have to look at QIP and accounting treatment of R&D as 2 seperate events -Hope this helps
Got my hands on AR. My view is that company is building a sustainable pipeline in NCE segment and the CRAMS business is growing at fantastic rate. What I found most interesting is the optimistic undertone in Management commentary, Remember this is Management known for conservatism. I have tried penning my thoughts on outlook originally posted on blog, Attaching for your comments Suven Life Sciences.pdf (1.0 MB)
Reproducing some quotes by Valupickrs which will throw some light on your concerns -
As you know, there was a one time order of around 150 Cr in FY’14. The repeat order was expected in FY’16, but since there is no clarity as of now, the management is guided for barely 10% growth.
An in-depth analysis from Vishnu:
And below is my favorite post which summarizes Suven very well :
Bumping up this thread on questions to be asked @ AGM
With hardly a week to go (it is on 14th Aug, Fri) for the AGM, all I have is 2 Qs from the following 2 boarders. I am wondering whether we can come up with more
advait_6270
Kalyan, will you pls ask regarding, if there is a clear road map for commercialization of the basket full of patents?
Chintas
what segments (CNS/oncology/cardio/etc.) do the Phase 2,3 molecules belong to? Breakup as % of revenue, or whatever info they can give like major segments. (Reason: This would help us figure out the expected revenue after few years in greater detail.)
Of the new molecules acquired in CRM pipeline (presumably in Phase 1) during last year,
a) How many were from new clients?
b) How many were new molecules from existing clients?
(The revenues in Phase 1 are miniscule, but this is where the volume growth is happening.
I have read some reports from management saying that they plan to sell SUVN-502 (one time fee, milestone payment, revenue sharing) during Phase - 2 trials if possible or in any case if it goes to Phase - 3. However, it seems unlikely that anything would fructify before Phase - 3. On the other hand there are reports saying management will try commercializing only once it reaches Phase - 3. Could mgmt. clarify on whether they are currently scouting for buyers and unsuccessful, or not trying/tried at all? If they don’t find any buyers after Phase - 3 also, do they have the finances to carry forward on their own? How likely is this?
I believe that in one of the concalls/interviews management clearly said that they have tried to find a buyer but have been unsuccessful, that is why they needed to go for the QIP. This could be interpreted in both ways - big companies don’t want to tie up with small companies until they have proven history(this is the managements belief) while the other scenario could be that the big companies don’t think the product will be a successful one. Bear in mind that if there product passes successfully through phase 2 (probability of which is less than 25%) ans still suven don’t find a tie up/buyer they will need another QIP of close to 750cr for phase 3 whcih would mean close to 20-25% equity dilution
I couldn’t attend the AGM due to some constraints and another friend couldn’t reach the venue in time due to legendary Hyd traffic. Hoping to get some nuggets from some sources
co cleverly compared with Q4 nos so that there is some silver lining in PAT comparison but I think people will really do an Y to Y comparison. Let us see how the market reacts
PS - Invested and brazing myself!!
What happened? Did management gave any guidance about such a difficult quarter?
These are really very bad set of numbers. From what I recollect management gave a guidance of 600cr revenue and 100-120cr net profit. But these look nearly impossible now.
Moreover there is no mention in the presentation why quarter was so bad? Instead they tried to cover-up with QoQ comparison, when the norm clearly is YoY comparison.
For what it is worth, this news came late yesterday night
Suven Life Sciences Ltd has informed BSE that the Board of Directors of the Company at its meeting held on August 14, 2015, inter alia, has authorized to create an overseas subsidiary with an initial investment of US$ 25 Mn for clinical development and commercialization of Suven pipeline and in-licensed molecules http://www.bseindia.com/corporates/ann.aspx?scrip=530239&dur=A&expandable=0
As a defensive investor one shall evaluate SLS on the basis of core business alone.
The IP of SLS is certainly huge. But I cannot pay a premium for it as long as it is almost a certainty that the IP has a smooth road to be converted into money.
If one pays premium today and down the line SUVN 502 proves unsuccessful, the stock will be evaluated only on the basis of core business at that particular time. In such a case, there will be loss of money as well as opportunity cost, unless SLS’s CRAMS business shows consistent growth.
I’m not saying SUVN 502 will not be successful. All I can say is that I do not know the eventual outcome for certain or even if SLS can monetize it. Thus today it remains a gamble. And as a wannabe defensive value investor, I refuse to take one.
Disclosure - The views are my own. I have held SLS in the past but have no holdings at present. Can again buy if either serious correction happens from current levels or positive changes are seen. Do your own due diligence before buying/selling.
averaging !!