how is raising funds by diluting equity thro’ qip tantamount to capitalising r&d ? can you explain your logic ?
This can be a real multibagger from here. Regular biz expected to grow only 10-20% in next couple of years. If any of their molecules click, sky is the limit for this stock. But it will take 2+ years, before we know the success of any of its molecules.
Disc : I hold from long (at 25 levels) and intend to hold more long. Do not construe this as a buy advice.
As per my understanding. Till now company showed their R&D expenses on NCE as an expense in P&L statement. This is actually not an expense but a capital on NCE segment as it didn’t have any revenue. I think because of this only suven return ratios are sky high. Now company using the money rised through QIP i.e diluted equity money to fund R&D cost of NCE segment. Because of this returns ratios fall because of increase in Equity. 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.
Please correct me if I am wrong
“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)
@vivekbothra. i think your blog has some very high quality writing.and i follow you. its so nice to see u on valuepickr too.
Operating metrics are good and their product pipeline is looking good. But Q4 was scary…Revenue fell -20% approx and PAT fell -50% approx.
It looks like a very volatile business.
Do you think growth will pick up from Q1?
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 :
Approval rates for Alzheimer’s drugs:
P1 -> P2 : 68.45%
P2 -> P3 : 25.2%
P3 -> launch : 17.2%
Source, which also talks about the growing biotech bubble.
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
Kalyan, will you pls ask regarding, if there is a clear road map for commercialization of the basket full of patents?
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.)
Thanks @KS16 on behalf of us all.
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?
Are they filling any ANDAs?
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
Results (Q1FY16 v/s Q1FY15 v/s Q4 FY15):
Revenue : 101cr v/s 141cr v/s 111cr.
PAT : 20.2cr v/s 34.7cr v/s 16.9cr.
Need to wait for repeat orders for 3 molecules in commercial phase.
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!!
Brazing is when we bought the stock, bracing is what we need to do now
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.