Suven Pharma ~ Demerged CRAMS Arm of Suven Life Sciences

Rs.259 crore were invested in Rising Pharma in FY20. For that, company got Rs. 423 crore now, partly in cash and partly in kind. This seems to be a good return. Jasti had mentioned in the past that Rising investment should be looked at as financial investment only.

One fallout of this sale however is that the profit share from Rising, reported in Suven Consolidated will be reversed. This year Rs.41 crore were accounted in H1 this way, which will not be there when the books are finalized for the full year. Is my understanding right, if someone can confirm……

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Suven will retain 7% stake in a larger entity and thus some profits should continue to accrue

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There is a difference.

Rising Pharma was considered as an Associate Company and 25% of the profits of Rising Pharma were consolidated into Suven as a separate line item in the P&L Account below PBT.

But now with just 7% stake in Raisin Aggregator – which is a PE / AIF company and not Pharma, it will get the ‘Fair Value adjustment through OCI’ treatment in the P&L. Gains will appear below PAT. Only the dividend received from Raisin will be accounted as Income. Consolidated PAT will take a hit to that extent. And the amount was not insignificant. That is what I think.

The below is from the accounting policy, page 76 of the latest Annual Report:

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Moneylife series interview

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Suven supplies intermediate for Paxlovid in all likelihood.

Pfizer’s Paxlovid is first oral antiviral of its kind; Phase II/III trial found it reduced the risk of hospitalisation or death by almost 90%. Paxlovid is combination of nirmatrelvir and ritonavir. Nirmatrelvir (PF-07321332) is developed by Pfizer. Seems Suven supplies “3-METHY-N-TRIFLUOROACETYL-L-VALINE” to Pfizer Ireland; this is intermediate for nirmatrelvir.
Source: https://panjiva.com/Pfizer-Ireland-Pharmaceuticals/60320406

Suven may not be the only supplier. Haizhou Pharma of China could be one of the other ones.
Source: https://www.haizhoupharma.com/intermediates/other-intermedaites/3-methyl-n-trifluoroacetyl-l-valine.html

Discl: Invested since long, transactions over the past 30 days.

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Snippet about Paxlovid from The Washington Post article here -

Efficacy and complex synthetic process

Advance purchase

Complex chemistry

Scale up and goal


The overall market looks big. Unless a more effective treatment is on the market this one could run for a while. But this is a cruel world - if something better and cheaper comes, people will forget Paxlovid quickly. This is seasonal flavour at this time.

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Amazing work and insight, @spatel! Important takeaway is the complexity of the molecule and the capabilities and relationships that Suven has.

Disc: invested in family and client accounts.

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On the API side, there are many API Players who have already announced the availability of the API Nirmatrelvir , more than 10 at this point of time. I don’t think Suven will have any specific advantages. However if they are one of the contractors working with Pfizer then it would be a blockbuster thing depending on the value that the API intermediate can command. Most likely Pfizer will have multiple sources for this intermediate as the demand is shooting through the roof.

Regards,
Nikhil

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Here you go

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Do we know the name of 3 Specialty chemical commercialized molecules and what kind of revenues they can bring?

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TOP CLASS NUMBERS

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. The Board in its meeting held on 8th February 2022, given its in-principle approval to
evaluate the acquisition opportunity of Casper Pharma Private Limited an SEZ unit in
Hyderabad engaged in Formulations. The Company will evaluate the proposal subject
to financial, tax and legal due diligence to finalize the definitive agreements

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Board of Suven Pharmaceuticals approves acquisition of Casper Pharma for Rs 155 crore all through internal accurals.The acquisition of CPPL will be completed within 30 days from the closing of definitive agreements.

Chairman interview on CNBC provides good insight on how revenues and margins will be after 2-3 years: Venkat Jasti Of Suven Pharma Speaks On The Firm's FY23 Outlook | Midcap Radar | CNBC TV18 - YouTube

He also details that 155 cr that they are paying is for the plant so it seems to be a steal deal.

The acquisition of CPPL could save a significant time of 3-4 years and efforts for them to build a world-class formulations facility. The USFDA-inspection-ready facility of CPPL is expected to commence revenue generation over the 6-9 months with several long-term contracts on hand.

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Seems part of the deal they made with HIG when divesting Rising Pharma

  • Deal value = 155 cr , Internal accrual funded
  • With asset turns of 2-2.5 - formulations- can do 300-350 cr revenue on ramp up( likely FY24 onwards)
  • Guidance of 25% margins( knowing a conservative Mr Jatsi has been, usually under promise and over deliver), I.e. 75-80 Cr
  • Payback in 2 years with above returns, attractive IRR+ ready plant saved them few years, efficient capital allocation
  • 7 year contarct in place, utilization should not be an issue
  • Brownfield expansion possible upto 10X, (1.2B capacities currently), positive for margins trajectory on this asset

Overall a win win Deal, though at consol level they do much higher margins currently, also formulations is a very crowded space, having long term contract in this Deal helps.

Invested

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Q4 FY22 revenues were upwards of Rs.300 crore for the third quarter running, with both Pharma & Spec Chem CDMO businesses growing handsomely. Operating profits remained healthy at more than Rs.150 crore, a big jump over Q4 FY21 though lower than Q3 this year. Gross margins remained intact at 69 %. Operating margins were down to 43% from 47 in Q3, but it is still a big jump from 36% in the Q4 of FY21. Manpower cost has increased substantially though, and I am surprised no one asked about it in the concall (or did I miss it?). Debtors have gone up substantially but the management said they would get normalised, there could be some bunching effect towards the year end.

In the Pharma CRAMS business, 5 molecules are now commercial. The 5th was launched in Q4 itself, so can be expected to be ramped up in coming quarters. CDMO pipeline now has 5 more molecules in Phase III, 35 in Phase II and 77 in Phase I.

The Speciality Chemicals has 3 products in commercial and 1 under development. Outlook on this business is flat for the current year.

On Formulations business, 5 to 7 more ANDAs will be filed during the current year.

Overall, Mr. Jasti gave a ‘conservative’ guidance of 10-15% growth with EBIDTA margins of 40%+.

On the Casper Pharma acquisition, the deal has been sealed and Suven has got control of the facility in April. Casper has filed for 2 ANDAs and is waiting for the USFDA inspection. 15 more ANDAs are planned to be filed within the current fiscal year i.e. FY23. Mr. Jasti said EBIDTA margins on Casper will be identical to the current formulation business margins, which is 25%. Casper molecules are normal generic molecules chosen by Rising Pharma.

Overall, the results seem to be in line with past with no major negatives. I am not sure why the markets have reacted negatively. Perhaps the worry is that with the growth of formulations under Casper, the overall margins will be diluted, robbing Suven of its high margin USP.

But CDMO itself is a Rs.1000+ crore business and growing in double digits. For Casper starting from zero and existing formulation business also too small, it will be a long time before formulations begin to dilute company margins. Mr. Jasti has said he expects Casper to generate Rs.300 crores p.a. revenues from Year 3 onwards. Meanwhile one or two hits in CDMO can raise the CDMO share and nullify possible dilutions. At an investment of Rs.155 crore, Casper only adds to the growth and should be considered value accretive in absolute sense.

Please point out if I have missed anything.

(Disc: Invested)

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It was flat - guidance given.

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Yes. I saw Q4 2020-21 concall transcripts

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Thanks for the post, had a clash with another meeting, could not attend earnings call. In Q3 call, I remember Mr. Jasti mentioning the same margin profile as CDMO business, was there any deviation to this statement for the stock to correct so much.