Suven Life Posts Strong Q4 Numbers

Pharmaceutical company Suven Life has came with its March quarter numbers. During this period company reported 37 per cent rise in the topline to Rs 62.5 crore. Its net profit zoomed by 137 per cent to Rs 8.3 crore. The EBITDA margins grew sharply from 11 per cent in the corresponding quarter last fiscal to 21 per cent in the period under review.

The company has two main business segments i.e. CRAMS and Drug Discovery & Development Support Services (DDDSS). The CRAMS segment is a contract manufacturing business while DDDSS includes clinical trials, testing and analytical services. During the quarter, CRAMS posted 49 per cent growth to Rs 59 crore while revenues from DDDSS declined by 45 per cent. As CRAMS brings over 90 per cent of the total revenues there was no adverse impact of the DDDSS on its topline which grew by 37 per cent during the quarter.

The EBITDA margins were also improved mainly on the back of lower input costs. The employee cost as a percentage of sales declined by nearly 4 per cent. Its manufacturing expenses increased moderately while the selling expenses declined sharply.

The R&D expenses during the quarter increased by 10 per cent to Rs 8.45 crore but reflected decline as a percentage of its sales. The company has 12 molecules in its pipeline at various stages of discovery and development. It expects to out-license these molecules which will bring more revenues and will also help its DDDSS to achieve a key breakthrough. We tried to get more updates on its R&D and DDDSS but our call to the company remained unanswered.

Though its financial performance has improved, one can also see that its balance-sheet has also increased in size. In the past one year’s time its total debt has increased from Rs 70 crore to Rs 99 crore. The impact can be seen on its interest which has gone up sharply from Rs 1.6 crore to Rs 2.6 crore.

Its yearly performance has remained decent wherein the total income increased by 35 per cent to Rs 203 crore while its net profit increased by 49 per cent to Rs 15 crore. The CRAMS revenues are seen rising by a three-year CAGR of 17 per cent. The DDDSS revenues on the other hand have shown a declining trend. In the last three years the DDDSS revenues have declined from Rs 33 crore (FY10) to Rs 12 crore in the current fiscal. In the same year (FY10), the DDDSS segment contributed 25 per cent to the topline. The management in the FY09 annual report expected ramp up of DDDSS revenues by 20-50% in last 3-4 years. The decline has come as a strong contrast. The impact of this has been evident on the scrip which has lost more than 50 per cent from 2010.

Table 1 Suven LIfe - Current Patent Portfolio

Recently the company secured patents in Korea and China. It is however not clear when they will be commercialized. Though the growth looks impressive in the quarter, one should note that its DDDSS segment revenues have been declining. Also, new patents may be few years away from commercialization. With the decline in the revenues from the DDDSS business segment and uncertainty on the out-licensing of the molecules, we recommend adopting a ‘wait and watch’ approach on this scrip.

Table 2 Strong Q4 Numbers