Thread by @ValueEducator

#SuvenPharma - FY 21 Annual Reports Highlights

Like & Retweet for max reach

Link : valueeducator.com/suven-pharma-f…

Read the thread below 🔽🔽

1. Company Overview

Suven Pharma is a Contract Development and Manufacturing Organization (CDMO). They support the global life sciences industry and fine chemical majors in their NCE development.

Its services include custom synthesis, process R&D, scale-up and contract manufacturing of intermediates, APIs and formulations.

2. Business Segments
Suven Pharma’s business comprises 3 segments - CDMO, Specialty Chemicals and Contract Technical Services

• CDMO: This is the company’s main vertical and contributes about 62% of the company’s revenues. This vertical includes the development of intermediates, small batch manufacturing for clinical trials and commercial supply of patented molecules.

The success of this business depends on a molecule moving from one phase of the clinical trials to the next and eventual commercialization. This is a high margin business as the molecules that the company manufactures are under patent.

The company currently supplies commercial quantities for 4 intermediates in the therapeutic areas of Arthritis, Diabetes, Depression and Women’s Health.

• Specialty Chemicals: The company used the capabilities they developed in the CDMO business to venture into the specialty chemicals business.

They have developed and currently supply commercial quantities of intermediates for 2 agrochemical products and commercialized another molecule by the end of FY21. This vertical contributed to about 30% of the company’s revenues in FY21.

• Contract Technical Services: This vertical combines 3 segments - revenue from technical and analytical services, royalty fee for commercial formulation and formulation development as sales. This is currently the company’s smallest vertical and it is that way by design.

They only go after very small volume, niche products with little to no competition owing to the brand market size ($2- 5 million products). So this vertical is expected to remain relatively smaller compared to the other verticals.

3. Management

Mr. Venkateswarlu Jasti (Chairman and MD) is a Post Graduate in Pharmacy from Andhra University, Visakhapatnam, and also a Post Graduate in Pharmacy from St. John University, New York, specializing in Industrial Pharmacy.

Having registered himself as a Registered Pharmacist, he successfully owned and operated a chain of 6 community pharmacies in the state of New York and New Jersey in USA from 1977 till 1989. He returned to India from the US and co-founded Suven Life Sciences Limited in 1989.

Under his leadership, Suven Life Sciences Limited developed innovative business models like CRAMS (Contract Research and Manufacturing Services) and DDDSS (Drug Discovery & Development Support Services).

He is the chief architect for the formation of Andhra Pradesh Chief Minister’s task force for Pharma during 2001 and responsible for the creation of Pharma City at Visakhapatnam by the Government of Andhra Pradesh and PHARMEXCIL (Pharmaceutical Export Promotion Council).

4. Manufacturing Facilities
The company currently has 4 manufacturing facilities

5. Capex
The company is undertaking a capex of ₹600 Cr over 3 years to upgrade its manufacturing capabilities. This is the largest ever capex done by the company since its inception.

Since their facilities are 30+ years old and customer and regulatory requirements have increased tremendously, management believes that they need to upgrade their equipment, technology and capabilities.

The company will carry out block by block upgradation and bring in more modern equipment and technologies like continuous flow chemistry.

Management believes if the investment is not done now, the company will not be able to meet customer and regulatory requirements in a few years.

The investment will be done in 3 areas:

• Relocating the R&D center due to zoning regulations, which will take 2-3 years

• Replacing the 30 year old blocks (one at a time) and installing upgraded equipment at the Suryapet facility

• Adding a new block meeting FDA and other regulatory requirements in Pashamylaram.

Management has not provided guidance on what kind of returns to expect from this capex. But they believe that in the CDMO business, you have to anticipate demand and invest ahead of time so that you can get the projects in the future.

The entire capex will be funded through internal accruals as the company has very strong cash flows and they are anticipating cash flows of ₹1000 Cr+ over the next 3 years which will be enough to service the capex along with dividend distribution.

6. Financials
The company crossed the ₹1000 Cr revenue mark for the first in FY21. Revenues grew by 20% YoY with more than 90% revenues coming from regulated markets. EBITDA grew by 14% YoY and PAT grew by 14% YoY.

Suven also has an EBITDA margin of 40%+, one of the highest in the industry.