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Suven Lifesciences: Better Product Mix Aids Margin Expansion - Views on News from Equitymaster
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  • Jan 10, 2017 - Suven Lifesciences: Better Product Mix Aids Margin Expansion

Suven Lifesciences: Better Product Mix Aids Margin Expansion
Jan 10, 2017

Suven Lifesciences has announced its September quarter (2QFY17) results. The company has reported a decline in net sales by 1.2% YoY. While net profit grew by 5.8% YoY. Here is our analysis of the results.

Performance summary
  • Net sales were down by 1.2% YoY during the quarter. The decline was largely due to decline in its specialty chemicals business (down 13%YoY). This segment contributed around 36% to the company's total sales. Over and above, the base CRAMs that contributed around 43% (excluding supplies made to its client) witnessed flattish growth. Suven made supplies (of Rs 75 m) to one of its client for the launched drug. These supplies generally fetch better margins. Suven already has order of Rs 300m supplies of which Rs 190 m is done during 1HFY17 and rest Rs 110 is expected in next 1-2 quarters.
  • Operating margins too witnessed sharp improvement of 530 bps. Apart from, better product margin improvement was also helped by lower R&D costs incurred by the company as compared to the last year. The R&D costs for the quarter were down by 2.5% YoY. However, it is also imperative to note, company continues to spend towards development of SUVN 502 molecule. This cost is recorded under its subsidiary. Thus around US $ 2.5 m, which was incurred during the quarter, will be added to the R&D expenses, at the time of consolidation.
  • Despite, poor top line growth better product mix helped the company's operating profits growth (up 18.4%). However, due to sharp surge in the taxes, the profits were just up by 5.8% YoY.

    Financial performance Standalone: A snapshot
    (Rs m) 2QFY16 2QFY17 Change 1HFY16 1HFY17 Change
    Net sales 1,169 1,155 -1.2% 2,181 2,488 14.1%
    Expenditure 858 787 -8.3% 1,613 1,685 4.4%
    Operating profit (EBDITA) 311 369 18.4% 568 803 41.4%
    EBDITA margin (%) 26.6% 31.9% 26.0% 32.3%
    Other income 60 68 12.1% 112 113 0.8%
    Interest (net) 16 12 -22.2% 25 28 11.4%
    Depreciation 45 46 1.2% 74 94 26.4%
    Profit before tax 311 378 21.7% 580 794 36.8%
    Tax 60 113 88.6% 121 202 67.3%
    Profit after tax/(loss) 251 266 5.8% 459 591 28.8%
    Net profit margin (%) 21.5% 23.0% 21.1% 23.8%
    No. of shares (m) 127.3
    Diluted earnings per share (Rs) 7.5
    Price to earnings ratio (x)* 19.3

    *based on trailing 12 months earnings


    Sales Break up
    (Rs m) 2QFY16 2QFY17 Change 1HFY16 1HFY17 Change
    Manufacturing 1,071 1,049 2.0% 2,008 2,347 16.9%
    Services 85 120 -29.3% 173 141 -18.5%
    Total 1,155 1,169 -1.2% 2,181 2,488 14.1%
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