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Suven Lifesciences: Repeat Contracts Boost Growth - Views on News from Equitymaster
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Suven Lifesciences: Repeat Contracts Boost Growth
Aug 19, 2016

Suven Lifesciences has announced its 1QFY17 results. The company has reported net sales growth of 31.7% YoY and a profit growth of 58.3% YoY. Here is our analysis of the results.

Performance summary
  • Net sales surged by 31.7% YoY during the quarter. The growth was largely driven by the company's CRAMS business. The specialty chemical business grew by a mere 5% YoY. Suven made supplies of Rs 115 m to one of its clients for the launched drug. Suven already has an order of Rs 300 million for supplies of which Rs 115 million was done during the quarter and the balance Rs 185 million is expected in the next 1-2 quarters.
  • Operating margins also sharply improved by 7.4% to 32.6% during the quarter. Apart from better product mix, lower R&D costs helped in margin improvement. The R&D costs for the quarter were down by 7.5% YoY. However, it is also imperative to note, the company has spent towards development of SUVN 502 molecule. This cost is recorded under its subsidiary. Thus around US$ 1.5 million will be added to the R&D expenses, at the time of consolidation.
  • Backed by healthy operating performance, the bottomline surged by 58.3% YoY. However, the growth was lower than the 70% YoY growth in operating profits on account of higher depreciation charges and tax expenses.

    Financial Performance: A snapshot
    (Rs m) 1QFY16 1QFY17 Change
    Net sales 1,012 1,332 31.7%
    Expenditure 757 898 18.7%
    Operating profit (EBIDTA) 255 434 70.2%
    EBIDTA margin (%) 25.2% 32.6%
    Other income 51 45 -12.6%
    Interest (net) 10 16
    Depreciation 29 48 65.5%
    Profit before tax 267 415 55.4%
    Tax 61 90 46.5%
    Share of Profit to equity affiliates -1 -1 0.0%
    Profit after tax/(loss) 205 324 58.3%
    Net profit margin (%) 20.3% 24.4%
    No. of shares (m) 127
    Diluted earnings per share (Rs) 9
    Price to earnings ratio (x)* 23.52

    *based on trailing 12 months earnings

  • The CRAMS (contract research and manufacturing services) business, which contributes approximately 68% to total sales, is an important growth driver for the company. Excluding repeat orders, this segment witnessed growth of 20% YoY. Repeat orders form an important component of the company's business. These orders largely pertain to drugs which are already launched by its clients and as the market share of such drugs increases, the company receives more of such orders. Currently, three drugs of Suven's clients are launched. The current repeat order of Rs 300 million pertains to the supply of intermediate for Rheumatoid Arthritis drug to its clients. The company expects some contracts from the diabetes drug. However, the third drug (for depression) is very small and company is not very optimistic of repeat orders from this drug

    Business Mix
    (Rs m) 1QFY16 1QFY17 Change
    CRAMS 959 1,277 33.1%
    Services 53 56 5.7%
    Total 1,012 1,332 31.7%
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