Buy Suven Pharmaceuticals; target of Rs 375: Anand Rathi

Anand Rathi 's research report on Suven Pharmaceuticals

Suven’s Q2 FY21 results belied expectations. The CDMO pharma division’s tepid performance pulled sales down 13% y/y (flat q/q) to Rs2.4bn. The gross margin, though, expanded 235bps to 69%. Higher overheads and employee costs compressed the EBITDA margin 450bps to 41%. Lower other income further triggered a 20.3% fall in PAT to Rs741m. The company has maintained its guidance of 15-20% FY21 PAT growth. It expects H2 FY21 growth to be driven by more order inflows, commercialisation of a new specialty chemicals product, the launch of two formulations products and a scale-up of one product in CDMO pharma.

Outlook

To factor in the lower profit share from its JV and the higher depreciation cost, we cut our FY21e/FY22e/FY23e PAT 3.8%/3.6%/3.6% and expect 17.9%/17.7% growth in sales/earnings over FY20-23. We retain our Buy recommendation with a lower target of Rs375 (earlier Rs380).