Buy Suven Pharmaceuticals; target of Rs 462: Dolat Capital Market

Dolat Capital Market's research report on Suven Pharmaceuticals

Suven Pharma reported soft 2Q. Revenues declined 13% YoY (flattish QoQ) with EBITDA margins at 41% (down 500bps YoY and 600bps QoQ). Lower revenues from specialty chemicals segment impacted margins. Further, lower profit share from Rising Pharma also impacted profits (down 20% YoY and QoQ). Nonetheless, management reiterated its guidance of 15% growth in top-line and 15-20% growth in bottom-line with EBITDA margins at 40%+ for FY21. This implies a robust 2H. Suven is on track in launching molecules (two in specialty chemicals over FY21-22 and one in pharma) in CDMO and 2 launches in formulations (six pending approval, another five being developed) towards end of FY21.

Outlook

Traction in its CDMO business and steady formulation launches would drive 17% CAGR in sales/earnings over FY21-23E. At the CMP, the stock trades at 17x and 14.6x of FY22/23E earnings respectively. We value the company on a DCF (11% WACC, 5% terminal growth) and arrive at target price of Rs462. Maintain Buy.