Suven-Cohance merged entity to have EBITDA margins in mid 30s: Management

The proposed scheme of amalgamation between Suven Pharmaceuticals and Cohance Lifesciences, will see shareholders of Cohance get 11 shares of Suven for every 295 shares of Cohance that they own

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Suven Pharmaceuticals' top management has indicated that the merged entity resulting from the Suven-Cohance merger is anticipated to have EBITDA margins in the mid-30s.

“We are trying to stick to the narrative of mid 30s of combined EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) margins for the long term,” said Dr Prasada Raju V, Managing Director of Suven Pharmaceuticals in an investor call on March 5. “We want to see how market is going to evolve. We have considered all possible risk adjustment s that can possibly happen,” he said stating the reasons for the estimate.

The management chose for the mid-30s numbers despite expectations of various revenue and cost synergy from the planned initiatives. They added that the margins might be affected in the short term by a couple of percentage points because the company made recent investments in the human capital and operating expenses segment.

Suven Pharma’s EBITDA margins had declined to 29.7 percent in Q3 FY24 in comparison to 41.5 percent in Q3 FY23. For the nine-month period ending December 2023, the company reported EBITDA margins of 43.6 percent, up from its 40.8 percent for the same period in 2022. For Cohance’s business, 9MFY24 saw EBITDA margins at 31.5 percent driven by better CDMO mix, despite some softness in revenue growth, according to the company. Despite these considerations, the management asserts that the combined entity will outperform global and Indian peers in terms of EBITDA margins.

ALSO READ: Suven Pharma, Cohance Lifesciences announce merger

Suven Pharmaceuticals is an Indian integrated Pharma & Specialty Chemical CDMO company that specializes in custom synthesis, process R&D, scale up and contract manufacturing of intermediates, APIs and formulations. Suven does almost 90 percent of its business with innovators, according to the company. Suven Pharma reported a revenue of Rs 1,340.3 crore and adjusted EBITDA of RS 580 crore in FY 23.

Cohance Lifesciences is a CDMO and API platform and provides end-to-end CDMO services to global innovators and serves customers across nearly 60 countries with 80+ molecules. It is a key supplier of Antibody-Drug-Conjugates intermediates for US-EU market, used in the treatment of cancer. The company reported a revenue of Rs 1,337.5 crore and Adjusted EBITDA of Rs 421.3 crore in FY232

The merged entity anticipates growth particularly in its CDMO (Contract Development And Manufacturing Organizations) and API (Active Pharmaceutical Ingredient) segments, aiming to become a "diversified end-to-end CDMO leader" by more than doubling its revenue base.

In September 2023, the US-based private equity firm Advent acquired a controlling stake in Suven, expressing the intent to create a platform with a billion-dollar revenue in the CDMO space. The management of Suven sees the merger with Cohance as a significant step toward achieving this goal. “Cohance and Suven put together is reasonably 50-60 percent of the target (of $1 billion),” said Annaswamy Vaidheesh, Executive Chairman of Suven Pharma during the call. He also added that the entity will be in search of external opportunities that could fulfill their ambition.

The proposed scheme of amalgamation between Suven Pharmaceuticals and Cohance Lifesciences, will see shareholders of Cohance get 11 shares of Suven for every 295 shares of Cohance that they own, was announced earlier. Private equity firm Advent is expected to own approximately 66.7 percent, with public shareholders holding the remaining 33.3 percent of the combined entity. The transaction, subject to relevant shareholder and regulatory approvals, is anticipated to conclude over the next 12-15 months.