BUY Suven Life Sciences: AnandRathi Institutional Research

Suven Life Sciences - Estimates belied; traction ahead; Buy ; with a target price of Rs 337

We remain positive on Suven Life Sciences considering the expected ramp-up in revenue and profit, led by the commencement of commercial supplies for innovative molecules. We maintain a Buy on the stock, with a revised price target of Rs. 337. Suven reported Q3 FY16 results below our estimates on account of a delay in commercial supplies and in revenue from phase-II projects in its CRAMS business.

Weak quarter. Suven's Q3 FY16 performance missed our estimates. Revenue dropped 12.7% yoy to Rs. 1.13bn, less than our estimated Rs. 1.35bn. The EBITDA margin contracted a sharp 1,561bps to 21.9%, hurt by the lower gross margin on the unfavourable revenue mix and higher SG&A expenses, coupled with higher R&D expenses. Weak revenue and lower margins led adj. PAT coming at Rs. 177m, a 45% yoy decline.

Weak revenue growth. Revenue declined 12.7% yoy, chiefly impacted by the 38% yoy revenue drop in its core CRAMS business. However, its specialty chemicals business reported 81% yoy revenue growth. The decline in its core CRAMS business stemmed from lower revenue from phase-II projects and the lumpy nature of business, quarter on quarter.

Change in estimates. We trim our FY16, FY17 and FY18 estimates: revenue by 9.9%, 8.9% and 9.1% respectively, due to lower-than-expected performance in 9mFY16 and delay in commercial supplies for innovative molecules. Our adj. PAT estimates have been cut 9.6%, 9.9% and 8.9%, respectively, on account of the lower revenue growth.

Valuation. We expect Suven to register 23.4% revenue and 39.5% adj. PAT CAGRs over FY16-18. We maintain a Buy, with a revised price target of Rs. 337 (earlier Rs. 370), based on 15x FY18e base business earnings and the net value of Rs. 57 a share for the NCE pipeline. Risks: Currency fluctuations and failure of SUVN 502.

Shares of SUVEN LIFE SCIENCES LTD. was last trading in BSE at Rs.150.55 as compared to the previous close of Rs. 146.35. The total number of shares traded during the day was 139029 in over 3834 trades.

The stock hit an intraday high of Rs. 153.8 and intraday low of 146.9. The net turnover during the day was Rs. 20947849.

Source : Equity Bulls

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