Fundamental

Suven Life Sciences Ltd Initiating Coverage



Suven Life Sciences (SLS) is a compelling play on the recovery being witnessed in global R&D spending, as reflected in strong fund raising by biotech start-ups as well as a fast-growing research pipeline across multiple stages of clinical trials. SLS has witnessed strong growth in revenue of 22.6% CAGR, whereas operating profit has shown growth of 42.4% CAGR over FY11 to FY18. With improved operating efficiency, we expect the EBITDA margin to expand at a higher rate than the gross margin due to lower than average R&D expense of 10% in FY19-20E compared to average 17% during FY16-18. R&D spending on consolidated level is expected to stand at ~Rs100-120 crore annually for FY19-20E. SLS enjoys a strong margin profile with EBITDA margin of 32%+ in CRAMS segment. We expect return ratios to remain in the range of 15-17%, as growth normalizes.


Valuations: Considering the 16% adjusted PAT CAGR over FY18-20E with upward potential, strong balance sheet, improving return ratios and good corporate governance practices, we are optimistic about the long-term growth prospect of the company. At the CMP of Rs 280, the stock is trading at 25x its FY19E EPS of Rs 11 and 21x its FY20E EPS of Rs 13. We initiate coverage on the stock & recommend ‘Accumulate’ rating with target price of Rs 325 per share. Our target price is based on 25x FY20E EPS which gives a potential upside of 16%.


Tags: Fundamental PickSuven Life Science


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