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Suven Life Sciences Ltd
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Ladies and gentlemen, good day, and welcome to Suven Pharmaceuticals Q4 and FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.
Good day, everyone, and thank you for joining us on this call to discuss the Q4 and FY '23 earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, the Managing Director; Mr. Venkatraman Sunder, Vice President, Corporate Affairs; and Mr. Subba Rao, CFO of the company.
Before we begin, I would like to mention that some statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to the company's performance have been e-mailed to you earlier.
I would now like to request Mr. Jasti to share his perspectives on the performance and outlook. Over to you, sir.
Thank you, Rishab, and thank you, everyone, for tuning into this conference call on the results year ending March 31. As I was telling last year that the year '22, '23 will be flat to a little bit lower side on the revenue side. And later, we have updated that it may [ ease ] a little bit. So finally, it has come out with very mutual growth on an overall perspective. And it is in line with what we have expected and informed you. The CDMO business reduced on the Pharma reduced by about, roughly about 10% due to the -- some of the molecules which are being used for the COVID were not [indiscernible] whereas the specialty chemicals has gone up by 15% to compensate for the things that has lower in the CDMO pharma. Overall, other than the one-off of [ 2013 ] last year's sale of pricing take. Otherwise, the rails are in line, and we have a positive growth. If you see quarter-on-quarter for the last quarter to this quarter is a very good jump in revenues and the profitability. But the year-on-year basis, if you take out the one-off items and [indiscernible] same as last year, more or less.
So this year, it is very early for us to give us any guidance. But we also see a little bit softness in the spec chem side with [indiscernible] because of the climatic conditions. Otherwise, we expect the said line, and we'll have much more visibility as we pass through. I think it's better for me to answer your questions rather than because you have it is new and it's better I answer the questions rather than giving upfront any other information which may not be relevant. So I now ask the moderator to go over the question-answer session.
[Operator Instructions] The first question is from the line of Rushabh Shah from Oak Tree Securities.
[indiscernible]
Voices coming very muffled. Is it possible to speak through the handset?
Am I audible now?
Slightly better, sir.
Yes. My first question -- I have a couple of questions. My first question is the formulation business, is it possible to focus less on that business and focus more on the business where our revenue share is 60%, the CDMO? Since the formulation business has been seen [indiscernible] [ 20 years ] has been flattish.
Yes. Formulation business is -- it's not a big item for us, but it's in a leverage exercise as we will talk -- told earlier. And we are expecting something to go, but it also depends on the approvals that are in place now -- to be in place. So we have filed around 25 accounts for [indiscernible] So far, we have only 12 approved. And not all of them are, as you know, [indiscernible] really specific molecules at a blockbuster value-based molecules. And we expect more 7 or 8 crores during this year, and that will add a revenue eventually. But in general, it is a flattish growth, not much to talk about on the formulations.
My second question is, sir, could you repeat -- if you could give us the repeat percentage of the business? What percentage of plan to get come back with the repeat orders? If that number is on another side, so what different -- what difference [indiscernible] that business?
What's it again? I couldn't make out the question.
If you can give me the repeat percentage of orders of the business. In what percentage of clients who come back with the repeat orders for the business? And if it's on the larger side?
This is knowledge business as you know. When once our molecule is supplied and if there is a success in the clinical trials, you will automatically get the repeat order. And similarly, on the commercial scale, you will have a repeat order once a year or whatever it is on a continuous pace is depending on how the product is growing. If it's growing, you'll get a little bit more orders, but it's less, then -- but you still get the repeat order, but it will be a little bit less. So this is the way it works. Unlike a generic were would want sell it. Here, it is automatically because we have one of the suppliers with this particular molecule. So it will be coming that way. So repeat orders are based on the success of the molecule in the chemical trials at the early stage. And if it's commercial, it is a successful molecule in the market. This is the way we repeat business.
Okay. And sir, my last question is, in the presses combos, you said the duration of a project and is 3 to 4 months or even if it would take 5 to 6 months, which is a very lumpy issue. So how do you take the guidance for the [indiscernible] and how do you protect the revenues going ahead?
That's why we don't give you guidance until a new projections. They come as internal analysis. This you cannot go on a quarter-on-quarter basis. You had to go more or less on a year-on-year basis only. And again, it is based on the success of the cycle of the molecules both in clinical trials and when it's launched on the success in the market. So it's not as straightforward. But at the same time, if you see, we have -- if you see last 4 years, we have [ 21 ] CAGR growth in there. So that also some single I mean what you call regularity with which we are getting it, but it cannot be on a quarter-to-quarter basis.
So do you project the same going ahead in the next 3 to 4 years?
We hope to, and it may be better. But we cannot tell because as I said, we have only the visibility of 5 to 6 months. More than that, we don't have. But we -- based on the past record, if you go by decades and especially last 4, 5 years, it's going good. And with the increase in the infrastructure and hopefully, the new technologies which we are going to, based on the request of the customers and the -- especially on the -- I mean, the sectors are the molecules that will certainly give really can go, in 1 year, it can go also much higher than what the average was, but that we cannot tell at this time.
[Operator Instructions] The next question is from the line of Rashmi Sancheti from Dolat Capital.
Sir, one question related to this offer. We are seeing that this time in this quarter, there is a higher share of CDMO Pharma and lower share of CDMO chemical -- specialty chemical business. But despite this, our gross margin is on a [indiscernible] and quarter-on-quarter, which is contracted. And despite our gross margins are down, our EBITDA margin is high. So because our -- because there is a lower cost in terms of manufacturing and other expenses. So what is happening on the cost side? And why are the gross margins contracted? If you can give us the specific reason for it.
I think you saw very well the type of business we are in. And it does not save more molecule so you can compare with quarter to quarter. And it is the mix of the product mix is the one that gives you the margins, right? So one quarter, it may high-value product may be there where the high gross margin, whereas over some time now some of these more early stage projects are there where the gross margins will be less. So this is the way it works. So it cannot be catered to 1 quarter. It is all the main product mix that item gross margin and the EBITDA than the net profit.
And sir, on the cost side, like are you taking some cost initiatives because I'm just seeing that on quarter-on-quarter, our expenses have actually come down, which has actually led to improvement in EBITDA margin. So if you can throw some color on mix.
No, there is no major changes that has happened [indiscernible] quarter-on-quarter sometimes whatever seems like, other manufacturing expenses and other costs. There is a slight induction to really see [indiscernible] of INR 18 crores this year, this previously on the same quarter, INR 18 crores this year, INR 45 crores in just explaining it, the real cost related to the product changes [indiscernible] of cases and rate we all those things are variable in relation to the production. And that's even has happened story. This were making the cross-reaction affect overall it's the same kind of -- there's no cost increase effect. That efficiency has been maintained.
Okay, sir. And sir, my second question is on your acquisition and merger process. Where are we currently in this process related to the tender and related to the acquisition process and multi [indiscernible]
No. We are still waiting -- we are still waiting for the recent approval for the acquirer to get all the approvals and CCI, DOB and DOJ. And we are still waiting for that. Once that is completed, probably a [indiscernible] completed is it often, we have not got the overall aspect. We are very [indiscernible].
So why is the regulatory approval assumptions that can be adventive the [indiscernible] that when we then of our part, right? Is that the [indiscernible]?
[indiscernible] we have the acquisition of the promoter stake, the also on [indiscernible]
[Operator Instructions]
Sir, on the CDMO pharma side, just wanted to understand the spike what we have seen in this quarter, I mean, is this more related to some new products getting commercialized or just some movement happening between the clinical trial?
Sir, it's a combination, both -- I mean, we cannot pinpoint to one thing that has come, I think new that has come. It is only the makes sense sometimes what happens -- some of the material is almost ready, but not to ship it be last few days, so it goes into the next quarter. Those things also can happen. So those are a change is only value [indiscernible] and some of the factors, product mix. But as you're asking, what is the better this quarter is, there is no new launches or anything that has taken place.
So far on this...
Sorry to interrupt you, sir. You're not audible.
Am I audible now?
Yes.
Yes.
Yes, yes, yes. So sir, on the new molecule into front, I mean, how is the traction with our key customers, are we seeing some renewed interest there? And if you could also highlight the number of molecules, which are under Phase II now and Phase III [indiscernible].
Yes. I mean what I'm saying is the traction of getting the new RFQs and all that stuff is a little bit -- still a little bit slower. We thought it will happen post the COVID and it's coming. But interest is there and need interest there, but the pace is a little bit slower. And no molecules in molecules in various spaces has not go from one stage to other to have a substantial impact on the results as of now.
Sure, sir. And just a final one on the [indiscernible]. Any update on the customer part as you [indiscernible] something to happen in this fiscal?
Yes. The update is that yes, the customers are coming and are eating, and it will take the valuation will be given eventually. But it is a long-run process so it will take 1 year, 1.5 year years before you see full-fledged [indiscernible].
Next question is from the line of Cyndrella Carvalho from JM Financial.
Congratulations on delivering the guidance and maintaining the EBITDA margins. Sir, I want to understand, is there any expected new approvals from pharma side in the coming 2 years, FY '24, '25? Any indication on that?
No, even the customer will not be knowing until the clinical trial data comes out and then they go to the next stage. So far, we don't have any indication as of now. Any of the Phase III molecules will be moving into the commercial or any case coming into the Phase III. So no indication as of now. It can happen any time. As I said, right now, they don't have an indication. Unless they have an indication, they can't tell us. So we will not be able to give you any guidance on that at this time.
And on the second side, apart from the earlier 3 products, anything moving there?
Last year itself, I told you, it will be in the 2024 time frame. It will be moving to other commercial products [indiscernible] until that time.
Okay. And sir, if you look at the global environment, you highlighted that it is slightly slower. But we hear a lot around the China plus 1 and movement. Is there any update on the overall R&D outlook of partners? And how do we expect this to pan out? Any thoughts from an industry perspective and our business perspective will be helpful.
Yes. Industry perspective, the China plus 1, yes, it may be possible in the nonregulated regime like maybe generally under some intermediates and something else. But on the innovative side, it takes time for any changes or any new things to come and have a tangible results. As you know, when we came back from the detail, the feedback from the areas, yes, we are thinking of moving away from China and all that stuff. But there is [indiscernible] When they have to implement it. If it's a regular product buying in what we call regular [indiscernible] chemical, then it's much easier for them. But when you're going for an innovative product and aligning, it takes time. But it's a positive sign. And time will tell when those things will come. I think that is a good omen. In the long run, yes, it will be good. But right now, what I was telling you is from the mindset of the COVID-related activity moving into the regular activity with thought by this time with a little bit more traction on the new projects. But being a little bit slow, but it will come. As you know, CP said itself, they were saying about moving towards India. Similarly, the DC also in [indiscernible] the same thing. So I think it will come. But for a general purpose, leases to say, yes, we will come, it will take back, especially this space where we are in. It will have a long-drawn effect. And when one should start, yes, it will have a good. And years to come, it will be very good.
Did we share the number that if we remove the COVID portion from the base, what will be our growth for FY '23. Did we share that one?
No.
Can we share that number, sir, if it is available?
No. Like we said earlier, it was about INR 120 crores, what was FY '22. [indiscernible] it will be lifted because it may not be [indiscernible].
[indiscernible] [ 10% ] is less because of that already can be more revenue on the pharma. That's the only thing I can tell you.
Yes. [indiscernible] to specifically provide [indiscernible] in the conference call and then it's very easy [indiscernible] for us to maintain that because of the confidentiality what we have is [indiscernible].
Helpful, sir. Sir, just one question on the raw material and logistics side, how do we see the scenario now as we hear a lot of peers saying that there is improvement in both the sides? Has it happened for us? And do you see the trend improving going ahead? And given that we've delivered on annual level almost 42% plus EBITDA margins, do you see this improving further with the help of softening of logistical and raw material costs?
Yes. I mean, naturally, what happens is the shortage is going to be a problem of not because more or less is being compensated because the nature of the business we are in, except to have 2 places who we not be able to get the compensation. So when it goes down, naturally we price with the cash also will be when business comes and it will go down. So we'll hope to maintain the same margins. But based on that, I don't think you will have any improvement in the margins. We've only [indiscernible] not able to have the things and they get a material somewhere else and high prices. And suddenly sometimes, it may affect it. But in general, the trend is good now. The availability is good, and the price is also stable, prices of [indiscernible] are also stable.
Sorry [indiscernible] join the queue again for a follow-up question. [Operator Instructions] The next question is from the line of Chirag Dagli from DSP BlackRock.
Sir, are commercial supplies in pharma, excluding the COVID supplies, has there been a dramatic change in that number for the full year of FY '23, sir?
There is no dramatic change. As we said, it is a dramatic change have been an improvement in the, what you call a sales revenue of the CDMO Pharma. As I said, year-on-year, it is 10% less than last year's. So there's no improvement. And then whatever the decrease is mainly because of the -- some of the molecules which we use for the COVID are not repeated during this year. That's why that was there.
The 10% is lower because of that COVID not coming too is what you said?
Yes, yes, yes.
Understood, sir. Okay. And secondly, sir, we've seen some players talk about funding winter and this impacting the funnel for CDMO business from a lot of emerging biotech companies. Are you seeing similar trends, if you can just talk a little bit about the overall environment as far as your mix and match business as you traditionally call. What are the trends that you're seeing over there?
Actually, as you know, we are dealing with only the medium size and big pharma only. And that part of the problem were largely there. We are not working with any biotechs for that matter. So I'm not aware of that. And I did see the trend as far as the big pharma is concerned. But the only thing is the changing on the COVID-related activities to the regular activities. So we thought it will be a fast track, but it's coming slowly. But I think we see it with the way people are talking and all that stuff. In a couple of quarters from now, you should come back to the normal [indiscernible] maybe fast track also for the regular items.
Thank you. Next question is from the line of Franco Jen from New Markets.
[indiscernible]
Yes, you are.
Yes. So I just needed some guidance on the open offer, which is in part. So when you are expecting the process to get completed?
That's not in our hands. It is based on the regulatory approval that has taken. When the regulatory approach takes place, I think they will announce the date. I think it will be within [indiscernible], they will launch the paper after the regulatory approval comes in. I think we are still waiting for that. And that will be guided to you through the notifications as and when it happens. Right now, we don't have an idea. But our thought process is it should be happening before [ August 26. ] That's the long update.
Next question is from the line of Varun Bank from Brandon Investments.
Congratulations for steady progress during the year. Sir, increasingly, what we are seeing is molecules are becoming smaller and high potent. So 500 mg becoming 50 mg and 50 mg becoming 5 mg. So the quantum of supply could be structurally declining. How is it evolving? And what could it -- how could it impact our business, especially the commercial terms that we have with innovators?
Commercial [indiscernible] is based on the molecule to molecule, not based on the milligrams to milligrams. Having the value that brings the volume. So if you see good order days, you have 1,000 metric tons and 2,000 metric tons. But in this innovative last 10 years, if you see, very rarely you see a volume-based molecule. Everything is on a [ 30 tonnes ] for the whole year, 30, 50 tonnes for the whole year, something like that, other than 1 or 2. So I don't see any difference on that one. It will not affect anything because what we are saying is what we are believing in the number of steps we do the difficulty of the steps that involve the specialty all those things will get you the pricing, not the volumes.
Okay. And I understand when we are working with innovators, things don't move too fast. But just to get a sense of the progress on our plans to extend offerings to innovators through the initiatives that we have spoken about. So becoming part of life cycle management, manufacturing cases and also forward integration into API. So how has been the progress in the last 1 year? And what milestones do you think we have achieved? And what are our plans for next 1 to 2 years?
We have not received any milestones here because of the COVID, it was delayed. Not only they started coming into India or it is the customers after 3 years of gap, I think it will take time. And even when they've started, it will take a minimum 3 to 4 years for any new opportunity to come in other than the regular products that are going into the next step or next step. So that is a different department in the same company. It is like back in [indiscernible], they have to do [indiscernible] and do all the validations and all that stuff. So it will not be an overnight thing, I can tell you. But now it is starting back again because there was a pause for a couple of years. Actually supposed to be done in 2019, then we got the COVID. And next is last year, I thought it will start coming in, but still they are not showed up. But this year, we see 3 or 4 big -- even for the regular itself, they have just started coming in, and we hope that things will start accelerating so that we'll have an opportunity to sell ourselves or various aspects what we are talking about.
Can I ask more questions?
Sir, I request you join the queue again. We have other questions pending in the queue.
Sure.
The next question is from the line of Sara Karia from Sundram Mutual Fund.
Sir, how is this [indiscernible] situation in the CDMO specialty chemical given some climate condition on the inventory overhang and the inventor [indiscernible]
Yes, the second quarter will be, I mean, a little bit soft. That's what they claim to be because they may be deferring the orders and all that stuff as we dropped to, I mean, showing the crop and I'll let stuff sell. But first said, it should come back to the normal. That's why it said a little bit soft at this time. So quarter-on-quarter basis, not [indiscernible] but year-on-year basis, it will match. That's what our hope.
So is it the case for all the molecules in spectrum?
Not all the molecules. Some of the molecules.
Okay. And sir, second question...
But there's only 1 molecule -- there's 1 molecule only.
Okay. And the second question, the sale of pharma. So if you can give you the pipeline for Phase III end-stage commodities? [indiscernible]
[ Prior ] to Phase III, right now, as for 3 molecules, we are [indiscernible] we are supplying right now. But it's still very [indiscernible] We do not have visibility as of now from the customers about when it is going to be moving to the commercial. As and when it happens, [indiscernible] we'll inform you.
Next question is from the line of Pratik Kothari from Unique BMS.
[indiscernible]
Pratik, sorry to interrupt you. Your voice is breaking. Can you come in a better reception area, please?
Is this any better?
No, sir. It's still sounding the same.
Maybe now?
Yes.
Sir, my first question is on [indiscernible]. If we can share some updates some numbers, if you can. The last year updated was what they did in FY '22. So if you can share something about the [indiscernible]?
This is regarding to pharmaceuticals. Nothing has been done in [indiscernible] but I cannot tell you anything somebody else's numbers here. Please excuse us.
No, sir, I understand that. But see, when we made this announcement, we also were also -- we're thinking that we'll get someone from Advent sometimes on the call because for an existing [indiscernible]
Let me tell you something. This is an ongoing process. Nothing has been changed. So it is run by the existing management. Nobody will be coming from other side until the transaction takes place. Period.
Right. No, I agree on that point, but fine. Sir, my second question is on the pharma. Usually, we obviously we have a 6-month outlook or 6-month demand that we can see. So you did talk about what the challenges that you're seeing in chemical, but can you talk about what's happening in pharma?
Pharma is going in the same way. There's nothing. As I said, we have our visibilities only this really beginning of the year. We have visibility over the 4 to 5 months, and everything is as usual, like last year. Nothing's different. Only I said and specialty chemicals because will be some softening in the second quarter. We just mentioned this another way, thing going on in the same manner as last year but on [indiscernible]
Sure. And sir, my last question on Casper. I mean have you started any commercialization there or not yet?
What is that?
[indiscernible]
Oh, yes. [indiscernible] only 1 product has been launched. And we are expecting other approvals sometime in July and August and September time frame.
Sir, how many markets [indiscernible] this year?
In Casper?
Sorry, we are losing your audio.
Yes, it's 5. 5 only have approved. And I mean waiting for the golden the next 4 to 6 months.
Next question is from the line of Rushabh Shah from Oak Tree Securities.
I had a follow-up question. If you put the formulation business, you said you think it provides the next [indiscernible] [ 5 months ], which is also a [indiscernible] business [indiscernible]...
Sir, I'm sorry. Your voice is not coming clearly. Can you please talk through the handset?
Yes. Am I audible now?
Yes.
Sir, first, when we make the [indiscernible] or the molecules post receiving the project, or directly start with Phase 1, then come to Phase 2 and then look out for projects. So I wanted some clarity on that. And the same question is regarding the R&D.
No, I don't think your understanding is right. In the [indiscernible] molecules, when you get into the Phase I and the molecule we supply in the Phase I supply. And if it is successful in the Phase I, if it goes to Phase II, you get the repeat business. And when the Phase II is successful in the clinical trial, then you get the Phase III supplies. And if the Phase III is successful, then you get the commercial launch supplies. And that's the way it works. There is nothing like that, but there's no guarantees if the molecules that we entered everything will go into the next stage, which is a mix and match of these things. As you see, we have done more than 980 projects over the years, then we have only 11 commercialized volumes. This is a mix and match, as you see, that gives us opportunity. There is nothing like you don't go in a Phase III directly to the customer. They don't. Because it has to start at least the minimum Phase II or -- after that, they will not change any customer. I mean same customer will be supplying same product. They will have 2 or 3 sources for each molecule, each intermediate to their sourcing. The create works in innovation.
And sir, my last question is, sir, how are we different from a comparison, let's say, a big player like DE. How do we manage it? How do we compete with this player who is operating at such a big scale?
It is not a big scale. I think we are not into the generics. We are not into the big way into the what you call the APIs and all. We are into the innovation. You have to understand is innovators will not go and this the Phase I molecules and 2 different companies. If they come to, they go to Suven, they come to, they come to Suven only. And after that, it affects the molecules and [indiscernible] big business comes. There is nothing like a competition that way. It is not the volume of the business that comes in. It's only at the commercial level that it comes in and the generic place that comes in the picture. Otherwise, it is the evolution in the process that takes the clinical trials and the set the clinical trials will use the business opportunity for us.
Okay. Next question is from the line of Gokul Masri from Orica Capital Advisors.
Sir, my question was that we spent INR 285 crores on CapEx in FY '23. Can you please elaborate in terms of what was the areas where we spent this CapEx on?
It's mainly the replacement [indiscernible] in [indiscernible], bulk of this money goes there. The remaining are already balanced engagements and all that stuff.
Okay. And the CapEx for the R&D move is [indiscernible]
That has not happened because this is only proactively, we are taking the permission from the Board. As and when the government ask us to move, we need to be prepared. That's why we are taken. And as of now, there is no issue, but it can't be -- it's imminent. It will happen sometime soon. I think it is all depending on the pharmacy being ready for the operations. I think the plan they issue that you need to move. From that time, we'll have 2 years' time, at least.
Okay. But on the replacement of these equipments on CapEx, is -- would it be adding to the sales or improving productivity for us?
See, when you're talking about a [ 35-year-old ] company, at the old locks area, which is regulatory may not make and also the structurally maybe a problem, safety aspect is a problem. So we need to have a replacement block. So in the new process, you may have a little bit of additional capacity that comes into the picture. And more than that, it will be having a regulatory and automation and productivity-related, where it also will accrue to us, but not substantial. I remind you, it is a replacement, but with the benefits so that you can take more projects.
Okay. Great. And just on Casper, we -- when we acquired the facility, the intention was to do certain molecules from -- on the formulation space. But is there a possibility for us to offer formulations for our existing innovator clients as well where we are providing them intermediate chemicals and then we do formulation for them as well?
Yes, that is Casper facility is only formulation facility. It's not a [indiscernible] facility. We can offer our R&D services to anybody. I mean they are interested in career is the forward integration and also life cycle management [indiscernible] that is what we are looking for. Not only Casper, but also in the [indiscernible], we have the same facilities. So we can do that too. So it is not just -- I mean, it takes time and -- for the customers to come and do that, but in Casper, we cannot do the APIs are intervened only for [indiscernible] and R&D.
Great, sir. Great. And lastly, just on the Phase III molecules, you mentioned that there is no visibility [indiscernible]
[indiscernible] Yes, as of now, there is no indication that any have -- are within the striking distance because unless the sill not be able to know. So right now, we don't have any guidance on that.
Thank you. [Operator Instructions] I now hand the conference over to the management for closing comments.
Thank you, everyone, for tuning in for the update on the results here ending March 31, 2023. And as I said, it is too early to give us any guidance as the [indiscernible] that pharma [indiscernible] are going good at this time. And the traction is a little bit slower in the new project acquisition, but we hope that based on the conversations we had at [indiscernible] that we're likely to get that in the third [indiscernible] quarter time frame. The specialty chemical side, there will be some small [ decremental ] shipments and because of the [indiscernible] elsewhere. And that will come back to the third and fourth quarter into the full swing. And we hope to continue the business as usual with the same margins we'll be keeping and hope to turn the results update by next time in August. Thank you, all in all.
Thank you very much. On behalf of Suven Pharmaceuticals, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.