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Suven Pharmaceuticals Ltd
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Ladies and gentlemen, good day, and welcome to Suven Pharmaceuticals Q1 FY '24 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 Q1 FY '24 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. Thank you, everyone, for tuning in this afternoon for the conference call on the results of the quarter 1 fiscal '24. As you could see it was notified and the results came out better.
It is driven by mainly the strong growth in the CDMO of Pharma and also with a better profitability. The actual pharma innovator and developmental projects are doing very good, with a good growth. But as you know, the Speciality Chemical has a muted performance this quarter. And I expect this to continue this performance for this current quarter also.
As you know, globally, we've -- Speciality chemicals and agrochemicals are having a destocking of their inventories and especially in our case, because of the drought situation, some other areas, [indiscernible], requirement is deferred hence you would be seeing a soft quarter for the current quarter.
Otherwise, based on the forecast and all that stuff, both for the pharma and the Speciality chemicals is looking good. And we see multiple levers of growth that is going to happen because we are discussing with customers under many aspects and likely success happens sooner than later. And as I was telling, after the last year CPHI, there was Covid-related activities dying down and drug discovery activity in the new molecules coming up.
And this quarter, we see the largest number of inquiries floated in our history. But to become a product -- a project out of that, it will take time but things are going very well. So I think it's better for me to answer your questions. In general, looking good, but there will be some kind of a gap because of the Speciality chemicals not being up to the mark, again muted performance and various reasons, whichever we know. so hence, otherwise, it's looking good in the long term for the year and the next year. Now I'll open for discussion.
[Operator Instructions] The first question is from the line of Abdulkader Puranwala from ICICI Securities.
Sir, just to understand your comments on the CDMO pharma sector into a better and when you said the inquiries are better. So current quarter, would it be fair to assume that the traction which has been seen is more from the molecules and the development and while the commercial side would also have done a little better?
No, it is mainly the new developmental molecule that means very early-stage molecule. So it will take time for us to get distinctive, our inquiry is becoming an RFQ, RFQ becoming a product. I mean, vertical project and as you know, takes time. Not on the commercial side. Commercial side is as usual, like last year. And nothing in the Phase III, I don't see anything indication as of today that it is moving into the commercial yet.
All right. Understood. And sir, on the second slide so we had one molecule which could go commercial in next calendar year. Is that any time line change in that? Or it's moving as per schedule?
That one, next calendar year, our product, the new product, no change in the time line as of today.
All right, sir. And sir, lastly, on the stake sale. So the earlier guidelines, which was communicated, it was supposed to, I think, get completed in somewhere in August. So any revision in that aspect? Or have we got all the necessary approvals for that to happen?
The necessary approvals are already in place, it would have been done sir, because the time line is up to August 26. But we expect the course of this monsoon session in the parliament, I think, hopefully, we'll be getting all the approvals. It's in the final stages of the regulatory approvals.
Next question is from the line of [indiscernible] from B&K Securities.
Yes. So sir, I just wanted to understand in the Speciality Chemical side, you said that there is drought-like situation. So can you just elaborate like is it a deferment for just 1 or 2 quarters? Or do you see the entire your being noted on the Speciality Chemical side?
It's not a year, but it's a quarter-on-quarter basis as something is less this quarter and the current quarter also will be in the same mode soft, very soft. But after the September time frame, I mean, in September, we'll be knowing about the next quarters. So that usually after summer in Europe or U.S.A., they'll come back with the next year's requirements and all that stuff which we need to supply in the third quarter starting from the third quarter itself.
As of now, the -- as the projections looks similar to last year, but these 2 quarters are getting affected, 1 quarter already first quarter got affected a little bit and the second quarter also getting affected a little bit. So it is a softness in the Speciality Chemicals for both the quarters.
Okay. And sir, I just wanted to ask like on the commercial molecules, are we still on 3 or has that increased for Speciality Chemicals?
The one, as I was telling earlier is the launching will be sometime in the [indiscernible] '24. And as of now, that remains to be seen, no changes in that.
Okay. And sir, my second question is, we are seeing that margins -- EBITDA margin has increased mostly because of other expense rationalization as gross margin has declined Y-o-Y. So in this cost rationalization, in order to stay, I mean, should we take manufacturing and other expenses at the same run rate that we have in Q1? Or do we see it normalizing?
The cost of good -- I mean manufacturing expenses, are you talking?
Yes, manufacturing and other expenses.
It will remain the same.
So the entire year FY '24?
For the entire year, it's difficult. It depends on the mix also, because we'll not be knowing ahead of -- 8 months ahead of time, it's only 4 to 5 months ahead of time, I can tell you, but other than that I cannot tell you. Because it keeps changing our mix that makes the profitability.
Next question is from the line of Hussain from Ambit.
My first question was with regards to spec chem. Now, you mentioned that there's a lot of inventory destocking, which is happening. So my sense was that usually generic molecules would be much more vulnerable to this type of a scenario compared to innovator molecules. So I just wanted to understand that because our innovative molecules shouldn't be that impacted, right?
Speciality Chemicals last year itself, I told you one other molecule became a generic in the sense in 2 of the territories. And naturally, that's what it is. But in our case, see in general that is what is happening. And in our case, there's also -- there is a drought situation in one of the territories, Hence, there is a deferment into the shipments based on the forecast.
Okay. Okay. Understood. And sir, one thing was with regards to the acquisition. So here, like you mentioned that the approval, of course, it's not in your hands, but should things delay from August onwards. So have you planned anything from there on? Because I think our long stop date is towards August, right? So just wanted to get some clarity on that.
As of now, we are expecting things to happen before the long stop date itself because as you know, CC has approved long time ago and other things are going through. And I think because of the monsoon, I mean this parliament session, I think their meetings are not happening and the meeting starts taking place, which should take 5 [indiscernible] and this should get resolved.
Next question is from the line of Pratik Kothari from Unique PMS.
So my first question is on cash, sir. If you can update us in terms of how many products did we launch, what is in the pipeline next year, recorded any sales just on the cash flow part, please?
Yes. Cash, I mean, as I said, there is only 3 -- 2 products that are launched. And 3, 4 are expected to be launched within the next 6 months and about another 8 are where the pipeline are to be approved. I mean, to be filed. So as for the [indiscernible] is concerned, we said it takes 12 to 18 months for us to get breakeven time. I think we are in the same range.
Right. But in terms of these 2 products which we have launched, I mean the commercialization of that has started. I mean, we have started supplying...
Yes, it's a small -- it's a small volume product, small value products as of now.
And once all of these products are launched, let's say, in 2, 3 in near future and 8 after that, what can be the potential that if you have to look at, say, next year? What can this be?
I think these are very dynamic in the generic business unlike the CDMO business, which I could tell some kind of certainty. But in this -- if I say something, it may not work out the way it is because by the time how many number of case will be coming up by the time we get the approvals, we don't know. And what is the potential at that time and all that stuff. I mean, as I said, it will be positive only after 12 months later. That means it's not that -- it's not a big amount that we are talking about it. It may be over INR 150 crores or something like that.
Okay. Correct. Sure. And sir, my second question is on the CapEx, I think our Suryapet Facility is coming up, we were doing something at...
Yes, other than those things, we have not done any new activity because there is no change in the location of the, what do you call, I mean, R&D center because the regulation has not come into the picture and we have not put up any new facility, which, if needed, we want to put it at the Pashamylaram that is also not started yet. And as and when the success of the molecule happens, then we can start working on that. So other than the Suryapet Facility, which will be up and running in this third quarter -- end of second quarter and third quarter and nothing else is running other than the replacement CapEx, which is capital.
Correct. Because we had earlier said that it might take us about 2 years to even set up this for Pashamylaram facility. And that work still has not started. I mean...
No, everything -- we have everything ready, but what I'm saying is, unless you see the success in the molecule, there is no need because we can manage with the existing capacities here. Moreover, what happened is some of these activities are also being parallelly done at Vizag where we can also do the same products backup kind of things and here the customers have already approved this site as intermediate. So there is no rush to do this unless it's purely negativity purposes, we need to have it. Right now, that's not the case.
That means some of the products which we are now making at the Pashamylaram. If there is a regulatory requirement comes, that can be moved to Vizag and the regulatory product can be done at Pashamylaram. So there is no immediate requirement.
But we have some other couple of products which are [indiscernible] and then we need to have a capacity then that is the time we need to put these capacities.
Next question is from the line of Saurabh Kapadia from Sundaram Mutual Fund.
Sir, if you can talk about the margins in this quarter, you have seen a greater margins and [indiscernible] main source of power, should we continue to see higher margins?
Sir, this question I've been answering for last 4 years. It all depends on the mix and products. So 1 quarter, it may be high-value products and 1 quarter maybe volume growth only, but not the high value. So we keep changing it, but we never say that it's going to go up, when it comes positive, it's good because we always say it is plus 40% margin plus 40% EBITDA but it's always above that. So we don't know because we don't have a regular product day in day out. So I can tell you, yes, there is a possibility to increase because of the other reduction in the gas and all that stuff. This is a product mix. And every quarter, it keeps changing it. So I cannot help.
Okay. And second is on the selection in new [ RFQ ] in large quarter, you mentioned that it's slower. So how has been the traction in this quarter? And is it picking up in terms of new [ RFQ ]you are getting?
Yes. As I was telling you, I mean, this is the fast quarter we are seeing a lot of new inquiries for the new products which are under development and those are very early stage product. So we're all working on including all those things and see how many of those things will mature. And see what happens is after the COVID, everybody is now focusing on the regular. There was a lull before. But it's not there now more RFQs are coming, but sometimes, they will be going 2 or 3 products for the same indication, and then they will finalize one of them, but the request will come for all of them. So we keep quoting that and see what it can do. But it's a very early stage product, which are volume driven, but they will [indiscernible] with growth potential when it matures.
Okay. And sir, lastly, in terms of the filing. So how many filings we have right now and how many [indiscernible] we expect to get approval business?
No, no. See, the project has no meaning and what are the contributors [indiscernible] because sometimes the project stays there is active, but it will be 2 to 3 years before you see any great business. So we have [indiscernible] telling how many projects are there because it...
Okay. And sir, how many molecules are there in [indiscernible] and last time you mentioned about 5 molecules...
5, yes, yes. And I tell -- but there is no indication as of now how well the results are coming and should we prepare for a large quantity or anything like that. Nothing is revealed as of today, that is visible by the time.
Okay. Sir, just last one on the -- just open up for attention. So is it second to CCI or is it at a semi level?
No, I [indiscernible]
Next question is from the line of Rushabh Shah from OT Securities.
Yes. Sir, I have a question basically on the CDMO business. A bit lumpy, the business nature is very lumpiness, how do you manage that lumpiness about not getting future bidding orders like for 2 years or so?
You don't manage lumpiness because this is the way the business is structured and one quarter may be less, one quarter maybe more, one quarter it is less value products, less means more early-stage products, one quarter it's more long-term projects. And sometimes, it can double and [indiscernible] something we want. I mean it is the -- not only us, anybody who is in this business they expect a normal growth of 10% to 15% on average unless there is the success of the molecule moving from one stage to the other stage. So really, this is not a management. We cannot manage anything like changing it to some generic or anything like that. It has to be the basket that is available and wherein we supply new products.
As you say, it's very difficult to predict like until Phase 4. So how do you have the visibility for the next 24 months or so?
I think you never heard us. We don't have a visibility of more than 6 months. Not only me, neither my customer has a more than 6-month visibility unless the results of the clinical trial comes in, they cannot tell us. So this is part of the business problem we have, and we are managing that way, a mindset management rather than any physical management.
Okay. So if you could give me the opportunity size in this business and how ahead of -- are you ahead of your competitors, sir?
I don't have a competitor because I am purely a CDMO for the innovative products. The product if I'm applying to a customer is not supplied by any other thing in this country so that way I'm not a competitor. So we don't look it that way. This is as a different sense and you have to see our track record and how it is growing and it can be up and down or at the same time by the year-end, it is [indiscernible] sometimes it will be maybe 1% or 2% less, sometimes, maybe 1% or 2% more only. Sometimes it will go over like if you see last 4 or 5 years, it's about 20% VAGR.
You said going ahead, the opportunity size for our business is tremendous, like we can see a 20% growth over the coming years or so?
Now I cannot say not having the visibility, but we'll track it or say so.
Next question is from the line of Gokul Maheshwari from Awriga Capital.
My question is that the CapEx plan of INR 600 crores, which we had planned. I'm aware that we have done the standard shifting of the R&D facility. So how much of that INR 600 crores we've already executed?
It's about 30 out of 3 buckets and the INR 600 crores was INR 200 crores for the replacement at the Suryapet site, new block. The second one is INR 200 crores for the, what you call, shifting the R&D center is needed from inside ring road to outside ring road. And INR 152 crores for Pashamylaram additional block is needed. So we have not started anything else. We have only started the Suryapet thing and which we have contributed about INR 170 crores.
And is that already done or is under execution?
INR 170 crores already spent and it's under execution and the third quarter, the production will start.
Okay. Secondly is on the Casper facility. When we made the acquisition, it was -- I understand it is primarily for ANDAs but is there any other plan to use this facility for your customers in terms of offering them formulations also?
Yes, yes. If required we can offer them. But right now, it is only USFDA facility, we can use using only for the ANDA, but we have not started any formulations to any -- our regular customers innovative products. That is the part of the integration in the future when we go to the APIs and hopefully the -- what do you call the -- when they require because most of the innovative products, they don't take the formulations.
Okay. So right now, we are not either speaking to our clients or not executing any such project, it's primarily ANDA facility right now.
Yes, it is ANDA facility, yes.
Okay. Lastly, just on the CRAMS. You mentioned about the inquiries have been fairly strong, and it's still early stages, but just purely based on your experience. I understand that it is -- you might have still quite a few balls in the air, but how much time does it take to really eventually this to be converted into meaningful business. I'm not talking from a quarter sense, but more like a more longer-term perspective.
Yes. Because see, in the early stage, revenues are very miniscule like 5 to 10 kilos or 15 kilos, whatever it is so we choose and it goes into the Phase II level itself. But when it takes 24 to 36 months before you see any tangible results.
Next question is from the line of Cyndrella Carvalho from JM Financial.
So just to ask on the margin side. The logistical cost benefit and the raw materials side benefit should stay with us going ahead, right, given that there has been a comforting ease on both of these cost accounts? Irrespective of the product mix? I'm just trying to understand that.
Yes, that will be more or less stable.
Stable.
Right. And if we look at our positioning from a China plus fund perspective, do you see anything changing here right now? And any commentary on the earlier discussion that we had on the -- some funding winter that industry was experiencing in the northern part of the world. So what is the sense over there if you can highlight any of your thoughts on the...
China plus one mainly that on comes to the generics and special -- chemical businesses and all that stuff and some APIs, but we are not in this sector, we are in the pure CDMO, intermediate sector. So the lull that happened after 1.5, 2 years is because of the COVID, the focus was more on COVID rather than new development. As I was telling you since the last CPHI some changes in the mindset, people who wants to [indiscernible]. Of course, China is not much in the CDMO side of the NCE players. But still, based on the number of inquiries we got this quarter, we feel that there is also some change -- slight change in the thinking even for the innovator products also. So that's what we are seeing here. Other than that, it is not applicable for us, but as far as the China plus one is concerned only for the chemicals and regulatory APIs and all that stuff.
And the funding winter thing also you see it settling now?
What is that again?
The funding winter that also you see is behind us now? Or you see some improvement coming?
We -- I couldn't hear you properly -- I couldn't -- figure out the question.
I will join back the queue.
Next question is from the line of [indiscernible]
Yes. I just wanted to know on the Casper facility. We had bought it only for formulation and innovation and R&D, correct?
It's for formulations only.
Only, okay. Can you shed some light on that? Do we have any way? Can you shed some light on what's happening with respect to the Casper facility? I joined the call a little late.
Yes, Casper facility for the ANDAs, and we have a couple of them already first being applied very small volumes and 3 are under approvals from the FDA and 8 more are under filings and we expect the breakeven point in 18 months.
[Operator Instructions] Next question is from the line of Rushabh Shah from O3 Capital.
Sir, my question was on the -- on the call, you had said there were some shipment delays and due to day in, day out supply such thing -- such that everything happened then come into a single quarter and the rest of the quarters are all stagnant. So is there any way to tackle those things or we have to be without the [indiscernible]?
It's not the shipment delays. [indiscernible] is globally, the major kind of destocking and that means they are deploying the requirements even though projections are there. And the other part I said is it's because of the 1 broad situation, the requirement is deferred. It's not a delay and as of now, for the next year, the projections are given and they're all good. And we'll be knowing, as I said last quarter, this quarter has affected because we did not supply those quantities and we'll know for the third and fourth quarters we will be [indiscernible] joined in September time frame, how it is going through. So the softness will be there for a temporary period but in long run, it will -- because once the destocking takes place, requirement is there, the projections are still similar. So there is only [indiscernible] Speciality Chemicals, that is what is happening. But that's short-lived, we feel.
[indiscernible] in the business?
Rushabh, your voice is coming very muffled, can you please speak through the handset?
Am I audible now?
Yes.
So you said you don't have any competition in this business as you told me. So if a new player coming into your segment. So what challenges he might face to like to come up to your level? And what challenges are you facing currently, sir, in your business?
I cannot tell what challenges the new players are going to face. But my challenge is that when we take it for project, whether it is going to go into the next level or not, it is going to be successful in the physical -- I mean clinical trial setting or not, we don't know which is an answer certainly not only from my point of view from the innovator point of view also. And I said, there is no capital [indiscernible] there are competitors, we are not worried about where once you get a product, same product is not given to second person in this country. That's what I mean to say.
Okay. And so what are your top 3 priorities going for the next 2 to 3 years?
What is that again?
What are your top 3 priorities going next 2 to 3 years?
I think we have 2,3 priorities. There's only one priority in any business, new business. And hopefully, the business will be successful [indiscernible] clinical trial which in turn will give us. So this is only one way. There's nothing -- because we are [indiscernible] depending on the customers' success. That's the only way we look at it.
Next question is from the line of Darshit Shah from Nirvana Capital.
Sir, when you are saying like we have received the kind of inquiries that we haven't seen in our history of operation. So we would really like to understand, is it due to the kind of pent-up behind where most of the innovators were occupied with the COVID molecule and that has kind of come up after that? Or what is your sense on that?
That the discovery and development of new molecules is -- I mean deferred during the COVID situation because they are all focusing on developing various alternatives for the COVID. So now all those things are coming. That's why the requirements of those early-stage requirements are being asked for because we have one of long-term players with the customers which we are working with. And these are the new activities they have started with the gap as it -- it's a cycle now or something like that happens. Sometimes now, they stop the activity and which happened because of the COVID, now the activity started full scale. And now they are looking at this is a very, very early stage requirement, they're talking about it.
And sir, just in terms of our CapEx, will we kind of deferred the R&D in the Pashamylaram facility, has that anything to do with the deal with Advent where they have also a few of the facilities, which can be used when we kind of merge all this together. Has that thing to play a role in this?
Nothing. It has nothing to do with it because if the government says you have to move out of this thing, I have no choice what to do. And this thing we have done 2.5 years ago, not 6 months ago. So I would have started earlier itself whenever there's requirement we take it. It is not money, we don't have to borrow also, it is existing only. We have taken the permission from the Board at that time. It's not just because of the deal, it has nothing to do with the deal.
Sir, and on the migration from intermediates to KPI, what's the status there, if you could throw some light?
As I was telling you because of the COVID, it has got delayed the audits and all the stuff. Now it started. We are already discussing with 2 customers, and they are planning to send their department -- I mean those audit people sometime in the third quarter or something like that. I think it's going in the right direction.
Sure. And then lastly, if I may squeeze in. On this long stop date late the 25th August, it's, in the worst case, [indiscernible] approval, would this deal get extended as per the agreement?
This is 26th August is the long stop date. And after that, we have the -- I mean, it is a mutual assent we given each other for -- if regulatory things have not come by that time. But the only thing 1 pending is CCA, which we expect after the monsoon sessions to get organize the meetings and hopefully, it should be over.
Next question is from the line of Saurabh Kapadia from Sundram Mutual Fund.
Sir, your manufacturing cost has gone down in this quarter. So is it because of mix or the overall costs have come down?
I didn't understand the question.
Yes. I'm saying -- I'm referring to the manufacturing cost that has come down as we compare it last 4, 5 quarters. So is there any...
Because some Speciality Chemicals were not manufactured, right? This is a variable cost, all those things. Actually, it will come down and fixed costs are there, but the variable cost will come down naturally when the production is not there.
[Operator Instructions] Next question is from the line of Satish Bhatt from Anvil Shares & Stock.
Congratulations on good results. Sir, I just wanted to know whether you will give some update on your 2 molecules which are -- you're planning to take to Phase II trials. So how we are projecting which molecules -- so I just wanted to even look at what type of expenditure we're going to incur for those trials also?
What are you talking, sir? You're talking to life sciences here, we're not...
I just want to know whether I can ask on those topics.
I think people will get confused. I think we can have a separate call on that, sir.
I now hand the conference over to the management for closing comments.
Thank you, everyone, for tuning in for this conference call. As discussed earlier, the environment is very tough, especially in the agrochemical sector. But as I said, there is a destocking that is taking place and some drop situations somewhere else. We feel that it is transient, and we can [indiscernible], but it will come back in a big way in the '24, '25 time frame. We expect with this softness for this quarter, which we have told you, but based on the number of inquiries that is coming, we see a very great potential for the CDMO side of the business also.
All in all, it looks good for the '24, '25. And this we'll know as the time goes by how this -- as I said, on the long term, I can tell you how it is going on. For now it is -- this quarter is really soft and hope everything is resolved by the time we speak next time. Thank you. Thanks for joining.
Thank you very much. On behalf of Suven Pharmaceuticals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.