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Suven Pharmaceuticals Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 and 9 months FY '23 Earnings Conference Call of Suven Pharmaceuticals Limited. [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.
Good day, everyone, and thank you for joining us on this call to discuss the Q3 and 9 months FY '23 earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, Managing Director; and 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 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 good afternoon, everyone for tuning into the update on the quarter 3 results of Suven Pharmaceuticals Limited.
As you know, we have quarter-on-quarter, sequential increase in the revenue. But if you see the 9 months, it's more or less flat. At the same time, the EBITDA is less by about INR 30-odd crores. This is mainly due to the product mix.
As you know, the speciality chemical has more or less equal to the number, the whole year number of last year, we have achieved this in quarter 3 itself. Because this is -- because of the seasonality of the uptake because when we grow -- I mean, flowing starts, sometimes it will be [indiscernible] sometimes more to the backward. And this time, it has moved to the third quarter itself and little bit going into first quarter. And that means this keeps happening, and it may not be the same year-on-year.
Next time, it may be a little bit later also, if it's possible, but it will be bunched up in 1 quarter, like compared to the last year, third quarter, this year, third quarter, the speciality chemical is almost doubled.
But whereas the CRAMS has come down and mainly due to the less COVID revenue out of this year.
And we have mentioned in the last con call that, I mean, originally in the beginning because of the less COVID molecules, the revenue will be down by around 5% or so. And in the middle of the year, we have said we may be able to catch up to the [indiscernible] compared to last year number or maybe a little bit better.
So as of now, these things stand, I think we -- maybe we'll be able to come to the same number as last year, maybe a slight growth also is the possibility. And if you see on the macro level, since I can not give you any kind of projections since our future visibility is only 6 months. I just wanted to give you some kind of macro scenario. As you know, the CDMO business is globally growing around 7.7% with a mass target size of about $140 billion. And after this COVID debacle, now the R&D thing is coming back from the global pharma into the regional field.
And also, we have heard from our customers during CPHI in November that they are also looking to change from China to other countries and India is likely to get benefited. It may not happen over night, but things are going in the right direction overall.
So with what we have built over the last 20 years, we've been doing customer interaction and customer stickiness and more opportunities for us with increased capacity and increased chemistry and where, as you know, we have been doing very good for the last 4 years with a CAGR above 41% growth. So all in all, we see -- you may see this up and down, as you know, in our business model, it's not quarter-on-quarter. Sometimes it may not be year-on-year, but at the same time, things are looking good, but there will be ups and downs between and which you -- most of you are well aware of it.
And I think that's where I want to -- the long-term growth prospects are very good. And we expect that to benefit us in the long run, especially with the China plus 1 and China minus 1, whichever way you're following. I think all-in-all, we look good, but this is the status as of now. I think it's better for me to answer you as against [indiscernible] you from the outlook. So I now look forward for your questions.
[Operator Instructions] We have our first question from the line of Rashmi Shetty from Dolat Capital.
Sir, on the Speciality Chemical business, though you alluded the growth is through seasonality. Just want to understand that the current sales during the quarter and in the first 9 months of that sum, is it from the only 2 molecules or we have received some repeat orders from the third molecule also?
And how do we -- earlier, we guided that there would be a flattish growth in FY '23 in Speciality Chemicals business, but now because of the higher growth in the 9 months, do we upgrade our guidance on this piece of business for this particular year?
Yes. As I was telling it's cyclical in nature compared to other businesses in Speciality Chemical. The situation is expected to be drought, the rainfall or whatever it is, we're starting a new crops now, they keep changing it. So this year, it was preponed, it looks like, and they got more requirement came in. I think they have taken based on the [indiscernible] material also. That's why if you see 9 months itself, but that's the last year's number.
With respect to the product, 1 product, a small amount of the third product also sold in the first quarter, which we have told you earlier. Otherwise, these 2 products are the main things. But at the same time, it can happen that the next requirement will maybe pushed not into the first quarter, second quarter, maybe the third and fourth quarter, again, all bunched up in the one go.
But all in all, we look at -- as for the customer thing only, we are saying it's a flattish growth in the Speciality Chemicals. But when the things are good, suddenly they may get the requirement, then we were able to supply in time so that way it is that's where it goes.
And sir, on your CDMO pharma business, we -- in the middle of the year, we expected that probably for this year, we will be able to do some small single-digit growth. But considering the fact that we have shown a decline in second quarter and third quarter, do you think that for the full year, we will see a decline in the Pharma business, CRAMS business? Or you think that some sales were deferred and it will come back in quarter four?
I think slight decline will be there, but we hope to -- I mean quarter 4 may make it to the concrete number to that level. But in general, based on the feedback during this CPHI last November, I think now is the first quarter, now the year starts where most of these in our companies in January. So I think we should be able to see more number of opportunities coming and of course, repeat business will be coming in. I think as of now except COVID and some genetic molecules, other things are all on track only. I think they're not much different. So we expect a single-digit growth should still happen.
In the Pharma business, so you expect that ex-COVID molecule? Or you still expect a single-digit growth of the year.
Yes.
[Operator Instructions] We have our next question from the line of Cyndrella Carvalho from JM Financial.
Sir, we're looking at this quarter and...
Cyndrella, you're voice is very feeble.
Is this better, sir? .
Yes.
Am I audible? Sorry for this. So if you look at this quarter, we have higher contribution from the Speciality Chemicals side, and still, we have maintained our EBITDA margin. So is that a better contribution from the new products that we have in the Speciality Chemicals? Or how should we understand the margin aspect for this quarter?
No, no. I mean, you cannot attribute everything to 1 product or other. It's a total product mix, especially everything that goes in, the speciality chemicals are same as last year. There is no difference. So the improvement if at all is in the CRAMS side of the business, even though volume is less, the product mix value addition and all that stuff will play a role. This year-on-year basis it will even out. It will not be same.
Okay. That is helpful, sir. So just wanted to understand in case like we are seeing higher profitability coming from the speciality side. That's the reason I was trying to understand.
Right. Right. Okay.
And in terms of our CDMO business, how should we see any visibility that you can provide on the -- in the coming like -- on the coming fiscal FY '24?
It's very difficult, you know that. And I never give you the whole fiscal thing, but that's why I gave you the macro level things that are happening, whether that translates into the business whether or not, we don't know. But as of now, we are hoping that around 10% growth as I was telling you all the time, and we expect the same, if not better. But right now, we can only tell you what we have on hand with less than 5 months visibility for now which is looking good.
Okay. That's helpful, sir, again -- and sir, if we look at the Advent deal, where are we in terms of the process right now? Any time lines that you can allude and in terms of process, you can highlight any details on that side?
Regarding the Advent thing, I mean they have to do the -- all the approvals they have to get it. And we have the time line up to August of this year to get all the approvals like CCI and the DoP and the DIP whatever you may call et cetera. They have applied and waiting for the approvals process to take place.
[Operator Instructions] We have a question from the line of Darshit Shah from Nirvana Capital.
Yes. Sir, just a couple of things. One, on power integration on the API part, and we were in talks with few of the clients who are probably planning to come and see the facility and then give a go ahead, so any update you would like to throw on that?
On what again, Darshit? Forward integration of the API. Yes. We're talking to them. As you know, last time itself, I told you, we are now -- I mean talking, but they have to come and audit because there are different departments. And they have to come and audit, and they are expected to come second and third quarters -- I mean according to their second quarter and third quarters, that means first quarter and second quarter of ours. We are likely to show up and it takes time, but we are working on that direction. Yes.
And sir, currently, how many products do we have under commercial and Phase III if you would tell us, I mean, including the COVID one?
We have around 7 products.
In the Pharma CRAMS? .
Yes, yes.
Okay. And any color on the Phase III products...
Now there is no indication -- no indication from the customer because unless they get the results out and then only we get the intimation. As of now, there is no indication whatsoever then that will happen, the things that are in Phase III, then they will move likely to the next level. We don't have as of now.
Got it. Yes. That I understand, that you don't have any indication, but any late-stage products, if you can see -- I mean that might happen in 6 months, 12 months, but any number of late-stage products we have in the pipeline?
Yes. We have always a number of projects in the Phase III, and they keep changing it, and they have to withdraw some as they add based on the success of the molecules. We have about 5 in the pipeline.
We do have late-stage project, but we'll like there will be a production based on that. That's what we are trying to deliver.
Got it. And sir, lastly, if I may ask on Suven Life, sir, any update you would like to -- since we hold Suven Life shares as well. Any update you'd like to throw on the Suven 3031 what's the progress? How has been the safety part being addressed. I mean, since we have enrolled quite a few number of patients there.
Yes, we are almost 90% enrollment has coming to the 90% this quarter, but the according to the estimate by them because of the seasonality and all the stuff enrollment, it will likely to be in September quarter; in October quarter, we should be able to get the data.
Last patient, coming around June time frame. That means from there in impact about at least 90 days to 120 days to get the data crunching and get you back on that.
Okay. But how has been your safety part, it's been safe enough if you...
Yes. Yes. We just started. We have over 9 patients already enrolled in 502 Phase III.
[Operator Instructions] We have a question from the line of Damayanti Kerai from HSBC.
Sir, can you please elaborate a bit more on your CDMO business from what is happening mostly at the customer level. So you mentioned about R&D and then China plus 1 strategy, et cetera. So can you throw some more color there and how we should look at this business for say next 2 to 3 quarters?
As you know, the customers' interaction happened finally during the last CPHI before that it is only the regular meetings which you do not have any other thought processes and the pipelines and all that stuff. Only the transaction-based activity we've been doing it.
The way they have said it. Now they are coming out of the COVID situation, and we are starting the new -- I mean what you call, putting the budget for the new products and all the stuff. And that's 1 thing. That means it will start throwing out the new projects eventually.
And the second thing they said is they're also looking to outsource more. I mean 1 is the R&D spending is going up. The second thing is we are going to change their sourcing strategy, it may not happen overnight, as I was telling from the China to some other territories. And more likely, India will be the most opportunity for them, and therefore, they are looking at it.
So in that process, we think -- that's why I gave because I won't give you any projection. I just gave this because until that time, everybody is at whole China plus 1, I was saying no, it may not happen. But after this CPHI we are kind of a inclined to say, yes, this is not only the increased R&D spending, but also the increased outsourcing in the global market scenario with this 7% growth that's happening in CDMO. Indian players are likely to get more benefited. And we being in the long-term player of more than 2.5 decades, towards with all these big pharma and with all the kind of infrastructure and the mindset and the focus with which we do the [indiscernible], we are at the front end to get any opportunity that will come to us.
Okay. That's good to hear. So -- are we seeing more like more inquiries or [RPF] from the customers? Or things are still in discussion stage and it might take some...
Yes, yes. It will come, but it's only a couple of months ago it happened, and summer -- I mean all the holidays are over. Now they are fully back on visiting and they will start now doing this thing. I think you'll see it 2 to 3 months, the flow is hopefully.
Okay. And just a clarification on R&D. So I guess till a few months back, we heard about some curtailment or pullback by customers in terms of R&D spend. Now that you are saying things should improve from here on. And you are already seeing some...
We heard that. We heard that, but it is not seen on the ground yet. I mean only you'll see that if I get into 2, 3 requirements, then I'll say, yes.
Okay. So considering all most likely say, another 1 or 2 quarters, we should be seeing things moving up from here after...
That's what our hope based on the feedback we have.
We have our next question from the line of Abdulkader Puranwala from Elara Capital.
Sir, could you please provide some flavor on...
[Foreign Language]
Yes. Is it better now, sir?
Yes, this is better. Yes.
Yes. Sir, can you please provide some color on the products, which on the pharma as well as on the speciality chemical side, which would expect to go commercial in the next 2, 3 years? Any time line or anything that you would heard from the customers since you mentioned that the global pharma activity is picking up. So on the commercialization side, if you could provide some clarity would be very helpful.
You know very well that it's very difficult even for the customers to say anything. And we would tell that is is highly impossible because unless the data comes out, they cannot tell. So as I was telling to the earlier caller, I have an indication of whatsoever.
With respect to speciality chemicals, we've already mentioned the 4-molecule should come sometime in the year '24 timeframe. That's the only thing we have an update on that. not an update. We are reiterating whatever we said earlier. So it's very difficult for me to get what it is until they know, we don't know. It can happen with 2 months from now, but we don't know that thing because we know -- because you understand, we also know how the trajectory work.
So do we not be knowing our 3031 what will happen until suddenly until November timeframe, right? So similar things for the our own investors and customers also. They will not be able to tell. The only thing they can tell whether the study is going on or about the computer or whatever. That's the only they can tell. But right now, the results they'll not be able to forecast because these are all double blind study.
Got it, sir. So sir, on the third molecule on the Speciality Chemicals side, sir, has that started contributing in Q3? Was there any contribution or...
No. No. It's only -- and the quarter 1 is over. After that they said, again, 18 months later only, it will come back, there's nothing to come back.
All right. Got it. And sir, lastly, on the margin front, if you could provide some clarity as to where the margins would sustain? Would this 42%, 43% range would be something which could sustain ahead? I mean when you talk about from an FY '24, '25 perspective?
Yes. I mean, we always -- if you remember, we always say plus 40% is normal for us. As of now, the expand, okay? There will be 2% extra one quarter, 3% for one quarter but plus 40% is a normal for us. And as of now, I don't see any reason why it will go down as of now. It can also go up, as you know, some quarters, it moves up, but all in all at the end of the year, we are in the range.
We have our next question from the line of Gokul Maheshwari from Awriga Capital.
Sir, could you give an update on where you are on the Casper facility in your -- on your plants to where we scale up the production facility which you acquired and whether that requires more investments.
Can you repeat the same.
Yes. So can you just give an update on the Casper facility which you acquired last year? And whether you are on track to increase the capacity utilization and where and would you require any more investments in that facility?
As of now, we have filed about 10 already, and there are some filings still going on. The approvals are coming one by one. In the first quarter, there will be sometime in April, May time frame will be going out. And right now, I don't need any capital expenditure for the Casper only when these things we have 1.2 billion capacity in that. And only when that is done, we'll be knowing it. And as you know, we also have the capability at Pashamylaram site. So miss and match, we can do that. We have enough time to create infrastructure if needed. That's not a problem. But right now, we don't need any additional capacity.
In the 9 months, what would be the contribution of Casper in our scale for sure?
As of now, there is no contribution much, it's only the expense. And we clearly mentioned it will be about 12 to 15 months when we could go with the company before we see the revenue, and we expect the revenue only come in the breakeven will be about 36 months from the day when we have taken over. So -- it depends on how the molecules get approved and when they go and what is the profitability out of that. And as of now, it's only 1 or 2 that are going. So based on that, it is very difficult to tell until it goes to market.
Okay. And what is the estimated CapEx for this year, FY '23 and also for FY '24?
The effect, as you know, we have taken a principle approval of about INR 600 crores altogether. Out of that it's the only 1 that is -- we are using INR 200 crores towards the Suryapet facility lab, I mean new building creation, which is the main thing that is going on. Half of it is spent, half of it is being spent within the next 6 months, and we hope the second quarter onwards, we start, it will be first quarter, but it is delayed by a couple of months. That will be the second quarter onwards, we have the validation stage and that will be utilized. The rest of the CapEx was advanced and changes the R&D location whenever the government asks us to go, that's why we're taking proactively principle approval, so that's not going to happen now because no indication is given, based on the things that are going on, politically, it may not happen within the next 1 year because the elections will be done again.
The other 1 is the Pashamylaram site. As of now, we are qualifying the Vizag site and Pashamylaram site for any new projects also. Right now, we are okay. And as and when it requires based on the pipeline and the progress and the requirements, then we can start the activity. Right now, it may not be until maybe 6 to 9 months, we will not be able to -- we will not be starting that actively the third portion of it. Other than that, we have a regular CapEx of which is the balancing equipment because it's a mix and match thing which we do all the time, multiproducts about INR 60 crores to INR 80 crores every year, we'll be doing replacement CapEx or the balance needed for the CapEx, that will be a continuous cost.
We have a next question from the line of Tushar Manudhane from Motilal Oswal.
Sir, firstly, on now that over a period of time and given the kind of CRAMS traction there has been -- so basis, your experience, if you could share in terms of what kind of technology platforms or chemistry skill sets that has been little -- or rather unique or differentiated to Suven, which sort of drives the business in the CRAMS segment in particular?
I would not say the technology platform that differentiates us. It is the focus with which we work to the innovator products with the one that defines because [indiscernible] supplied maybe the last is applier is the NP based [HSB] that is keeping us things.
Other than that, I mean, the technology everybody has it, but their focus is going mainly on the generic side and backward integrating into some kind of CRAMS. Ours is more or less than the 90%, 95% is on NP-based activity, and we do the leverage on to the generic side a little bit. So you cannot say it's a technology, but as far as the chemistries are concerned except the coordination and [indiscernible] since we do many number of projects, we have done about 980 projects so far from -- since inception, we have been dabbled in each and every chemistry at the gram level, to kilo level to tonne level.
Okay. Okay. Also, if you could break down the, let's say, gross block into CDMO Pharma and CDMO Speciality Chemicals?
I'll provide you. Right now I don't have this information that I provide you. We'll update on that.
So just maybe if the asset turn into different segments, what it could be approximately if that you could share?
Yes. I will.
We have a next question from the line of Pratik Kothari from Unique Portfolio Managers.
Sir, just 1 clarification, this fourth molecule in chemical that we expect to come in near -- so this is already commercialized in the past and does that be ask us for a supply next year. This is not a new molecule.
Which one is that?
The fourth molecule, which you mentioned on the...
No, no, it is a brand-new one. We never supply it. We are only qualified our [indiscernible]. And that is '24 -- sometime in '24 beginning that -- calendar '24.
Okay. Fair enough. And sir, regarding this new capacity, we mentioned that we'll only start to think about it in 6, 9 months down the line. And also we say that there's a lot of customer demand, the China plus 1 of the whole supply chain retail. So usually, how long does it take for us to put up a new capacity and...
Okay, for everybody's information, compared to any other generic molecules creation capacity -- is the kind of what you call keep determine. In our case, what happens is when the molecule is getting stabilized and opportunities coming in by the time the peak the things requirement come, it takes 3 years. So what I'm saying in the beginning, we do is the, what I call is campaign-based activity. But we'll be knowing that it will come back. So based on that, we'll put it.
If it is only making it with the balancing equipment, it takes 6 months. If I need to create a total block then it takes 18 months. So it depends -- most of the time, we don't create the block itself. But when we create the block, it will be a multiple of things. But it will be more or less what happens if I'm doing a campaign now, I want to continue the campaign then I may need to use a couple of balancing equipment, to use the unutilized capacity to build the new product. For that, it will take 3 to 4 months only and that balancing equipment. So which are awaited but luckily for us in this business model, the time will be known, but the time is at least 2 years to 3 years. So we can certainly create the capacity to do that.
Secondly, we also can do the early stage steps in some other units, suppose they want more quantity sudden for whatever reason. We have done that earlier, and we'll never have any problem because -- most of the time, our seasoning campaign based activity except for the speciality chemicals. So even though we have -- we say 100% capacity utilization, is only 70% because not all of the equipment can be utilized, so that 30% can be using the balancing equipment, I can put more products. So we will never have a shortage of capacity. But at the same time, when the new capacity is required, we have enough or ample time to do it. And we have the backup in the other units also based on the customer perspective [indiscernible] early stage problem. So this is the way it works.
Very clear. And sir, sir, last question, even on the last call, you had mentioned that we might get the management of Advent on the call and maybe just yours [indiscernible] maybe on the next con call, we can do that.
Management of the Advent will come only when the transaction takes place. Until that time, we are still here.
We have our next question from the line of Darshan Shah from Multi Act.
This is Rohan. Sir, my question is with respect to the proposed merger with the Advent owned entities, are those entities carrying any unutilized capacities that we could potentially use for our CRAMS operations and does need for us to do CapEx gets reduced? Or are those unutilized capacities if they exist, cannot be used for our CRAMS business?
Let me tell you it's not wise on my part to just estimate what's going to happen to the capacity, how much they are utilizing. Until this transaction is over, we are not going to talk anything about the Suven's platform. Yes. But the question is, yes, certainly, it will be a plus now but anything whatever I'm using like just because it's all I was telling if I need to do additional steps in other units, I can do that. Similarly, when that comes in, then it can be done, right? But right now, we're not going to talk about that. We have clearly given you the statement made by the Advent during the signing of the ceremony that they have an intent to do the launching that platform into Suven so that can be capacity enhancement will be used back, when integration can be used, content can be used and the more technologies can be coming into the picture and more customers will be there and they have reasonable reach and which they can bring more opportunities also.
But that is post thing. Right now, we are concentrating what we do. And then once that happens, I think then only I can talk to anything about it and -- but not knowing full year aspirations, I will not be able to comment anything on that at this point.
We have a next question from the line of Rajashekar MS, an Individual Investor.
My question has already been answered.
We have a next question from the line of Hussain Kagzi from Ambit Asset Management.
Am I audible?
Yes.
So I wanted to get a sense on when is it that our pharma molecule is coming up for patent expiry, I guess, the first 2 molecules that we launched that were commercialized 2 to 3 years back where the patient was expiring somewhere in 2024, 2025. So if you can give some idea on that.
Yes. I mean, the earlier I think is in '25. But as you know, these big pharma, they will have the additional indications that were given and they will be going for another 5 years or so, I don't see anything under 28 actually to be going out of our suppliers. That's based on the interactions we have with the customers, so we don't see any even though it's going out of patient, but we -- it will be 3 to 4 years from there only, if anything at all, there will be a reduction in the revenue out of those things. Otherwise, they are staying at the same, maybe not more, so it doesn't matter. Next 2 to 3 years, it will not affect certainly.
Got it. Got it, 2 to 3 years. And sir, 1 thing was that you were talking about that now, probably you're seeing increased inquiry from customers to shift from China to India and talks happening in that regard. So in your assessment, how long does it take for this to happen or probably translate anything into a meaningful opportunity for you or other players? Because I think for example, in generic, you have to go and add modify the DMF or the AND or something like that. So in kind of a related to innovator thing, which I suppose they are doing that conversation now. So how long will it be that you would anticipate this to reflect into any tangible numbers?
Yes. As you rightly said, it is not going to be overnight. Right now, this is only the discussions based on the discussion we could gather this is what's going to happen. As you know, if I change in the existing molecules to take 1 year to 2 years that impact 3 years also. Similarly, changing the source of some of the price we hear, especially if it is a regulatory doing, it will take time. And I know the process -- when they say something, it takes at least a year before [indiscernible] is a sort of it. So in general, but when once has that happened, it will have a win-win situation for both the customers and the partner. And we hope to get those opportunities not only for Suven but all the other players in India eventually.
That's why it will not be the next 6 months or something like that. But even for the flow of projects, we have only said that we have heard this on the macro level we are telling in general, it will happen. -- in the long run. And being a first in the line, we are the first one to start the CRAMS project way back in '95 and nobody knows what the CRAMS is all at all. We thought we will be the best 1 to get some advantage of it, that's what I said when it comes to the other things.
[Operator Instructions] As there are no further questions, I now hand the conference over to the management for closing comments. Over to you, sir.
Thank you, everyone, for tuning into this third quarter results and year-to-date results. As you know, and our flattish growth as of now, and we expect to end the year with a slight positive growth and maintaining the margin. And in the long term, with the new opportunities that are coming in, new thinking that's happening in the global pharma outsourcing and the opportunities because of the China plus 1 and also opportunity of long-term relationships we have and the existing capacity building that is taking place and also the number of projects what we have in the pipeline and all the things bodes well.
But at the same time, you will be seeing not only quarter-on-quarter variations, but year-on-year variation also will be there. But in general -- I mean in the long run, it is a very promising thing especially the change in the mindset of the global pharma for outsourcing and targeting towards India. And being Suven is one of the pharma, since we like to get the benefit out of it. With this, I thank each and everyone, and hope you get up the queue during the next con call. Thank you.
Thank you. On behalf of Suven Pharmaceuticals Limited, that concludes the conference call. Thank you for joining us, and you may now disconnect your lines.