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Suven Pharmaceuticals Ltd
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Ladies and gentlemen, good day, and welcome to Suven Pharmaceuticals Limited 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 perspective 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 of year ending March 31. As I was telling last year that year '22, '23 will be flat to a little bit lower side on the revenue side later, we have updated that it may suffice a little bit. So finally, it has come out with very well muted growth on overall perspective. And it is in line with what we have expected at the -- informed you. The CDMO business reduced from the -- in the pharma reduced by about -- roughly about 10% due to the -- some of the molecules which are being used for the COVID were not repeated, whereas the Specialty Chemical has gone up by 15% to compensate for the things that has lowered in the CDMO pharma.
Overall, other than the one-off of last year's sale of pricing stake, otherwise the results are in line and we have positive growth. If you see quarter-on-quarter for the last quarter to this quarter it's a very good jump in revenues and the profitability but a year-on-year basis, if you take out the one-off items then it will be around -- the same as the last year more or less.
So this year, it's very early for us to give SME guidance. But we also see a little bit softness in the spec chem side [indiscernible] because of the climatic condition. Otherwise, we expect they stay in line that we'll have much more visibility as we pass through. I think it's better for me to answer your questions rather than give you -- because you have the results with you and it's better I answer the questions rather than giving you upfront, any other information, which may not be relevant. So I now ask the moderator to go for the question answer session.
[Operator Instructions] The first question is from the line of Rushabh Shah from o3 Securities.
Am I audible now?
Yes. Slightly better.
So 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. So is the formulation business as we've seen since 2 financial years has been flattish.
Yes. Formulation business is mandatory item for us, but it's a leverage exercise as we told earlier, and we are expecting something to grow, but it also depends on the approvals that are to be placed. So we have files around 25 accounts, 27 ANDA. So far, we have only 12 approved, not all of them are, as you know, ours is a really specific molecules, not a blockbuster value-based molecules. And we expect more 7 or 8 approvals during this year and that will add to revenue eventually. But in general, it is a flattish growth, not much to talk about on these operations.
And my second question is, if you could give us the repeat percentage of the business, like what percentage of clients do they come back with the repeat orders. And if that number is on the larger side, so what different does Suven do in that business?
What was it, again? I could not make out the question.
Sir if you could give me the repeat percentage of orders of the business, what percentage of clients do come back with the repeat orders for the business? And if it's on the larger side?
This is not a generic business, as you know, where 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 have a repeat order once a year or whatever it is on a continuous basis, depending on how the product is growing. If it's growing, you'll get a little bit more orders, but it's less -- but you still get the repeat order, but it will be little bit less. So this is the way it works, unlike a generic where you would go and sell it. Here, it is automatically because we are one of the suppliers for this particular molecule. So it will be coming that way. So repeat orders are based on the success of the molecule in the clinical trials at the early stage. And if it's the commercial, it is success of the molecule in the market. This is the way you get the repeat business.
Okay. And sir, my last question is, in the previous con calls you said that the duration of a project can be 3 to 4 months or even it would take 5 to 6 months, which is very lengthy in nature, so how do you take the guidance for that? And how do you project the revenues going ahead?
That's why we don't give you a guidance and very new projections. They come as a [indiscernible]. This you cannot go quarter-on-quarter basis, you have to go more or less on a year-on-year basis only. And the -- again, it is based on the success of the molecules, both in clinical trials and when it's launched on the success in the market. So it's not a straightforward, but at the same time, if you see last 4 years, we had [ 21% ] CAGR growth in there. So then see some single -- I mean what do 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, we go by a decade and essentially last 4, 5 years, is going good, and we see increase in the infrastructure and hopefully, the new technologies, which we are going to based on the request of the customer and the -- especially on the success of the molecules that will certainly give -- certainly 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.
One question related to this quarter, we are seeing that this time in this quarter there's a higher share of CDMO Pharma, and lower share of CDMO Chemical -- Specialty Chemical Business, but despite this our gross margin is on Y-o-Y and on a quarter-on-quarter basis, contracted. And despite our gross margins are down, our EBITDA margin is high. So because are -- 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 know really well the type of business we are in, and it is not the same model molecule, so you can compare it quarter to quarter. It is the mix of the -- product mix is the one that gives you the margins, right? So 1 quarter it may be high-value product maybe there you -- then you get a high gross margin, whereas sometimes now some of these more early-stage projects are there where the gross margins will be less. So this is the way it works. It cannot be catered to one or other, it's all the -- mainly the product mix that determines the gross margins and the EBITDA and the net profit.
And sir, on the cost side, like are you taking some cost control initiatives because I'm just seeing that on quarter-on-quarter, our expenses have actually come down which is actually led to improvement in EBITDA margins. So if you can throw some color on it?
No. There is no major change that has happened. The only thing different in quarter or quarters, sometimes, whatever feels like -- other manufacturing expenses, some of the other costs, there is a slight reduction, if you really see [indiscernible] INR 80 crores this year was INR 55.4 crores. The changes which are -- which Jasti was explaining actually which is really the cost related to the product changes actually. There is a cost of changes [indiscernible]. All those things are variable in relation to the production. And that's the reason it has happened actually. If you're making [ cost gain action effect ], overall [Technical Difficulty] increase actually, but efficiency has been maintained.
Okay. And sir, my second question is on your acquisition and mortgage process. Where are we currently in this process related to the tender and related to the acquisition process and the mortgage process.
No. We are still waiting for the regulatory approval for the acquirer to get all the approvals to do CCI, [ they ] owe me a lot actually, and they are still waiting for that. Once it is completed probably there's a [indiscernible] we're not -- got the approval as such, we are waiting for the approval.
Sir when the regulatory approval comes in, that time we first acquire the promoter stake and sold that only to tender or hope that? Is that understanding correct?
That is correct. Only after the acquisition of the promoter stakes that is [indiscernible]. Correct.
Abdulkader Puranwala.
So on the CDMO Pharma side, I 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 trials?
So it's a combination, both -- we cannot pinpoint to one thing that has come. There is nothing new that has come. It is only the mix that -- sometimes what happens is, some of the material is almost ready but not to ship it in the last few days, so it goes in the next quarters. Those things also can happen. So not much changed, only the values are based on some of the fact is product mix. But as you're asking, what is better this quarter is, so there is no new launches or anything that have taken place.
Understood, sir. So sir, basically on the...
Sorry to interrupt you sir, you are not audible.
Am I audible now?
Yes.
So sir, on the new molecule [indiscernible], 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 on the Phase II now and Phase III as well.
Yes. I mean what I'm saying is the traction of getting the new RFQ, till now that stuff is a little bit -- still a little bit slower. We thought it will happen post-COVID and it's started, but interest is there, heavy interest rate, but the pace is a little bit slower. And no molecules or in general, none of the molecules in various spaces has not gone from one stage to other to have a substantial impact on our results as of now.
Sure, sir. And just a final one on the [indiscernible] any update from the customer's audit parts, so you're early expecting some to happen in this fiscal.
Yes. The update is that yes, customers are coming and are eating and it will take some evaluation after this will be given eventually, but it is a long drawn process because it will take 1year, 1.5 year before you see full-fledged approach.
Next question is from the line of Cyndrella Carvalho from JM Financial.
Congratulations on delivering the guidance, maintaining the EBITDA margin. 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, the customer will not be knowing until the clinical trails data comes out and then it goes to the next stage. So far, we don't have an indication as of now, any of the phase III molecules will be moving into the commercial or any phase II it will come into phase III, so no indication as of now.
It can happen any times, but as I said, right now. They don't have an indication. Unless they have an indication, they actually can't tell us. So we'll 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 more in there?
As last year, I told you it will be in the 2024 timeframe, it will be even more when we plan into commercial product, not 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's Plus One movement. Is there any update on the overall R&D outlook of our 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 One, yes it may be passable in the nonregulated regime like maybe generics and some intermediates and something else, but on the innovative side, it takes time for any changes or any new things to come and have tangible results. When we came back from the [ decatch ], the feedback from there is, yes, we are thinking of moving away from China and all that stuff. But that's the same thing, when they have to implement it. If it's a regular product for buying in, what we call regular, intermediary or so that is much easier for them. But when you're going for the innovative product and aligning, it takes time. But it is a positive side and the time will tell when those things will come. I think that is a good overview. In the long run, yes, it will be good. But right now, what I was telling you is we might say that the COVID-related activity moving into the regular activity with [indiscernible] with more traction of the new projects, but that will begin a little bit slow, but it will come.
As you know, [indiscernible], they were saying about moving towards India, similarly the [ decatch ] and also, [indiscernible] so I think it will come, but for a general purpose, for the industry sake, yes, it will come, but it will take time, especially the states where we are in, it will have a long-drawn effect and when once it starts, yes, it will have a good -- and years to come, it will be very good.
Did you share a number that if we remove the COVID portion from the base, what will be our growth for FY '23? Did we share that number?
No.
Can we share that number, sir, if it is available.
Well, it is not like -- we said earlier, it was about INR 120 crores, what was there in FY '22 Whether, it will be [ weighted ] because it may not be...
And I already told that percent is less because of that already in the CDMO revenue of the pharma that's only thing I can tell you.
Yes. Rather than we were [ even able to ] specifically perform the customer itself in the conference call and make very easier for us to maintain that because of the confidentiality what we have with out customers.
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 of 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, not the cost itself, more or less this will be compensated itself, [indiscernible] business we're in, except 1 or 2 places we may not be able to get the compensation. So when it goes down, naturally, the price to the customer also will be [indiscernible] and it will go down. So we hope to maintain the sales margin. But based on that, I don't think you'll have any improvement in the margins. The only reason is not able to have the things [indiscernible] somewhere else and high prices in -- sometimes it's affected. But in general, the trend is good now. The availability is good and the price is also stable. Prices of raw materials is also stable.
[Operator Instructions] The next question is from the line of Chirag Dagli from DSP BlackRock.
Our 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 I said, if it is a dramatic change, there should have been an improvement in the, what do you call the, sales revenue of the CDMO Pharma. As I said, year-on-year, it is 10% less than the last year's. So there's not an improvement. And whatever the decrease is because of the -- mainly because of the -- some of the molecules used for the COVID are not repeated during this year. That's why the slow there.
The 10% is lower because of that COVID not coming through is what you were saying.
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 pharma will not be there, we are not working with any biotechs. So I'm not aware of that. I can see the trend as far as the big pharma is concerned. But the only thing is the changes on the COVID-related activities to the regular activity, so we thought it will be a fast track, but it's coming slowly. But I think we see the way we people are talking and all that stuff. And a couple of quarters from now, it should come back to the normalcy and maybe fast tracked also for the regular items.
Next question is from the line of Pranshu Jain from [ NewMarkets ].
Am I audible?
Yes, you are.
Yes. So I was needed some guidance on the coupon offer that you referred. So when you are expecting the process to get completed?
That's not in our hands. It is based on the regulatory approvals that has patents. When the regulatory approval takes place, I think they will announce the date. I think it will be within [indiscernible] their launch due after regulatory approval comes in. I think we are still waiting for that. And that will be related to you through notification as and when happens. Right now, we don't have an idea. But our thought process is it should be happening before August 26. That's the [ launch ] start date.
Next question is from the line of Varun Dang from [ Bernstein ] 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 -- how could it impact our business, especially the commercial terms that we have with innovators.
Commercial terms is based on the molecule, the molecules are based on the milligrams to milligrams.
The value that brings the molecules, if you see good old days, you have 1,000 metrics tons, 2,000 metric tons. But in this innovative last 10 years, if you see, very rarely you see any volume-based molecule. Everything is 40 tons for whole year, 50 tons for whole year or something like that, other than one or two, so I don't see any difference on that one. It will not affect anything because what we are saying is what we are giving is the number of steps we do, the difficulty of the steps that involve the specialty or the chemistry, all those things will get you the pricing, not the volumes.
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 KSMs 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're not estimating any milestones because of the COVID, it was delayed. Not only they started coming into India for our -- the customer after for 3 years of gap, I think. It will take time. And even when they start, it will take 3 to 4 years for any new opportunity to come in other than the regular products which are going into the next step or next step. So that is a different department in the same company, it's still like second management. So they have to do due diligence and do all the validations and all that stuff.
So it will not be an overnight type of scenario, but now it is starting back again because there was a pause for a couple of years, actually supposed to be done in 2019 and we couldn't because of the COVID. And actually last year I though they'll start coming in, but still they are not showed up. But this year, we see 3 or 4 [indiscernible] they have just started coming in, and we hope that things will start accelerating so that we will have an opportunity to sell ourselves on various aspects of what we are talking about.
Can I ask more questions?
Sure sir, please join the queue again. We have other questions pending in the queue. The next question is from the line of Saurabh Kapadia from Sundram Mutual Fund.
Sir, how is the innovative situation in the CDMO specialty chemical, given the some climate conditions, the innovative overhang at the inventors level.
Yes. The second quarter will be a little bit soft. That's what they claim to be because they may be differing the orders and all that stuff as we drop to -- I mean, slightly drop and all that stuff. So -- but post that, it should come back to normal. That's why I said a little bit soft at this time. So quarter-on-quarter basis, not there but year-on-year basis it will match, that's what I'm told.
So is it the case for all the molecules in the spectrum?
Not all the molecules, some of the molecules.
Okay. And sir second question...
It is one molecule only.
Okay. And the second question, the CDMO pharma. So if you can give your pipeline for Phase III and Phase II molecules. Number of molecules in Phase...
We have 5 in the Phase III right now and for 3 molecules we have to contemplate what we have to submit right now. But still [ in Phase III ] we do not have the visibility as of now from the customers about when it is going to be moving into commercial, as it happens we will be able to inform.
Next question is from the line of Pratik Kothari from Unique PMS. 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 is still sounding the same.
Maybe now?
Yes.
Sir, my first question is on Cohance. 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 that.
This is regarding Suven Pharmaceuticals, nothing has been [indiscernible], but I cannot tell you anything on somebody else's numbers here, please excuse us.
No, sir, I understand that. But when we made this announcement, we also were off to -- we're thinking that we'll get someone from Advent sometimes on the call because for an existing shareholders ultimately what will matter is...
Let me tell you something, it's an ongoing process, nothing has been changed. Suven is run by the existing management. So nobody will be coming from other side until the transaction takes place, period.
I agree on that point, but fine. Sir, my second question is on the pharma. Usually, we always say 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 chemicals. 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 visibility is only -- this is very beginning of the year. We have visibility of 4 to 5 months, and everything is as usual, like last year, nothing different. Only I said on specialty chemicals because there will be some softening in the next quarter. We just mentioned that stuff, otherwise everything going on in the same manner as last year.
Sure. And sir, my last question on Casper, have you started any commercialization there or not yet?
What is that? Yes. Casper, one product has been launched, and we are expecting other approvals sometime in July and August, September timeframe..
Sir, how many molecules would we be launching this year?
In Casper?
Pratik, sorry, we are losing your audio.
Yes, it's 5, we have approved and we are waiting for the [indiscernible] for the next 4 to 6 months.
Next question is from the line of Rushabh Shah from o3 Securities.
I had a follow-up question. Sir, if you could, the formulation business which is [indiscernible] for the pharma business, which is also a bit lumpy business, shouldn't that be very...
Rushabh, sorry, your voice is not coming clearly. Can you please talk through the handset?
Am I audible now?
Yes.
Sir, for Suven, when we make the intermediates or the molecule post receiving the project, or directly start with Phase I, then come to Phase II and then lookout 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 innovative molecules when you get into Phase I and with the molecule supply in the Phase I supply and if it is successful in the Phase I, it goes to Phase II, you get repeat of business. And when Phase II is successful in the clinical trials then you get to Phase III supplies. And if the Phase III is successful, then you get the commercial launch supplies. That's the way it works. There's nothing like that, but there's no guarantee that the molecules that we entered, everything will go into the next stage, which is a mix and match that we see. We have done more than 980 projects over the years, then we have only 11 commercialized ones. This is a mix and match [indiscernible]. There's nothing like you don't go in Phase III directly to the customer. We don't, because it has to start at least to minimum Phase II, after that they will not change any customers. On same customer, we will be supplying same products. They will have 2 or 3 sources for each molecule, each intermediate to their sourcing, that's the way it works in innovation.
Sir my last question is, sir, how are we different from our competition, let's say a big player like Digi's, how do we manage with that. How do we compete with the player who is operating at such a big scale.
It is not a big scale. 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 innovator does not go and starts 3 Phase I molecules with 2 different companies. If they come to Digi's, they go to Digi's only. If they come to Suven, they come to Suven only. And after that we [ refactor ] the molecules and based on that, the repeat business comes. There's nothing like a competition that way. It is not the volume of the business that comes in. It is only the commercial level that they comes in. In the generic space that comes in the picture. Otherwise, it is the evolution. I mean the process that takes through the clinical trials and the [ results ] of the clinical trials will be [ giving the ] business opportunity for us.
Next question is from the line of Gokul Maheshwari from Awriga Capital Advisors.
Sir my question was that we spent INR 285 crores in CapEx in FY '23. Can you please elaborate in terms of what were the areas where we spent this CapEx on?
It's mainly the pre-spend block in Suryapet, bulk of the money goes there. The remaining are already balancing equipment and all that stuff.
Okay. And the CapEx for the R&D move is that is still under working...
[ That has not ] happened because this is only -- proactively, we are taking the permission from the Board. As and when the government asks us to move, we need to be prepared. That's why we've taken. And as of now there's no new issues but it can be -- it is imminent it will happen some time soon. I think it is all depending on the pharma really being ready for the operation. I think that time [ that issue was ] that you need to move, from that time we had 2 years time at least.
Okay. But on the replacement of the equipment or the 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 and the old blocks are rare, which is regulatorily you may not meet and also the structurally may be a problem, safety aspect is a problem. So we need to have a replacement block. So in the new process, so you may have a little bit additional capacity that comes into the picture and more than that, it will be having a regulatory and automation and productivity-related but where it will also accrue to us, but not substantially, mind you it is a replacement, but with benefits to it, so that you can take more projects.
Okay. Great. And just on Casper, 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 formulations for them as well?
The Casper facility is only formulation facility it's not a [indiscernible] facility. We can ask for R&D services to anybody and if they're interested in getting it that is their forward integration and also life cycle management is a different space. That's what we are looking for. Not only in Casper, but also it is true in for [indiscernible] side, we have the same facility, so we can do that, too. So it is not just -- I mean it takes time for the customers to come and do that, but in Casper, you cannot do the APIs or intermediate, only formulation and R&D.
Great, sir. Great. And lastly, just on the Phase III molecules. You mentioned that there is no visibility of them moving to...
Yes. Now there is no indication that any are -- within the striking distance because unless the results are out, we will not be able to talk. So right now, we don't have any guidance on that.
[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 year ending March 31, 2023. And as we've said, it is too early to give us any guidance other than that pharma times are going good at this time. And the traction is a little bit slower in the new project execution, but we hope that based on the conversations we had at [indiscernible] we're likely to get that in the third, fourth quarter hindsight. The speciality chemical side, I mean there will be some small deferment of shipments and because of the climate conditions elsewhere and that will come back in the third or 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 tune in into the results update by next time in August. Thank you, all in all.
Thank you very much. On behalf of Suven Pharmaceuticals, that concludes today's conference. Thank you for joining us. You may now disconnect your lines. Thank you.