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ICICI Securities
Suven Pharmaceuticals (Buy)
CMP: ₹470.6
Target: ₹690
In accordance with Suven Life Sciences (SLS) management’s endeavour to split its innovation and CRAMs businesses, the company had announced a demerger of its CRAMS business in January, 2020 to be held by the demerged entity, Suven Pharmaceuticals Ltd (SPL), while SLS will continue to hold the discovery research segment and IPs. Subsequently, SPL shares got listed on Indian bourses on March 9, 2020.
Valuation & outlook: Post de-merger, the pharma business will be largely driven by two cash cow segments, that is, innovative CRAMS and speciality chemicals. With strong margin profile (+40 per cent) without the R&D burden of innovative pipeline, the free cash flow is likely to remain strong. Despite pandemic and high base, the company has guided 10-15 per cent growth based on strong order book position (albeit some expected delays). Despite a significant run up there is still scope for upside as the company is still trading at significant discount to some leading players in the space dealing with innovators.
We emphasise on the strong execution capability and focused approach without the burden of success/failure of the innovative pipeline. We have a ‘buy’ rating on the stock with a target price of ₹690 based on 20x on FY22 EPS of ₹34.4.
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