Cohance Lifesciences Limited (SUVEN.NS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to The Suven Pharmaceuticals Q1 FY '22 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 '22 earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, the Chairman and Managing Director; Mr. Venkatraman Sunder, Vice President, Corporate Affairs; and Mr. Subba Rao, the CFO of Suven Pharmaceuticals. 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 now request Mr. Jasti to share his perspectives on the performance and outlook. Over to you, sir.

Good morning to everyone. Thanks for tuning in for our Q1 fiscal '22 results update. As you know, as mentioned in my communication, that the things are moving smoothly even with some kind of problems like logistics and some raw material increases and all that stuff. And on a year-on-year basis, even though there is a 10.5% growth in EBITDA, but profitability is flat. It's mainly due to the additional cost due to the increase in some of the raw materials and also the logistic problems and the doubling of the transportation costs. And also this quarter, we also had the yearly increments for the employees. In addition to the product change mix, which also plays a part in the profitability, and that is in general. The consolidated has gone up by 15% on the profitability side. And that's mainly due to the rising contribution, additional contribution. And as far as the CapEx is concerned, the old CapEx of INR 305 crores so we have almost spent about INR 310 crores, another INR 10 crores will be spent this month -- this quarter. And we had to capitalize about INR 100 crores of the -- for the projects, which will be done before, I think, September. So that the old would be completely consumed. The new CapEx of INR 600 crores is for 3 years. And we just started the activity and finalizing for one of the units we have paid all the drawings and all that we started spending some money this quarter. So nothing much in the last quarter. So as I said, the INR 600 crores will be spent over a period of 3 years. And I will give you an update the next time, we'll start this, what you call, the progress of these projects. And in the formulation side, there are 13 total filings. Out of them, 7 are approved or 6 are launched. And 7 ought to get -- I mean -- I mean 6 more to get approved, and if then approved, we'll be launching. And 2 to 3 will be launched within the next 6 months. In addition to that, we'll be filing another 4 to 6 compounds during the year. And customer interactions are still on the Zoom-only mode. There is no direct contact, but the progression of the molecules that are in the pipeline are going good, even though not much incremental thing is happening on the incoming projects, but things are going good. And do we expect doing 10% to 15% growth overall for the year fiscal 2022 compared to last year. So I think I'll stop at that, and I will take questions so that I can answer in focused way. Thank you.

[Operator Instructions] The first question is from the line of Piyush, an Investor.

So this is the earlier investor. I have been investor in Suven for last 12 years, this year will be12. Obviously, they journey has been fantastic over the last so many years. And I've seen this company from a very conservative company to a very aggressive company, transforming itself in the last 3 to 4 years. So all well done. I just wanted to check one thing, Mr. Jasti, I think this company is still sort of a single man show, which is you. Now I know your daughter has taken over the U.S. operations. So I wanted to check with you what is the succession plan at Suven? Have you drawn out any plan for that?

Yes, Piyush. And we are looking for actually -- we have new management to come into the picture. We are in the plan. And because of this COVID, the movement also curtails. We thought of taking a COO, which she cannot move from U.S. to here. And we are also looking at professional CEO to run this place, and it's hard to get people with the long-term vision and all. And I think another 3 to 4 months, we'll have a pretty good plan because there is a favorable thirst any way. We need to have the new -- an Executive Chairman, Chairman, CEOs and all that stuff. By that time, I think we will have somebody in place that is our plan as of now. But nothing is settled yet.

The next question is from the line of Aejas Lakhani from Unifi Capital.

Sir last time, we were informed that there are about 3 Phase III candidates in pharma [indiscernible] and 1 of them could see a commercial launch in the next 12 to 18 months. I want to understand the -- I mean, any incremental updates or does the status remain?

As of now, no information from the customer that these are ready for a launch or anything like that because still they are waiting for the basic -- I mean it's not finished yet. And I think it will be -- last time I said 12 to 18 months, it's now been only 3 months since we talked. So it can happen, but we don't know yet because usually we know around 6 months ahead of time. But so far, we have not heard anything be moving forward.

And Sir, any new addition to Phase III from your Phase I -- I mean from your Phase II segment, has there been any new addition to Phase III?

Yes. I mean some of the compounds moved into the Phase III, and we are not sure -- I think it will take at least 24 to 30 months before we can see any activity. Two of the compounds we have moved into the -- but the same indication with 2 intermediates has moved into the Phase III.

Got it, sir. So on the spec chem side, you had mentioned last quarter, one new launch took place. I mean one new commercialization took place last quarter and another one is in the development phase. Any updates on that, sir?

Development takes at least 2 years, at least 2 years. So it's nothing -- if everything goes well, it may be end of 2022 for the new one.

So the new commercial opportunity that we had from last quarter, do you see that to -- I mean, that to grow well in order to have a growth in the spec chem segment or could it be a really flattish year for the spec chem segment?

Yes. I think the maybe, as I said, around 5% to 10% growth is possible with this new addition because the first one is generic one, now so you need to take cognizant of the fact. So certainly, it will be in the same range, but there is a possibility for 5% to 10% growth in positivity.

Okay. And sir, on the ANDA side, just a clarification. You said that you would look to find 4 to 6 new ANDAs this year. Is that right? Is that the target?

What I -- 4 to 6, we'll be filing new ones. In addition to the already filed.

New filings -- further.

Right.

Anything has been filed in the first quarter?

No, not yet.

Okay. Got it, sir. And lastly, on the Rising Pharma, do we have any specific updates because this quarter, the profitability has been quite high. So is there any updates? Do you see the same trend continuing for this year?

I think it's very difficult to tell that the business. But as and when it comes in, we'll take it into consideration. But in general, it looks good, but it can change quarter-on-quarter. Sometimes low in one quarter, it may go up, but in the next quarter, it may be slight down. But year-on-year, yes, there is a still growth, about 10% to 15%.

Got it, sir. And on the CapEx, I mean just to -- I mean, the line was a little blurry initially. So out of the INR 600 crore CapEx, the first phase will have INR 300 crores. Is that the plan, sir?

The INR 600 crores CapEx is just started in the sense that it's for 3 years. And one of the plans we have finalized with all the plans, and we have started implementing this quarter only. So it will run about 12 to 15 months at least for this one. The second one will be initiating in another 4 to 6 months now. Similarly, then certainty, total INR 600 crores will be spent within 36 months.

The next question is from the line of from Abdulkader Puranwala from Anand Rathi.

Just wanted to confirm, in your Phase III, now there are 5 molecules or there are 3? On the 2, what you're discussing -- was something -- what you mentioned in the last call as well, or this is apart from that?

This is additional 2 intermediates for the same molecule. I mean, molecule, end product will be one, but there are 2 separate intermediates, I'll be making it. That is the word we have received the order. And we'll be supplying them.

Sure, sir, understood. And sir, can you throw some light on the earlier CapEx what you've done on Vizag plant. So what are your plans and by would we see the Vizag unit start contributing to the top line?

It is already contributing since 2015. And as an additional blast we have done, that also -- half of it is capitalized and already started contributing with the ADME product coming in and some of the intermediates coming in. So it's already contributing.

The next question is from the line of Cyndrella Thomas Carvalho from Centrum Broking Limited.

Sir, I just want to understand, you mentioned in the [indiscernible]. Can you just help us understand how is the view right now.

Sorry to interrupt, Cyndrella, your voice is breaking up.

Is this any better? Yes, so sir, regarding opening remarks, you highlighted that there have been some inflation in the costs, which have kind of impacted this quarter's margin. So what is the view over there right now? Do you see them coming off? We understand that there are higher logistic costs around. But what is the sense that we have as we proceed in this quarter and going ahead?

I mean there is still continuing this problem with this -- not only the costs gone up, but also the availability of the [indiscernible] is another problem. It's taking time to ship the materials. I mean we have more inventory lined up with us. And the [indiscernible] prices also on and off going up. And of course, as [indiscernible] has -- roughly about 15% of total -- I mean it is not attributable to one, it is more than one compound. So these are not -- I mean, they are in the same range, but looks a little bit better now. We continue with the -- we've got the vessels available. And similarly, some of the raw materials also coming down, too, a little bit. The problem is these things which we've got, guess estimate because one shortage in China, even in small supplier is increasingly price by twofold or threefold or sometimes fivefold. So that's where we are getting into trouble. And that's part of the things, but it is continuously, then we can ask for the customer to help us. But if it is going on or off it is part of -- then it is really difficult other than to observe the cost. That's what you have seen that's why the profitability is almost flat.

That's very helpful, sir, we understand because I just wanted to understand your sense that how is this progressing. And sir, just on the gram side of our business, we've been doing exceedingly well. And you mentioned about 2 more incremental intermediate additions in Phase III. Do you see any -- in terms of our position, in terms of our market share going ahead? Or are relations are market share. Our relations are helping us gain more contracts. How should we look at it? Because this business is performing well ahead of our expectations. It did well last year also, and it continues to perform well.

Yes. I mean, as I said, the traction is much better compared to the old days, but at the same time, as you know, the success of the molecule in the clinical trials gives us the more revenues. Just because the number of products available doesn't mean -- I mean, it needs for us to have a growth, and I have no doubt about it. But mainly, the success of the molecule is the one that gives us the growth and the continued growth when it goes launching. When it comes to the customers, yes, they're all there and they're and they are -- based on there -- see what happened is if you see last 1 year, this COVID situation has changed some of their plans. Everybody is repurposing some of their pipeline molecules and concentrating more on the COVID. Even then, the existing pipeline is giving us a good traction for us. That is why it could be successful in getting that growth or whatever. I mean, it's not a big growth like other companies, but still we are getting the growth. So when will this change, when the new other things will come. I mean, when it comes also, there will be a gap of 2, 3 years before you see any revenue -- good revenue growth. Until that time, it is going to be a 10% to 15% growth. Yes, I see the traction, and hopefully, this COVID will end and then we'll have many more outside of -- projects coming out of the COVID situation other than...

We move on to the -- That is from the line of Sanjay Satpathy from Ampersand Capital.

You have given this segmental performance in which the only segment that has seen a decline in your specialty chemical. And this is a segment where you had actually launched a new product in the fourth quarter. So now you have given some explanation. Can you please help us like why despite a new product launch, you're not really that positive about that segment?

I never said I'm not positive about it. But the one thing you have to understand is a molecule, which is there for the last 15 years, now become an generic. And if that does not grow, that's why we're saying it's a flattish growth. When you are adding a new product, these are the very niche molecules. It's small volumes only. So you don't get day 1, by the time it gets the market potentially, it takes 3 years at least before the true potential of the molecule comes. And we launch -- launch means you don't get all in 1 quarter itself. So it will be spread over a year we have applied. So as I said, if you take into consideration a new addition and also take into consideration the generic -- a slowdown on that. We are still there saying -- certainly the same number or at least the 5% to 10% positivity is there. So we are not negative on it. It is a fact. It is the way the cycle runs.

Understood. And sir, it looks like your guidance factors in much better kind of prospect for your CDMO business, which possibly is your most profitable segment. And on the back of that, you have given the guidance that your margin should be stable in fiscal '22, though one could probably expect some kind of a positive surprise, but you have given some comments about the cost structure. My question here is that will the traction in the CDMO have something, which will help it sustain the growth for a couple of years to come. And the other thing is that with your capacities, which you have put in and the generic issue, which is behind you, so can we expect your growth momentum to accelerate after fiscal '22?

It's always a possibility. Even it can happen in fiscal '22 also. See the thing is it's all the success of the molecules for which we are applying intermediate at the clinical trial level. That gives us the growth. And if more projects move into Phase II to Phase III and Phase III to launch, that will already certainly give you a leg up and that will certainly the continued growth in the CDMO business. And we expect with it better traction. Even though the growth will be less in the beginning as the success of the molecule in the clinical trial is positive, then your growth is much, much better. But that you can add, this is a 0 to 1 game and the discovery, development, the -- until launch, we cannot tell anything. It's only the hope. Based on the hope, I cannot give a guarantee.

Understood. So just to kind of point out that after March quarter result, you were not really willing to give a guidance and now have come up with 10% to 15%. Hopefully, by end of quarter 2, everything will be fine and we will -- and we'll hope to see much better commentary about growth.

Hope so.

The next question is from the line of Darshit Shah from Nirvana Capital.

And a good set of numbers in this kind of environment. Sir, my question -- I was not very clear. You said we are planning to get a COO from U.S. and also a new CEO to join in next 4 to 6 months. Did I hear it correct?

I did not say next 6 months, they will be joining. I said you will have an idea where we are in search of a CEO and the succession planning. And that's what our intent is. We are working hard. And hopefully, by the next 6 months, with COVID also changes, and then we have many more opportunities in planning properly, including a professional CEO.

Got it, sir. And another question in respect to our transition, which we spoke earlier from intermediates to API. So sir, how is the traction going on there? Is there any incremental thing that's being admitted there?

Actually when I said this a couple of years ago, it takes 2 to 3 years before you see any opportunity comes in this picture because they have to do a lot of diligence and validation by different departments because there are different requirements even the same companies. But unfortunately, the last 1.5 years, nobody is coming out for this kind of things actually to take place. They have actually physically come down and visit you and interact with your people and see facilities and all the stuff. Even though we are there with them for a long time and supplying lots of intermediates. But this is a different ball game and different people. So it's not going fast, but at the same time, the discussions are going on. Some paperwork is being exchanged and all that stuff, but it's not as we thought it will happen, but it's going into a positive direction anyway.

The next question is from the line of Sonal Gupta from L&T Mutual Fund.

Just -- I mean, like you mentioned in your opening -- in some of your comments that basically you've got 2 more intermediates for the same molecule, which is in Phase III. So -- I mean, can you give us what are the total number of molecules that you have in Phase III?

5.

I'm sorry, sir.

5. 5.

5 molecules Okay. Okay. And sorry, I didn't catch it clearly. So our full year guidance is for 10% to 15% revenue growth for the year?

Yes.

[Operator Instructions] The next question is from the line of Sapna Jhawar from Dolat Capital.

So I wanted to understand that -- of the so many chemistries that we work, which are the ones that we have the expertise, and there are no competitors that can beat us in terms of processes where we have a competitive edge. If you can name those or highlight our positioning over there. And if -- whether we have added any newer chemistry-led technology in the past few years through which we can attract new customers, be it in the CDMO or the spec chem segment. And I do believe that in the last few con calls, you have also alluded to something of green and clean technology. Is that right? And have we done any -- have you taken any initiatives on that front?

Yes, I'm still these...

The question is that technologies, our chemistries. What are the specials?

Yes. Okay. As you know, we are not specializing in any one chemistry because we do everything in a campaign basis. And I think the number of projects we do, nobody else will do because like APIs, they'll be concentrating 10, 15, 20 APIs. But every month, we have 5 new processes who you'd be doing it, except for oxidation and fluorination, we dabbled into each and everything. I cannot say I'm a specialist in only one technology like a flurin and anything everything like that. But we are specializing in each and everything from a gram level to the kilo level to the multi-tonne level. Only the opportunity comes in when the success of the molecules that have been submitted into trial. So I'm not a specialist in anything, but we do each and everything except fluorination and [indiscernible], we have dabbled in this chemistry. And with respect to the new technologies, we are in the process of developing new technologies for the existing molecules using the flow chemistry, so that it will be an environmental friendly and also safety aspects that we've taken care of. That is what we are trying to do. And hopefully, we'll have some success there.

Sir, any specific guidance, how much investment will go in these newer technology development?

It's not that much necessary matter. It's only a part of the activity, which we need -- so we are doing that. And we'll be spending about, in this new, what you call, this new CapEx, out of that INR 50 crores is allowed for this new technology.

Understood. Sir, another question on the CDMO pharma space now, we do have approximately some 3, 4 molecules, which are commercialized over here. Can we get a sense or a division that how much revenues are coming from our commercialized set of molecules and what portion that comes from the pipeline in under development molecules? And also, is there a factorous seasonality we have seen in our commercialized molecules at a particular time in the period where the offtake is much better?