Geojit Financial Services has given a hold recommendation on Suven Life Sciences with a target price of Rs 291.

Shares of Suven Life Sciences closed at Rs 268.05 on 29 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

As per the brokerage, Contract Research And Manufacturing Services (CRAMS) constitute 60 per cent of the total revenue in FY19 with the management expecting the sector to witness 15 per cent-20 per cent growth in next year.

In CRAMS, they did around 84 commercial brands in FY19 and secured 12 product patents during the same period while speciality and contract technical segments witnessed a 15 per cent/25 per cent YoY growth. On an annual basis the speciality segment grew by 40 per cent (against de-growth in FY18) due to a new addition with one more expected to be added in FY20. They are presently working on 8-10 formulated products, which is predicted to be reflecting in the numbers post H1FY20.

Revenue and PAT grew by 22 per cent and 9 per cent, respectively, in Q4FY19, while on a yearly basis the revenue grew only by a marginal about 6 per cent and PAT de-grew by 5 per cent. Ebitda margin also shrank by 200bps (Q4 against Q3), and about 348bps (FY19vsFY18) which is primarily attributed to change in product mix and subsequent increase in raw material cost.

Besides, they are also investing in Shore Suven Pharma, Inc., USA through Suven Pharma, Inc., for a sum of $35million whereby securing a minority stake.

“We are not factoring any revenue from this entity in FY20 based on the guidance given by the management,” the brokerage said.

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“We forecast sales and PAT to grow at a CAGR of 12 per cent and 11 per cent, respectively, (FY19-21E) and increase revenue estimate by about 4 per cent and 5 per cent, respectively, for FY20/21. Considering the low momentum in sales & PAT growth we downgrade the rating to ‘hold’ from ‘buy’ on a multiple of 20 times with a revised target price of Rs 291,” the brokerage added.





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