One of our investment theses is to look for businesses with very strong core operations and lots of optionality. By optionality, we mean Low-cost mistakes, with known maximum losses, and large potential payoff.
The good thing about such cases is that while the downside is limited (if bought at the right price), the upside can be huge in case the company gets lucky with some of its projects.
Based on the above theses we initiated a coverage on Suven Lifesciences (NSE: SUVEN) for our Premium members. The report was initiated around 175 odd levels and it is also part of Model sheet..
Recently, the company posted very good set of results for Q2 FY 20; however what is important to note in case of SUVEN is that it’s sales tend to be very lumpy and therefore one should never make the mistake of extrapolating a good quarter’s performance.
In fact, it’s one of those companies which is more likely to provide a good buying opportunity after a bad quarter than a good one.
Our detailed initiation report on Suven Lifesciences can be accessed below:
(Initiation note shared on 28th May’17)
Promoted by Mr. Venkat Jasti, Suven is one of the very few companies in India focused on new drug discovery on its own and in partnership with several innovator companies.
The Hyderabad based company basically focuses on CRAMS (contract research and manufacturing services) and assists global innovators in drug development by supplying intermediates for relevant new chemical entities (NCEs) during the clinical phase of drug development. The projects undertaken by the Company include process research, custom synthesis and intermediate manufacturing.
Since inception the company has worked on more than 750+ projects and is partner of choice for several global innovators like AstraZeneca, Pfizer, Bristol Myers Squibb, JnJ, Merck, Sanofi, Novartis, etc.
Besides carrying out research and manufacturing activities for global pharma majors, the company also has a strong focus on its search for new CNS (central nervous system) therapies. It is leveraging its strong research capabilities to develop NCEs in this segment, of which SUVN-502 focused on treatment of moderate Alzheimer is particularly promising.
We are looking at Suven from long term investment perspective as drug discovery in itself is a very long cycle. As explained in the business section below, we believe movement of only few projects of the company to higher phases or to commercialization phase can result in substantial increase in sales of the company. Also, while new drug discovery has very low probability of success, more so in the case of CNS, we believe there can be good upside if the company’s SUVN-502 is able to successfully move to Phase III of clinical trials.
What is also pleasing to note is that management is not overly promotional of the business and likes to give very conservative guidance. Further, they do not capitalize R&D spends and do not intend to borrow for carrying out clinical trials.
At the same time there are a few concerns like, reducing R&D spend by global innovators, revenue concentration with ~40% revenue coming from supply of intermediate to one customer, huge spend on R&D by the company on new drug discovery for CNS and lastly difficulty in assigning a value to NCE business.
Disclosure: The above note is for educational purpose and not an investment advice. I have personal investment in the stock and the same has been recommended to clients as well. I have not traded in the stock in the last 30 days.
Positive – Expected return of ~15% + on annualized basis in medium to long term for investment recommendations and in short term for Special situations
Neutral – Expected Absolute return in the range of +/- 15%
Negative – Expected Absolute return of over -15%
Coverage closure – No further update on the stock
% weightage – allocation in the subject stock with respect to equity investments
Short term – Less than 1 year
Medium term – Greater than 1 year and less than 3 years
Long term – Greater than 3 years
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected] Ph: +91 727 5050062
Analyst ownership of the stock: In Suven Lifesciences
Details of Associates: Not Applicable
Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.
Disclaimer: www.katalystwealth.com (here in referred to as Katalyst Wealth) is the domain owned by Ekansh Mittal. Mr. Ekansh Mittal is the sole proprietor of Mittal Consulting and offers independent equity research services to retail clients on subscription basis. SEBI (Research Analyst) Regulations 2014, Registration No. INH100001690
The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision.
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This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.
We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.
Disclosure (SEBI RA Regulations)
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – Yes, investment in Suven Lifesciences
Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No
Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No
Whether it or its associates have received any compensation from the subject company in the past twelve months – No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No
Whether the research analyst has served as an officer, director or employee of the subject company – No
Whether the research analyst or research entity has been engaged in market making activity for the subject company – No