COHANCENSEQ4 & FY22March 31, 2022

Cohance Lifesciences Limited

6,811words

133turns

16analyst exchanges

1executives

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Management on call

Venkatraman Sunder

Vice President, Corporate Affairs,

Key numbers — 26 extracted

rs,

r. Venkat Jasti, the Managing Director and Mr. Venkatraman Sunder – Vice President, Corporate Affairs, and Mr. Subba Rao, CFO. Before we begin, I would like to mention that some statements made in toda

10%

d it's very difficult for us to project anything in the future. As usual, we are able to maintain 10% to 15% growth. But there is always a possibility that if some of the molecules which are in phase

15%

very difficult for us to project anything in the future. As usual, we are able to maintain 10% to 15% growth. But there is always a possibility that if some of the molecules which are in phase two, mo

Rs.84 crore

cheti: And so on your total formulations and technical services, what I see the number is around Rs.84 crore. Out of that Rs.84 crore, how much is just formulations sales and your other technical services if

40%

n-year. But at the same time, we said last time, and I'll continue to keep that same number around 40%-plus EBITDA margin, and surprises can happen in the positive side, but around 40% is what we hope

Rs.525 crore

cash and investments which lies in our book, including the mutual funds, so that is roughly around Rs.525 crore and I understand we are spending Rs.150-odd crore in cash spends Rs.60 crore as dividends you are

Rs.150

ncluding the mutual funds, so that is roughly around Rs.525 crore and I understand we are spending Rs.150-odd crore in cash spends Rs.60 crore as dividends you are going to distribute. So, is there any o

Rs.60 crore

t is roughly around Rs.525 crore and I understand we are spending Rs.150-odd crore in cash spends Rs.60 crore as dividends you are going to distribute. So, is there any other plans to utilize this cash apart

Rs.350,

e not thought of anything on that. Darshit Shah: Because we'll be obviously generating another Rs.350, 400 crore kind of operating cash this year itself, so you just want to kind of pile up on the exist

400 crore

ought of anything on that. Darshit Shah: Because we'll be obviously generating another Rs.350, 400 crore kind of operating cash this year itself, so you just want to kind of pile up on the existing cash

41 million

we have, I don't want to go on a shopping spree. Darshit Shah: On the Rising sale, where we got 41 million, so that's roughly Rs. 310 crore in our subsidiary, so has that money being kind of back in our Co

Rs. 310 crore

a shopping spree. Darshit Shah: On the Rising sale, where we got 41 million, so that's roughly Rs. 310 crore in our subsidiary, so has that money being kind of back in our Company or is something still lyin

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Guidance — 20 items

Venkat Jasti

“And the dossier is while USFDA is under progress and waiting for the USFDA inspection and 15 more will be filed during the fiscal.”

Venkat Jasti

“And, in CRAMS, it is not a guaranteed stuff until it goes to the next level in the clinical trials, and it's very difficult for us to project anything in the future.”

Venkat Jasti

“So, as it is, this was a good growth last year compared to the year before and we hope to maintain the same plus around 10% to 15% growth as of now that is what we expect.”

Rashmi Sancheti

“What I understand that there are five commercial products in the CRAMS business, is it that the fifth molecule has started, I mean, it's all started supplying from Q4 onwards, then are we not going to see a good ramp up in FY23 and FY24, then your guidance looks a little conservative?”

Venkat Jasti

“We're always conservative, but not knowing what is going to happen in the market, because this is all the PAS model, not a generic where I can use some kind of a guidance.”

Venkat Jasti

“And we hope to maintain this plus about 10% to 15% growth as we expect on a broad-based activity.”

Venkat Jasti

“Technical services is very meager; it will be less than 10%, rest of them are all formulations sales and the profit share.”

Rashmi Sancheti

“So, what is your outlook over there, are the gross margins that is currently been reported going to sustain or are we seeing that further there will be some downward element to it or you think that things are improving from here on?”

Venkat Jasti

“But at the same time, we said last time, and I'll continue to keep that same number around 40%-plus EBITDA margin, and surprises can happen in the positive side, but around 40% is what we hope to keep it as a guidance.”

Venkat Jasti

“It is only we have performed, doesn't mean that it will be the same product mix.”

Risks & concerns — 6 flagged

And, in CRAMS, it is not a guaranteed stuff until it goes to the next level in the clinical trials, and it's very difficult for us to project anything in the future.

— Venkat Jasti

So, that's why we had to be conservative and maintaining that itself is a challenge in the CRAMS business model.

— Venkat Jasti

On gross margins, we are also seeing inflationary pressure on the raw material prices.

— Rashmi Sancheti

So, the opportunity which meets the requirements, I don't want to go to a mom and pop operations where I drag my margins down, just for the sake of top line growth.

— Venkat Jasti

So, it's very difficult for us to give you any guidance.

— Venkat Jasti

I think it is a very difficult question.

— Venkat Jasti

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Q&A — 16 exchanges

Firstly, since we have completed this Casper Pharma's acquisition, could you talk a little bit about the opportunity over here, like what is the end market size for the six filed products and what kind of visibility we have from the future pipeline that might come from the Rising Pharma's R&D?

Venkat Jasti

At this time, yes, we have taken over this as of April '22 and now this is a brand new facility. There are two ANDAs filed and waiting for the USFDA to come and inspect for us to do the sales activity. Meanwhile, other than that, we have other 15 products to be filed within the fiscal year, ANDAs. So, as of now this is the update, I can give you because more than that is nothing else, because we have not started the activity yet, just taken the position of it and waiting for the USFDA inspection to happen, then the things will start running. Did you mention two ANDAs has been filed from this f

Sir, just a follow up from the earlier participant. What I understand that there are five commercial products in the CRAMS business, is it that the fifth molecule has started, I mean, it's all started supplying from Q4 onwards, then are we not going to see a good ramp up in FY23 and FY24, then your guidance looks a little conservative?

Venkat Jasti

We're always conservative, but not knowing what is going to happen in the market, because this is all the PAS model, not a generic where I can use some kind of a guidance. More or less, when the COVID is receding, and the growth is muted, so based on that, I do not have any visibility, I cannot tell how this is going to go post COVID. So, that's why we had to be conservative and maintaining that itself is a challenge in the CRAMS business model. And we hope to maintain this plus about 10% to 15% growth as we expect on a broad-based activity. And so on your total formulations and technical serv

On your Casper acquisition, can you share what is the outlook here, what is your plan going forward with this facility, what kind of product are you filing for the ANDAs that you said, if you could throw some more light on what kind of products these are? And what is the kind of revenue potential once these molecules come into production?

Venkat Jasti

So, as far as product is concerned, we're not going to reveal it to you at this time until it is approved. So, that's the things we do want to do it. It's is a brand new acquisition and a brand new project, it's not yet inspected by the FDA. As I said earlier, we have filed to the FDA as expected this second quarter, hopefully the inspection and we have 15 more to be filed during the fiscal year. So, this is the update I can give you, but not the products until it is approved. Just another clarification on that part. I think in your disclosure to the exchange, we had mentioned that the Casper

Sir, just one question from my side. So, we used to cater to an innovator through the Casper acquisition and we are venturing into generic businesses. I guess your thought process because you are always vocal about not entering this field. So, your purpose does it bring any change in the organization, why are we doing this? Even before the Casper acquisition, we have the formulations in the last seven years and we are not going after the blockbusters, we are going after those molecules which are very small volume, very niche molecules where not many people, which is a leverage exercise. The sa

Pratik Kothari

A couple of years back, we had mentioned in the annual report that we wanted to go higher up the value chain from intermediates to API to maybe formulations. Just if you can qualitatively highlight how are we on this journey over last week then how do we go ahead? Actually, we started with three of our customers for the forward integration and they are inclined to do. As I said, it will take two to three years before they can come on board for that kind of activity. But unfortunately, the COVID has stopped all the things, not only that, even regular visit also stopped. So, we hope during this

The cash and investments which lies in our book, including the mutual funds, so that is roughly around Rs.525 crore and I understand we are spending Rs.150-odd crore in cash spends Rs.60 crore as dividends you are going to distribute. So, is there any other plans to utilize this cash apart from the normal capex that we would be doing in Suven Pharma?

Venkat Jasti

It's only being used for normal capex at this time, but we've not thought of anything on that. Because we'll be obviously generating another Rs.350, 400 crore kind of operating cash this year itself, so you just want to kind of pile up on the existing cash flow? Just because we have cash I can't go into the market and acquire no. So, the opportunity which meets the requirements, I don't want to go to a mom and pop operations where I drag my margins down, just for the sake of top line growth. Now, we'll wait for the right opportunity and also we'll see how to utilize the cash properly rather th

Just one clarification on the products which are filed to the Casper side. In this, the margins would be identical as what your current formulations business would be?

Venkat Jasti

Yes. Secondly, sir, on the Rs. 600 crore capex plan, so if you could just share some details of where we are, and how your capex project for the next two years would look like? Yes, it's a three year plan and as I said in last concall also, just we started the activity, we need to start within the Suryapet facility and we'll be spending this money before the end of the year. And with respect to the other expansions and movement of the R&D center, has not started yet because it is not important immediately it has to be there but we have only a portion of that money, and we are waiting for the o

I have two questions. One on the taxations, this year, is the tax high because of the dividends? What is the guidance for FY23? Sunder Venkatraman: FY23 will be a normal tax rate around 25%, that's what we expect. But this year is basically because the US tax and Indian tax, including the dividend tax there, all put together it's higher, that's what it is.

Saravanan V.N.

Formulations from a yearly perspective, FY22, we saw moderate growth of 5%. So, in the next two to three years, what are the strategies here, because I think a year before we had expected formulations to be 1/3 of the revenues by FY24 or FY25, are we on track to achieve it? No, because it is taking time to get the inspections and filing also. And when the numbers goes up, naturally the volumes will go up and the profitability will go up. That's what we hope to achieve in three to four years’ time. That's what we said that it's not a guaranteed thing because it all depends on the product, becau

Just on Casper acquisition, wanted to check whether that consideration has already been paid to Casper?

Venkat Jasti

Everything is paid. It is in our possession as on 22nd of April 2022. That Rs.300 crore additional is all related to that realization from Rising Pharma, that44 million that is sitting in short-term investment, right? Yes. So, despite all this we'll have surplus cash, and very good amount of cash going forward, so anything, if you could give some color where we are going to invest it or do we have any plan for inorganic expansion or anything of that sort? No, as of now, nothing. We will be thinking about it, but we want the capitalization and capex plan, so we'll be placing it. And as I said e

One question on Casper again. Given that you mentioned that this would largely be all generic, can we expect overall some margin dilution once numbers come from this particular asset?

Venkat Jasti

As I told you earlier also, the margins will be the same as whatever we are getting here in Suven also; it will be around 25%. In terms of overall potential from that particular asset, do we have any number in mind? Not yet., We're working on the numbers because we just got it and we have to evaluate it and our concentration now is mainly with the filings and on the inspection and we'll get into that in due course of time.

I've been with Suven for the last nearly a decade. I think it was only a CDMO business then knowing Shri. Jasti ji slowly went into specialty and then the ANDAs programs and formulations. Now, I see Suven positioned itself. This is my reading. The next phase of growth with a Casper acquisition, now it's got a four-pronged strategy, it's own ANDAs as well as now Casper Pharma's ANDAs. Now, seeing the amount of workload, do you assume that you will be now looking forward to hive off or maybe branch out a particular CEO for a particular business model in due course?

Venkat Jasti

No, in every division we have a vice president who takes care of it. My job is only strategy and coordination. I don't look after any division for that matter. So, we have people, you may call it whatever it maybe but, each unit is operated by vice President who is capable of delivering goods. B. D. Vaidyanathan: This additional workload on Casper Pharma would it entail additional employees or will the current strength with Suven, will you be like dividing it between the two companies like the two plants? I think we are doing that already in the formulations division, specialty chemicals divis

My question was with regards to specialty chem. I believe you have given that you would like to grow 10% to 15% in this quarter in the pharma CRAMS business. On specialty chem, if I understand correctly, we do have a better visibility over there from the client side, and given that last year FY22 we had a molecule being commercialized, so that's why we saw 50% growth, so from here on what is the visibility that you have in the near term on this specialty chem business? In specialty chemicals, there will not be much growth. As a matter of fact your understanding is wrong, as the volume has not

Hussain Kagzi

And just one clarification was that our employee expenses in this quarter did shoot up a quite much compared to quarter-on-quarter and year-on-year. Is this attributed to the capex and we hired additional staff over there or is it the increments that is given out? Yes, it's a combination of additional staff and also additional increment due. So, I just wanted to understand that by the time our new capex comes on-line, we will have some incremental expenses on our below the gross profit, is that fair to understand? Incremental revenue also will happen, no, it is a combination, without the reven

Is it the right forum to raise question about the Suven Life Sciences?

Venkat Jasti

Yeah. So, we have been into the research for Alzheimer for almost more than a decade, but not much breakthrough has been achieved. So, just want to know as part of the research, are we also referring to the Indian medical system like ayurveda, siddha for a possible solution or we go purely by the western medical system? We are going into the central system disorders, that is our target area, we are not deviating out of it, and from the beginning we keep telling it is a zero to one, there is no guarantees in this business and since 2002, 2003 there is no new drugs developed in the CNS arena, wh

Just one more clarification I wanted. In this quarterly result, we see that gross margin is very similar to your sequential previous quarter in Q3 or even Q2 also we had a similar level of margin, although in the three quarters the input cost for most of

Venkat Jasti

chemicals and basic materials have gone up significantly. So, I wanted to understand that how we have been able to maintain this gross margins or is it any escalation clause or anything now our revenue agreement with our client? No, not the escalation clause. As I have been telling all the time, these margins can differ from quarter-to-quarter or sometimes year-to-year also. These are all the product mix that is available. So, at what stage the molecule we are supplying, is it earlier stage, the margins will be less, if it is the Phase-2, Phase-3 and commercial quantities, then the values will

Can you just give us the numbers of the ANDA filings, total approved for commercial and all that?

Venkat Jasti

We have filed about 17, 9 approved, 8 launched, but not all of the 8 are really active, that's why we do not see much growth in there and we hope to file another 7 to 8 during this calendar year in the existing formulations facility. When it comes to the Casper, which is not yet commercialized, the two are already filed, waiting for the USFDA approval, 15 products are under development and dossier preparations which will be filed before the end of the fiscal. Any qualitative comment on the next six months visibility on the CRAMS business? It is going in the similar run rate. The next question

Thank you, everyone for tuning in for our quarter and year-ended March 31, 2022, earnings conference call. During this challenging times, we could do good profit margins and with good product mix, and as I said the visibility is very less, and we hope to achieve 10% to 15% normal growth. If something happens positive, that would be good for everyone. We hope things will stay the same and we get more opportunities to bid on the new projects and new activity that will start with the Global Pharma which will increase our bandwidth also and also the success of the molecules in the clinical trial,

Management

We have edited the language, made minor corrections, without changing much of the content, wherever appropriate, to bring better clarity.

Management

Speaking time

Venkat Jasti

Moderator

Ankush Agrawal

Ranvir Singh

Yogansh Jeswani

Saravanan V.N.

Rashmi Sancheti

Darshit Shah

Vineet Gala

A Puranwala

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Opening remarks

Rishab Barar

Good day, everyone, and thank you for joining us on this call to discuss the Q4 & FY22 Earnings for Suven Pharmaceuticals. We have with us Mr. Venkat Jasti, the Managing Director and Mr. Venkatraman Sunder – Vice President, Corporate Affairs, and Mr. Subba Rao, CFO. 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. Thank you, Rishab. Good afternoon, everyone who have tuned in for the Q4 & FY22 earnings conference call of Suven Pharmaceuticals Limited. I know everybody have the data which is circulated to you guys and instead of rehashing the same numbers all over again, I think better you ask questions, and I clarify them to the best of my knowledge. So, I would like the moderator to open the for

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