19 Comments

Amazing, Insightful with good pointers in the right direction. Thank you ๐Ÿ™๐Ÿผ

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Great article...

Can you please help me understand the below:

the amount of capital that is chasing this sector, API & CDMO, I think there would be excess in the system. Was reading Capital Returns and this sector came 1st to my mind. Lot of Capex going on and some have common APIs / Complex APIs. No idea if they have same molecules for CDMO/ CMO. What's your sense with companies like Neuland, Laurus labs, etc.when compared to Suven.

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author

If one does CDMO for innovator molecules then there is no thing as same molecules. Innovator products goes only to 2-3 manufacturers over the patent period and in such arrangements the quantum of business is not dependent on price but on the ability to deliver the product at the right time and in the right quality.

As far as Neuland vs Laurus vs Suven is concerned, Suven only does patented molecules CDMO, not other listed company comes close to Suven in that regards. For Laurus the CDMO business is small and within that the innovator products are even low. For Neuland, CDMO business is relatively small, but they do have a good pipeline of innovator CDMO and the play here is that people are expecting that overtime the CDMO business will grow to become a larger part of overall business.

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Thank you for a detailed reply. Much appreciated.

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Hi Ankush,

What is your assessment for the demerger of Rising Pharma? I guess this removes the grey area regarding accounting/ audit of subsidiary.

Among the peers Suven Pharma is rangebound in a narrow price band while many peers in CDMO have corrected where valuation was frothy.

thanks in advance.

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author

I don't consider this as a pure divestment. Suven has taken 7% stake in the new bigger entity while cashing on some of the gains.

In terms of correction, Suven never really traded at rich valuations and was never in that hyped zone and thus no correction.

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Jul 7, 2021Liked by Ankush Agrawal

Great insights into analytical part of the investing. I am new to this field and starting off a new self employment post my 34 years of service. Still a lot to learn and your articles like this are simple and easy to understand. I do realise the amount of effort it takes to create a document like this. My present comment is only to express my gratitude for sharing the knowledge. It is immensely helpful to newbies like us. Thanks a ton.๐Ÿ™

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Very very interesting read Ankush. I appreciate your depth of research.

My question is:

1. Is Suven Pharma is still underrated by the market considering its present valuation?

2. It seems that Suven group have research in their DNA and they are really long-term thinker. In that case, Suven Lifesciences is also a good buy. They are spending money on R&D on a long-term basis. They understand that developing a drug molecule may require decades. As far as my knowledge goes, only a handful company in India has the courage to develop new drugs, Suven Lifescience seems to be an exception.

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author

1. See on the valuation front, I think market will always value Suven lower than say the likes of Divis, Syngene etc, even though the return ratios is better than these companies. This is largely to do with the fact that market likes q-o-q secularity and predictability, which is not the case with Suven given their pure-play CRAMS business. Plus, the management here is too dull from the market's perspective because Mr.Jasti always puts out a conservative 10-15% guidance.

One factor that can change the q-o-q volatility would the the scale-up of formulations side of the business and that could be a driver of valuations here.

2. Suven Life has good IP and a highly motivated individual whos life's goal is to get a blockbuster NCE. I strongly believe that Mr.Jasti will sell out his entire stake in Suven Pharma if he has to, in order to Fund the R&D of Suven Life, that is what his commitment level is towards the R&D. But in the drug discovery business, it is a 0 or 1 game. Maybe for another 10 years they will have no success or they might have some success next year also, nobody knows, not even Mr.Jasti. So Suven Life is only for someone who is Ok with such kinds of odds.

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Jun 11, 2021Liked by Ankush Agrawal

Again, a very detailed and nice answer. Thank you for taking your time to answer my questions. I like your analysis and wait for your future posts. Thank you so much.

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May 12, 2021Liked by Ankush Agrawal

Enjoyed reading the article. Copying a snippet from latest AR "But, when we received the information that our

SUVN-502 molecule did not meet the primary

end point, it was a painful setback. Because

our molecule was looked upon as a potential

blockbuster by most in the global pharma

innovator space. We knew it all along that it

was and will always be zero or one. Yet, it was

disappointing. After all, it was our first molecule,

and it had gone nearly the entire distance. "

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May 2, 2021Liked by Ankush Agrawal

Super clarity of thought process... Keep writing and all the best...

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Apr 12, 2021Liked by Ankush Agrawal

I thoroughly enjoyed reading Ankush, one of the best in my investing journey

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Apr 12, 2021Liked by Ankush Agrawal

Immensely enjoyed the read and appreciate the Framework. Bought Suven Pharma within minutes of the first result declared pot demerger. Soon bought Suven Life too, added post management buy at 81/ Would love if you could look at Intellect design Arena in this framework. Thanks, a great read on a covid-bound evening... :)

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author

Thanks Kalyan, Intellect definitely has Complexity and Non-Linearity.

Will look to cover the same as well.

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Your excluding Optionality from Intellect disappointed me a wee bit, set me thinking and revisit the excellent coverage of Intellect I met at VP...interestingly the last line reads : "the built in optionality in the business has not given its true value. t will emerge in the coming years." caveat : I am a lay person with zero experience of this domain but have a good sense of disruption /- innovation, opportunity size and the Mega Trend emerging. Here is the link to the coverage at VP, loved it and more so because I read it after having attended Intellect's 3.5 hour webinar on Technology day. https://forum.valuepickr.com/uploads/short-url/3CpXFrAIRHwl11lvn5slIUy3Fk4.pdf

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author

See there is a thin line that separates what one can consider an Optionality or Non-Linearity.

The way I see it is that if something is part of existing business activity, then I don't consider it as optionality. So if you consider RTM and SEEC products of Intellect as optionality, then it might not really be correct because they are already part of the business and are generating revenues. The thing being that they are not fully monetized and thus going forward, growth from these products would be Non-Linear.

Optionality here would come if Intellect decides to invest in new products away from BFSI space which will add another target market.

But, It is only about how you define it, nothing else. And actually it does not even matter whether we term it as Optionality or Non-Linearity; in the end both will lead to growth and value creation.

As a thumb rule: Optionalities have relatively higher Risk:Reward and uncertainty than Non-Linearity.

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Apr 14, 2021Liked by Ankush Agrawal

Entirely Agree. Opportunity Size/Runway and Optionality are two different characteristics. Report had a line relevant to our CONTEXT, did not bring it on board because there is no way I can evaluate/contextualize it. "Some of the products with focus on AI and Big Data have scope of extension beyond BFSI." Optionality is a good handle to look at the future in these disruptive times, hence the interest. Yes, in the end its about growth of business and the share. Since I wish to raise allocation here, interested in every bit. Regards

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Thanks. Will look forward. Have been accumulating Intellect. Looking at making it a concentrated bet going forward..

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