Arihant Capital recommended accumulate rating on Suven Life Sciences with a target price of Rs 325 in its research report dated September 03, 2018.
Arihant Capital's research report on Suven Life Sciences
Suven Life Sciences (SLS) is a compelling play on the recovery being witnessed in global R&D spending, as reflected in strong fund raising by biotech start-ups as well as a fast-growing research pipeline across multiple stages of clinical trials. SLS has witnessed strong growth in revenue of 22.6% CAGR, whereas operating profit has shown growth of 42.4% CAGR over FY11 to FY18. With improved operating efficiency, we expect the EBITDA margin to expand at a higher rate than the gross margin due to lower than average R&D expense of 10% in FY19-20E compared to average 17% during FY16-18. R&D spending on consolidated level is expected to stand at ~Rs100-120 crore annually for FY19-20E. SLS enjoys a strong margin profile with EBITDA margin of 32%+ in CRAMS segment. We expect return ratios to remain in the range of 15-17%, as growth normalizes.
Outlook
We initiate coverage on the stock & recommend ‘Accumulate’ rating with target price of Rs 325 per share. Our target price is based on 25x FY20E EPS which gives a potential upside of 16%.
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