SUVN-502 — the molecule is currently in phase II studies, and the company has finished recruiting 563 patients closing the recruitment for phase II trial, taking the phase II trials to final stage of completion. This process can reach to final data output by 2QFY20.If data points turn positive, then this can be a huge opportunity for out-licencing. If out-licensed we expect it could garner an upfront of $150-200 million.Suven life sciences also announced the demerger of its CRAMS business from Suven Life Sciences (SLSL) into Suven Pharmaceutical (SPL). SLSL shareholders will receive one share each of SPL for one share held of SLSL.

The demerger exercise will be subjected to NCLT approvals, which should tentatively require six to nine months. Suven also entered into a “stalking-horse” asset purchase agreement to buy the assets of Aceto Corporation’s Rising Pharmacueticals and Rising subsidiaries through its joint venture partner Shore Suven Pharma, which is a joint venture between Suven and Shore Pharma Investments, LLC, of the US. The asset purchase agreement is subjected to regulatory approvals. We like Suven for its high margin profile (Ebitda margin of >30% and net margin of 20%). After a soft FY19, we expect earnings to grow 25-30% in the next two years.

The company shows steady return ratios of 22-25% ROIC and 18% ROE.We have valued the stock at 18x FY21E core EPS of Rs 19 (excluding the R&D spend) fetching a price of Rs 354. We have added the value of upfront from SUVN 502 and other three molecules put together at Rs 71 (i.e. net present value of these molecules). Hence, on an aggregate basis we derive our target price of Rs 425. There could be upside risk to the price target coming from company’s R&D pipeline.