Rating Rationale
October 14, 2019 | Mumbai
Suven Life Sciences Limited
Suspension revoked; 'CRISIL A/CRISIL A1' assigned to bank debt; Ratings placed on 'watch positive' 
Rating Action
Total Bank Loan Facilities Rated Rs.58.72 Crore
Long Term Rating CRISIL A (Assigned; Suspension Revoked and Placed on 'Rating Watch with Positive Implications')
Short Term Rating CRISIL A1 (Assigned; Suspension Revoked and Placed on 'Rating Watch with Positive Implications')
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has revoked the suspension of its ratings on the bank facilities of Suven Life Sciences Limited (SLSL) and has assigned its 'CRISIL A/CRISIL A1 placed on 'Rating Watch with Positive Implications' ratings to the bank facilities of SLSL. CRISIL had suspended the ratings on December 18, 2014 as the company had not provided the necessary information required for a rating view. SLSL has now shared the requisite information, enabling CRISIL to assign ratings to the company's bank facilities.
The ratings are placed on 'watch with positive implications' as the company has applied for demerger of the new chemical entity (NCE) and contract research and manufacturing services (CRAMS) business units into two separate companies: SLSL (demerged company) and Suven Pharmaceuticals Ltd (SPL; resulting company) respectively. The demerger application is pending regulatory approvals.
Till fiscal 2019, there is no revenue from NCE segment and also, total debt exposure corresponds to that of CRAMS segment. CRISIL believes post the demerger, SPL will be the revenue generating entity and the entire debt in SLSL will move to SPL. With significant research and development (R&D) expenses remaining with SLSL, SPL's credit risk profile is expected to be stronger than SLSL (pre-demerger).
CRISIL is monitoring the developments on demerger and should resolve the watch once it gets clarity on the impact of this on the business and financial risk profile.
The ratings reflect experienced management, established market position and healthy financial profile. These strengths are partially offset by working capital intensive operations and exposure to customer concentration risk.

Analytical Approach

For arriving at the ratings, CRISIL has combined the business and financial risk profiles of SLSL with its 100% subsidiary, Suven Neurosciences Inc. (Suven USA). This is because these companies, collectively referred to as the Suven group, have a common management team, are in similar lines of business, and have operational linkages and fungible cash flow.

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description
* Experienced management and established market position:
Mr. Venkateshwarlu Jasti is the Chairman and CEO of the company. He holds a dual postgraduate degree in pharmacy and specialized in industrial pharmacy. He has an experience of over three decades in contract research industry which helped the company to associate with 70 global companies. The Suven group has established market position in the CRAMS segment and is among the top five players in India who supply high-end intermediaries to innovators. In addition to that the company has a 429-member (as on March 31, 2019) strong R&D team comprises 39 doctors of philosophy and works in the research-intensive areas of analytical development, drug discovery, process R&D, and formulations development.
* Healthy financial risk profile:
Financial risk profile is marked by strong networth, healthy capital structure and robust debt protection metrics. Networth remains strong at Rs 828 crore as on March 31, 2019. Due to strong networth and low reliance on external debt, capital structure remains healthy with gearing and total outside liabilities to tangible networth of 0.05 times and 0.25 times, respectively, as on March 31, 2019. Debt protection metrics remain robust, with interest coverage of 50.00 times and net cash accrual to total debt of 2.36 times in fiscal 2019.
* Working capital intensive operations:
Operations remain working capital intensive with gross current asset (GCA) of 213 days as on March 31, 2019. GCA days were higher than usual range of 120-150 days due to higher execution of order in second half of FY19.
* Exposure to customer concentration risk:
Top ten customers contribute close to substantial share of the revenue exposing the company to customer concentration risk.
Liquidity: Strong
Cash accrual is expected to be over Rs 90 crore against minimal repayment obligation over the medium term. Bank limit utilization was high and averaged around 99% during the 12 months through August 2019. Current ratio remains healthy at 4.18 times on March 31, 2019. Liquid investments were Rs 229.99 crore in mutual funds as on March 31, 2019. Management indicated that post the investment in Rising Pharma Holdings Inc., liquid investments stood at around Rs 90 crore as on September 26, 2019. Low gearing and moderate networth support financial flexibility, and provides the financial cushion available in case of any adverse conditions or downturn in the business.

Rating sensitivity factors
Upward factor
* Resolution of watch with clarity on the impact of demerger on the business and financial risk profiles of SPL
* Prudent working capital management
Downward factor
* Decline in operating margin below 22%
* Larger-than-expected, debt-funded capital expenditure or further stretch in the working capital cycle.

About the Suven group
Incorporated in 1989 by Mr. Venkateshwarlu Jasti, SLSL is a biopharmaceutical company specialized in NCE-based CRAMS for global life science companies and drug discovery and developmental activities in central nervous system (CNS) disorders. SLSL is also engaged in discovering and developing NCEs in CNS disorders; the company has been annually spending 15-20% of the revenue (Rs 119.85 crore of R&D expense towards NCE development for FY19 at group level) on its own research activities. Most of the Suven group's NCE research focuses on the CNS segment. The company has successfully completed 841 projects till March 31, 2019 and currently has 120 active projects under CRAMS. The company has 13 molecule pipeline, 2 molecules in Clinical Trials - Phase II. SLSL has four manufacturing facilities (two approved by the Food and Drug Administration) with three in Telangana and one in Andhra Pradesh and three R&D facilities with two facilities in Telangana and one in Andhra Pradesh. The company also has a dedicated Formulation Development Centre (Research Centre III) in Medak, Telangana.
Incorporated in 2015, Suven USA is a wholly owned subsidiary of SLSL, which is a clinical-stage biopharmaceutical company focused on the acquisition, development and commercialization of novel therapeutics for the treatment of neurodegenerative disorders. The near-term focus for Suven USA, is to develop NCE SUVN-502, for the treatment of Alzheimer's disease and other forms of dementia.
During April 2019, an investment of USD 35 million, 25 % stake, in Rising Pharma Holdings Inc. (formerly known as Shore Suven Pharma Inc.), was made through Suven USA.
Rising Pharma Holdings Inc. is a joint venture between SLSL and Shore Pharma Investments, LLC, a company founded by Mr. Vimal Kavuru to acquire generic drug assets.
Key Financial Indicators
As on / for the period ended March 31  Units 2019 2018
Operating income Rs crore 663.63 625.49
Reported profit after tax (PAT) Rs crore 86.94 123.69
PAT margins % 13.10 19.77
Adjusted debt/adjusted networth Times 0.05 0.04
Interest coverage Times 44.13 44.47

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
(Rs Cr)
Rating Assigned
with Outlook
NA Cash Credit NA NA NA 31.0 CRISIL A/Watch Positive
NA Proposed Long Term Bank Loan Facility NA NA NA 0.22  CRISIL A/Watch Positive
NA Letter Of Credit NA NA NA 20.0 CRISIL A1/Watch Positive
NA Bank Guarantee NA NA NA 2.5 CRISIL A1/Watch Positive
NA Standby Fund-Based Limits NA NA NA 5.0 CRISIL A/Watch Positive

Annexure - List of entities consolidated
Names of Entities Consolidated Extent of Consolidation Rationale for Consolidation
Suven Neurosciences Inc Full Same line of business and is a subsidiary of SCPL
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  36.22  CRISIL A/Watch Positive                  Suspended 
Non Fund-based Bank Facilities  LT/ST  22.50  CRISIL A1/Watch Positive                  Suspended 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Bank Guarantee 2.5 CRISIL A1/Watch Positive -- 0 -
Cash Credit 31 CRISIL A/Watch Positive -- 0 -
Letter of Credit 20 CRISIL A1/Watch Positive -- 0 -
Proposed Long Term Bank Loan Facility .22 CRISIL A/Watch Positive -- 0 -
Standby Fund-Based Limits 5 CRISIL A/Watch Positive -- 0 -
Total 58.72 -- Total 0 --
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for the Pharmaceutical Industry
CRISILs Approach to Recognising Default
CRISILs Bank Loan Ratings
CRISILs Criteria for Consolidation

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