Stalwart Advisors

Exit Note - Suven Pharma

We invested in Suven Pharma in December 2019 (pre-demerger) at a price of Rs 131 a share, adjusted for demerger of Suven Life Sciences. Over the last four years, the stock has zoomed to Rs 1,000 implying a 7.6 bagger (663% return) for us in one of the highest quality pharma business of CDMO run by an incredible owner-operator.

We remained invested in this exceptional business even when the promoter changed from Mr Jasti to a private equity player in Dec’22, as we found the stated strategy of making Suven a platform interesting. The on-going merger of Cohance along with few other smaller acquisitions does seem to indicate prompt steps towards the stated goal.

Even though most of the acquisitions are believed to be EPS accretive and hence could create value for shareholders of Suven Pharma, it does seem to be priced in to a great extent at the current market cap of Rs 25,500 Cr for a business that currently does about Rs 1,000 Cr in annual sales & Rs 400-500 Cr in net profit.

If Advent (PE) executes well with proper integration of these acquired assets and extract the maximum synergies out of this platform, there could be further optionalities / upside that may emerge over time implying we could be missing out on those, but based on the current available information, we believe the risk-reward doesn’t seem to be favourable to carry this position any further. When we invested at Rs 131, we had very little to lose but a lot to gain making risk-reward very favourable for us, today at Rs 1,000 it is exact opposite.

We consider ourselves to be in the profession of primarily managing the risks, and not the returns. This essentially implies the returns are only 'optimised' as opposed to being 'maximised', while trying to minimise the risks that can lead to permanent loss of capital. Further, any attempt to consistently buy at bottom or sell at top is only theoretical and doesn't work in real life.

Accordingly, we are changing the rating for Suven Pharma from hold to exit - subscribers may completely exit at the current market price.


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Exact weightage will depend on each subscriber’s risk appetite & comfort. However, as a thumb rule, any position size under 3% is little insignificant to move returns at portfolio level whereas beyond 10% it gets riskier from a concentration standpoint. Accordingly, low could indicate 3-4% weightage, medium 5-7% and high 8-10%.
Structural are those portfolio businesses where earnings are relatively stable (less volatility) and further are expected to rise in a steady fashion. Cyclicals are businesses which experience periods of upcycle followed by downcycle and have large variation in their reported earnings based on industry demand and supply. The mix between the two depends on available opportunities and respective valuation of the two pockets.