Syngene International Ltd - Research Report
Private Client Research
Rating
Buy
Sector
Pharmaceuticals & Drugs - Global
Company
Pharmaceuticals & Drugs - Global
July 31, 2020
Sensex: 37606.89
CNX Nifty: 11073.45
NSE: SYNGENE
BSE: 539268
Reco Price
Rs. 479
Price Target (1 Year)
Rs. 575
Upside
20.04%
Date
July 31, 2020
Sensex
37606.89
CNX Nifty
11073.45
Exchange
Code
NSE
SYNGENE
BSE
539268
Stock Data
CMP (Rs)
487.55
Face value (Rs)
10
52 Week Range (Rs)
483.70 - 212.55
Market cap (Rs Crores)
19478.00
Price To Book Value (x)
8.60
P/E Ratio (x)
47.41
EV/EBIDTA (x)
27.63
One Year indexed Stock Performance
Syngene International Ltd
Sensex
Return (%)
1m
6m
12m
36m
Absolute
21.62
55.10
61.64
104.62
Sensex
7.71
-7.65
0.34
15.66
Shareholders
(in %)
30-Jun
Promoter
70.65
Public
28.51
Others
0.84
Total
100
+91 22 6639 3000
research@stockaxis.com
Profile
Syngene International Ltd (Syngene) is an internationally reputed contract research and manufacturing services (CRAMs)organization in the pharma sector, which supports R&D programs from lead generation to clinical supplies. Syngene’s multi-disciplinary skills in integrated drug discovery and development include capabilities in medicinal chemistry, biology, in vivo pharmacology, toxicology, custom synthesis, process R&D, cGMP manufacturing, formulation and analytical development along with Clinical development services. It currently caters to 362 global players including Bristol-Myers Squibb (BMS), Abbott, Baxter and Amgen, among others.
Robust Business Model with Favorable Demand Environment
Higher R&D outsourcing trend likely to increase
Syngene offers an opportunity to participate in the rising trend of higher R&D
outsourcing by global pharma companies. Syngene’s long standing relationship
with top global pharma companies is an added advantage. Syngene is in a sweet spot
with a vertically integrated platform, as global pharma companies increasingly prefer
vertically integrated contract research organizations (CROs). Global pharma companies
prefer outsourced R&D as they are facing operating margin pressure due to higher
compliance cost and rising competition. The global CRO market is estimated to grow
at 7.6% CAGRduring 2019 to 2025, while the proportion of outsourcing rose from 23%
in 2013 to 27% in 2017 and is expected to reach 36% by 2022.
Fully vertically integrated platform
Syngene intends to evolve from a contract research (CRO) organization into a contract
research and manufacturing services (CRAMS) organisation with commercial-scale manufacturing
capabilities. This is in keeping with the company’s plan to leverage its existing
relationships with clients and provide forward integration on drug discovery and
development.
Syngene is in the process of establishing a new commercial-scale facility in Mangaluru to manufacture novel small molecules for innovator pharma companies. In addition, the company is in the process of setting up a new unit for biologics manufacturing in Bengaluru.
Strong growth in R&D expenditure
We see strong growth in R&D budgets of global pharma companies. Major reasons
for increase in R&D expenditure are increased efforts to regain lost revenue
from expiries of patents and emergence of new types of therapies, such as biologics,
gene and stem cell therapies. Global R&D investment by biopharmaceuticals reached
a record USD 179 billion in 2018 and is projected to grow by USD 34 billion by 2024.
Covid-19 impact
The lockdown had an impact during the first few weeks of April, but the implementation
of protective measures has allowed Syngene to operate at near-normal levels for
the last six weeks of Q1FY21, and it is able to get clients’ projects back
on schedule. Syngene has indigenously developed an ELISA testing kit and tied-up
with HiMedia for mass manufacturing and distribution. Syngene has signed a voluntary
licensing agreement with Gilead to manufacture and supply Remdesivir in India and
other markets. Remdesivir has gained major market share in COVID-19 treatment.
Industry
Contract Research Organisations (CROs) undertake R&D activities on a contract basis for other organisations. Activitiesthat are outsourced to CROs include a wide spectrum of tasksfrom basic research to late stage development including: assay development, target validation, lead optimization, geneticengineering, hit exploration, efficacy and safety tests in animalmodels, as well as human clinical trials. Over the past decade, the contract research industry has witnessed rapid growth ascompanies increasingly outsource R&D activities to improveproductivity and efficiency across their value chain.
The global CRO market is estimated to grow at 7.6% CAGRduring 2019 to 2025, to surpass USD 61 billion in terms of value bythe end of this period. Access to relevant patients, willingnessto participate in trials and competitive costs make clinical trialmanagement an attractive service for many of the largestcompanies in the CRO sector.
R&D service providers can help innovator pharma companies minimiseinvestments in capital-intensive in-house facilities and convertfixed R&D expenditures into variable costs, thereby enablingthem to balance investment risk.
Driven by the pressing demand for both affordable innovationand sustainable economic returns, R&D is increasingly takingplace in a dynamic ecosystem, opening up opportunities for smalland medium-sized companies and pharmaceutical start-ups tocommand a greater share of R&D in future.
Financials
Profit & Loss Statement:- (Consolidated)
(Rs Crores)
| Particulars | FY17 | FY18 | FY19 | FY20 | FY21E | FY22E | FY23E |
|---|---|---|---|---|---|---|---|
| Net Sales | 1201.00 | 1423.00 | 1826.00 | 2012.00 | 2253.00 | 2704.00 | 3299.00 |
| COGS | 322.00 | 382.00 | 531.00 | 519.00 | 563.00 | 703.00 | 891.00 |
| Gross Profit | 879.00 | 1041.00 | 1294.00 | 1493.00 | 1690.00 | 2001.00 | 2408.00 |
| Employee Cost | 309.00 | 377.00 | 465.00 | 572.00 | 653.00 | 784.00 | 940.00 |
| Other Expenses | 186.00 | 274.00 | 294.00 | 318.00 | 338.00 | 379.00 | 445.00 |
| Total Costs | 816.00 | 1033.00 | 1291.00 | 1410.00 | 1555.00 | 1866.00 | 2276.00 |
| EBITDA | 385.00 | 390.00 | 535.00 | 602.00 | 699.00 | 838.00 | 1023.00 |
| Depreciation & Amortization | 114.00 | 131.00 | 164.00 | 219.00 | 282.00 | 333.00 | 363.00 |
| Other Income | 94.00 | 136.00 | 76.00 | 96.00 | 60.00 | 60.00 | 60.00 |
| Interest & Finance Charges | 18.00 | 23.00 | 32.00 | 35.00 | 38.00 | 38.00 | 28.00 |
| Profit Before Tax | 347.00 | 372.00 | 414.00 | 444.00 | 439.00 | 528.00 | 692.00 |
| Exceptional Item | - | - | - | 71.00 | - | - | - |
| Tax Expense | 59.00 | 67.00 | 84.00 | 104.00 | 88.00 | 106.00 | 138.00 |
| Net Profit | 287.00 | 305.00 | 331.00 | 411.00 | 351.00 | 422.00 | 553.00 |
| Adjusted EPS | 7.00 | 8.00 | 8.00 | 10.00 | 9.00 | 10.00 | 14.00 |
Source: Stockaxis Research, Company Data
Cashflow Statement
(Rs Crores)
| Particulars | FY17 | FY18 | FY19 | FY20 | FY21E | FY22E | FY23E |
|---|---|---|---|---|---|---|---|
| Profit After Tax | 287.00 | 305.00 | 331.00 | 412.00 | 351.00 | 422.00 | 553.00 |
| Depreciation | 114.00 | 131.00 | 164.00 | 219.00 | 282.00 | 333.00 | 363.00 |
| Operating Cash Flow before Working Capital Changes | 402.00 | 437.00 | 495.00 | 631.00 | 633.00 | 755.00 | 916.00 |
| Changes In working Capital | 37.00 | -27.00 | 182.00 | 45.00 | -16.00 | -35.00 | -53.00 |
| Cash Flow after changes in Working Capital | 439.00 | 410.00 | 677.00 | 676.00 | 617.00 | 720.00 | 863.00 |
| Cash From Operating Activities | 398.00 | 446.00 | 630.00 | 677.00 | 617.00 | 720.00 | 863.00 |
| Cash Flow from Investing Activities | -469.00 | -350.00 | -647.00 | -428.00 | -700.00 | -400.00 | -300.00 |
| Cash from Financing Activites | -81.00 | -79.00 | -72.00 | -226.00 | 175.00 | -220.00 | -220.00 |
| Net Cash Inflow / Outflow | -152.00 | 17.00 | -89.00 | 24.00 | 93.00 | 99.00 | 343.00 |
| Opening Cash & Cash Equivalents | 387.00 | 235.00 | 252.00 | 164.00 | 192.00 | 285.00 | 384.00 |
| Closing Cash & Cash Equivalent | 235.00 | 252.00 | 164.00 | 192.00 | 285.00 | 384.00 | 727.00 |
Source: Stockaxis Research, Company Data
Balance Sheet
(Rs Crores)
| Particulars | FY17 | FY18 | FY19 | FY20 | FY21E | FY22E | FY23E |
|---|---|---|---|---|---|---|---|
| Share Capital | 200.00 | 200.00 | 200.00 | 400.00 | 400.00 | 400.00 | 400.00 |
| Reserves | 1213.00 | 1520.00 | 1767.00 | 1774.00 | 2101.00 | 2503.00 | 3036.00 |
| Shareholders' Funds | 1413.00 | 1720.00 | 1967.00 | 2174.00 | 2501.00 | 2903.00 | 3436.00 |
| Borrowings | 787.00 | 664.00 | 537.00 | 309.00 | 886.00 | 686.00 | 486.00 |
| Trade Payables | 103.00 | 203.00 | 224.00 | 223.00 | 240.00 | 278.00 | 337.00 |
| Other Liabilities | 409.00 | 529.00 | 883.00 | 1334.00 | 957.00 | 957.00 | 957.00 |
| Total Equity & Liabilities | 2711.00 | 3116.00 | 3611.00 | 4039.00 | 4583.00 | 4823.00 | 5215.00 |
| Property, Plant and Equipment | 810.00 | 1030.00 | 1337.00 | 1984.00 | 2402.00 | 2469.00 | 2406.00 |
| Capital Work in Progress | 175.00 | 155.00 | 274.00 | 234.00 | 323.00 | 323.00 | 323.00 |
| Inventories | 32.00 | 86.00 | 43.00 | 25.00 | 64.00 | 75.00 | 90.00 |
| Sundry Debtors | 199.00 | 267.00 | 339.00 | 398.00 | 391.00 | 455.00 | 551.00 |
| Cash and Bank | 527.00 | 967.00 | 435.00 | 280.00 | 285.00 | 384.00 | 727.00 |
| Other Assets | 968.00 | 611.00 | 1183.00 | 1118.00 | 1118.00 | 1118.00 | 1118.00 |
| Total Assets | 2711.00 | 3116.00 | 3611.00 | 4039.00 | 4583.00 | 4823.00 | 5215.00 |
Valuation
Syngene is on track to complete huge capex of approximately Rs.1,400 crore out of which 55% is completed, and balance is expected to be complete by the end of current financial year. The management is confident of achieving asset base of $550 million by FY21 and 1x asset turnover in the next 18 to 24 months. We believe the company will complete its capex by FY21 and will help drive strong revenue and earnings growth in FY22 and FY23. We initiate ‘Buy’ with a TP of Rs.575 which implies 42x FY23E earnings.