India Equity Institutional Research | Pharmaceutical

Syngene International Ltd.

IPO

Rs. 240 250

Positive in the long term

SUBSCRIBE

Well positioned to leverage from growth in CRAMS

The global Contract Research Organization (CRO) market for discovery services was
estimated to be US$14.7 billion in 2014 and is expected to reach 22.7bn USD in 2018,
reflecting a CAGR of 11.5% (2014-2018), according to the IQ4I Report. The global CRO
market for development services was estimated to be 28.8bn USD in 2014 and is
expected to reach 44.6 bn USD in 2018, reflecting a CAGR (20142018) of 11.6%,
according to Frost & Sullivan. We believe company is well-positioned to capture market
opportunities and to benefit from the expected growth in the R&D outsourcing market
through its competitive strengths on back of world class infrastructure & qualified pool of
scientist. Syngene plans to build on integrated services to follow clients molecules
across discovery, development and manufacturing. We believe the company is a onestop shop for clients to advance their R&D programs from the discovery stage through
preclinical and clinical trials and, with new planned manufacturing facilities to support
them through the commercialisation process.
Scale-up of manufacturing capabilities
Company intends to evolve from a CRO into a Contract Research and Manufacturing
Services (CRAMS) organization with commercial-scale manufacturing capabilities, by
leveraging existing relationships with clients and provide forward integration on the
discovery and development activities. It currently manufactures developmental batches
of both small and large molecules to support clinical trials for multiple clients. It has
signed 3 long term manufacturing contracts with clients which will be filed with USFDA
in future out of which one is 505(b)2 product filed from Syngenes facility which can get
monetized by FY17. We believe Syngene will benefit from operating leverage once it
starts commercial manufacturing for these clients.

Date: 17th July 2015

Market Info:
SENSEX

28,463

NIFTY

8,610

IPO Price Band: Rs 240-250

Date of Opening

27th July 2015

Date of Closing

29th July 2015

Issue size

528-550 crs

No. of Shares
Offered

2.2crs

Face Value

10

Bid Lot

60 shares & multiple

Post Issue
Share Capital

200crs

@FV 10
Post Issue
Market Cap

5000crs

@ Rs 250
Source: RHP

Longstanding relationships with clients

Syngene has longstanding, extensive relationships with multinational clients such as
BMS, Baxter, and Merck & Co, as well as emerging small to mid-size companies such as
Achillion Pharmaceuticals, Inc., Aquinox Pharmaceuticals, Inc. and Saniona AB. It has
around 211 clients. The top 3 clients (BMS, Baxter, Abbott) contribute ~ 45%, while the
top 10 clients contribute 70% of the revenue. BMS is its major client contributing ~ 30%
of overall revenue. The Companys long term collaborations with certain clients lead to
predictable and stable cash flows enabling the extension of platforms in line with the
present and future needs of its clientele. We believe its strong balance sheet and
financial performance has helped the company in reassuring clients that will be able to
support their NME development with dedicated investments in terms of both capabilities
and capacities.

Offer
Offer for sale by
Biocon Ltd
Biocon Shareholders
Reservation
Net Offer for Public

No. of shares
(in Lakhs)
220
20
200

Source: RHP

Valuation & Outlook

Syngene has showed revenue & earnings CAGR of around 28% & 59% respectively
over FY11-15. Considering earnings CAGR to be around 25% over FY15-17E, the stock
trades at 18x FY17E at upper price band of Rs 250. We are positive on the business
model of Syngene from the long term perspective alongwith the fact that it is the only
profitable listed CRO company, it can command a premium multiple. We recommend
Subscribe to Syngene International IPO.
Key financials
INR Crs

FY12

FY13

FY14

FY15

Revenue

417

550

700

872

YoY growth %

29.5

32.0

27.2

24.6

EBITDA

137

169

214

293

EBITDA margin

32.9

30.6

30.7

33.6

Profit After Tax

71

102

135

175

YoY growth %

161.0

43.8

32.0

29.8

Share capital

24

26

26

200

Reserves

273

493

633

646

Networth

297

519

659

846

P/E

59.6

42.4

34.6

26.9

4.4

3.2

2.9

2.0

23.9

19.7

20.5

15.2

EV/EBITDA
RoE

Name of Analyst:
Rashmi Sancheti
rashmi.sancheti@krchoksey.com
Bangaraiah Karravula
bangaraiah.karravula@krchoksey.com
91-22-6696 5568

www.krchoksey.com
91-22-6696 5555
91-22-6691 9569

Source: RHP, KR Choksey Research

KRChoksey - Institutional Research is also available on Bloomberg KRCS<GO>, Thomsonreuters, Factset and Capital IQ

Syngene International Ltd.

Company Background
Syngene International Limited (Syngene), subsidiary of Biocon, is one of Indias leading contract research organisations (CRO) in the
$14.7bn global CRO market. The company offers a suite of integrated, end-to-end discovery and development services for novel
molecular entities (NMEs) across industrial sectors including pharmaceutical, biopharmaceutical, and biotechnology amongst others.
Syngene helps its clients in conducting discovery (from hit to candidate selection), development (including pre-clinical and clinical
studies, analytical and bio-analytical evaluation, formulation development and stability studies) and pilot manufacturing (scale-up, preclinical and clinical supplies) each with distinctive economic advantage. Unlike the traditional business models, these services are
offered through flexible business models ranging from a full-time equivalent (FTE) to a fee-for-service (FFS) model or a
combination customized on the clients specific requirement
Revenue Break up (%)

Revenue by geography

Revenue by contract type

Dom estic,
2.8%

Dedicated,
39.2%

Others
(FTE+FFS),
60.8%

Exports,
97.2%

With over 2000 scientists and a laboratory base over 900,000 square feet, Syngene currently services over 200 clients, ranging from
multinational corporations to start-ups, including eight of the top 10 global companies by sales in 2014. Besides a number of multiyear contracts, Syngene also has a three long-duration, multidisciplinary partnerships, each with a dedicated research centre with
Bristol-Myers Squibb Co. (BMS), Abbott Laboratories and Baxter International Inc.
Public Issue
QIP

No. of shares (lakhs)

100

50

Non-Institution

30

15

Retail

70

35

Reservations for Biocon shareholders

20

Share holding pattern (%)

Pre-Offer

Post-Offer

Promoter and Promoter group

85.5

74.5

Public shareholding

11.1

22.1

Non Promoter and Non Public

Total

3.3

3.3

100.0

100.0

KRChoksey - Institutional Research

Syngene International Ltd.

Financials
Profit & loss Account
INR Crs

FY10

FY11

FY12

FY13

FY14

9MFY15

Revenue

264

316

409

540

687

596

11

12

12

267

322

417

550

700

608

70

87

115

149

190

183

Other operating Income

Total Revenue
Cost of raw materials consumed
Changes in inventories of Stock-in- Trade

-1.2

-2

-3

-10

Gross margin

74.1

72.7

73.1

73.6

72.6

71.6

Employee benefit expense

67

80

98

124

156

149

Other Expense

44

55

69

113

138

89

180

223

280

382

485

410

87

99

137

169

214

198

32.5

30.8

32.9

30.6

30.7

32.5

Total Expenditure
EBITDA
EBITDA margin
Other Income
Depreciation

45

52

55

60

66

59

EBIT

42

49

84

113

157

148

Finance costs
PBT
Provision for Tax
Effective Tax rate
Profit After Tax

21

10

35

28

74

106

157

141

22

21

12.9

1.0

8.2

13.7

71.1

65.2

30

27

71

102

135

119

11.4

8.4

17.0

18.6

19.3

19.6

Basic EPS

1.8

1.6

4.2

5.9

7.2

6.3

Diluted EPS

1.8

1.6

4.2

5.8

7.0

6.1

PAT margin

Source: RHP, KRChoksey research

KRChoksey - Institutional Research

Syngene International Ltd.

Balance Sheet:
INR Crs

FY10

FY11

FY12

FY13

FY14

9MFY15

24

26

26

27

Equity and Liabilities

Share Capital
Reserves and surplus

191

218

273

493

633

760

Shareholder's Funds

194

221

297

519

659

787

Long-Term Borrowings

29

Deferred tax liability (Net)

10

10

Other long-term liabilities

29

39

56

47

58

67

13

Total non-current liabilities

68

50

70

57

69

85

Short Term Borrowings

167

145

93

155

183

Trade Payables

38

28

64

83

77

99

Other current liabilities

42

57

57

58

221

89

Short Term Provisions

10

11

Total current liabilities

251

233

220

149

462

382

Total Liabilities

512

504

587

724

1191

1254

408

389

394

390

439

567

Long Tern Provisions

Assets
Non-current assets
Fixed assets
Non-current investments
Long term loans & advances
Other non-current assets

34

39

50

86

103

107

11

14

121

442

428

449

487

557

796

11

69

352

26

15

18

15

35

Sundry debtors

33

38

43

77

94

138

Cash and bank

38

12

92

139

Short term loans and advances

16

27

44

Other current assets

17

35

46

54

77

70

76

138

237

634

458

512

504

587

724

1,191

1254

Total non-current assets

Current assets
Current investments
Inventories

Total current assets

Total assets
Source: RHP, KRChoksey research

Cash Flow:
INR Crs
Profit Before Tax

FY10

FY11

FY12

FY13

FY14

9MFY15

35

28

74

106

157

141

Cash From Operating Activities

81

80

122

104

300

-177

Cash Flow from Investing Activities

-30

-18

-23

-150

-374

199

Cash from Financing Activities

-45

-62

-70

21

155

19

Net Cash Inflow / Outflow

-1

30

-26

81

41

Cash at beginning

38

11

98

Cash at the end

38

12

92

139

Source: RHP, KRChoksey research

KRChoksey - Institutional Research

Syngene International Ltd.

ANALYST CERTIFICATION:
We, Rashmi Sancheti (BMS, MS finance & CFA from ICFAI) and Bangaraiah Karravula (B.Com, PGP in Securities Markets) research analyst/associate, author and the name subscribed to
this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our
compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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