4 October 2016
Syngene International
spotlight
The Idea Junction
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
SYNG IN
487
199.2
93.6/1.4
524/322
4/26/40
Quality company at premium valuation
Financials & Valuation (INR m)
We took Mr. M B Chinappa, CFO of Syngene, on a non-deal roadshow to Singapore,
Hong Kong and Taiwan, arranging meetings with over 25 FIIs.
Syngene manages to roll forward 90-95% of its existing business into the next year
due to its steady business model and strong relationships with existing clients.
Syngene has guided for revenue growth of >20% per annum until FY18, along with
stable EBITDA and PAT margins. We expect it to achieve this guidance.
We expect the company to continue commanding premium multiples, given its robust
revenue growth (double the pace of industry growth), attractive margin profile (EBITDA
margin of ~33% is best in the industry), superior asset turnover and strong balance
sheet.
Y/E March
Net Sales
EBITDA
NP
EPS (INR)
EPS Gr. (%)
BV/Sh. (Rs)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2016 2017E 2018E
11.1
3.6
2.2
11.1
64.1
52.9
23.3
15.5
43.9
9.2
13.7
4.5
2.6
13.0
48.2
64.4
22.2
14.7
37.4
7.6
22.2
17.0
5.6
3.2
16.1
45.3
78.8
22.5
16.3
30.2
6.2
17.9
Well poised to capitalize on huge market opportunity
Syngene, a subsidiary of Biocon, is the largest contract research organization
(CRO) in India, with ~2,600 scientists providing end-to-end discovery (strong
presence in this segment) and development services to innovator companies.
Syngene accounts for ~40% revenue share and ~70% profit share in the
domestic CRO market. According to a Frost & Sullivan report, discovery stage
outsourcing is growing at >15% CAGR in ex-Asia markets (>90% of Syngene's
revenues are derived from these markets). We believe Syngene is well
positioned to capitalize on this opportunity, given its strong client
relationships, integrated service platform and aggressive capital spending
plans.
EV/EBITDA (x) 27.6
Shareholding pattern (%)
As on
Jun-16
Promoter 51.0
DII
19.4
FII
16.3
Others
13.3
Mar-16
51.0
18.3
16.5
14.2
Jun-15
51.0
18.2
16.9
13.9
Notes: FII includes depository receipts
Stock performance (1 year)
Stickiness of business provides stability
The company manages to roll forward ~90-95% of the existing business into
the next year. Every year, around two-thirds of new business comes from
existing clients and the rest from new clients. This demonstrates the
company's strong client relationship building skills.
The recent deal with Amgen is a good example of the company's ability to
retain and grow business from existing clients. The relationship with Amgen
started with a small project in 2013, which the company converted into a
long-term contract (~100 scientists now work on a dedicated basis for Amgen).
Our coverage universe is a wide representation of investment opportunities in India. However, there are many
emerging midcap names that are not under our coverage.
Spotlight
is our attempt to feature such stocks based
on fundamental analysis and site visits, without initiating formal coverage on them. Spotlight adopts a descriptive
rating system, which uses terms like Interesting, Cautious and In Transition (see definitions alongside). We do
not assign Buy, Sell or Neutral recommendations to the stocks under Spotlight. Investors should carefully read
Motilal Oswal Research in its entirety, and not draw inferences from the ratings alone. Ratings should not be
used or relied upon as investment advice.
Interesting: Currently, the analyst
believes that this is an interesting
stock based on its fundamental
strength
Cautious: Currently, the analyst
does not have adequate
conviction based on fundamental
assessment of the stock
In Transition: Currently, the
analyst thinks that the stock is in
transition from "Cautious" to
"Interesting"
Kumar Saurabh
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
Gaurav Tinani
(Gaurav.Tinani@motilaloswal.com); +91 22 6129 1552
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.