Syngene International is a good portfolio investment

Syngene International is a good portfolio investment

By Rajiv Kapoor | 4 February, 2017

Global pharmaceutical players are facing structural issues from the impending patent cliff, shrinking product pipeline, rising R&D costs and growing competition. At the one end, these companies are shrinking in size due to loss of blockbuster exclusivities, while at the other end, new product approvals by the USFDA are also on the rise. Hence, to maintain the structural balance and improve probability of success they are inclined to outsource a substantial part of their R&D work. One such Contract Research Company or CRO in the Indian space is Syngene International Ltd. It is a subsidiary of blue chip Biocon Ltd, which holds a 74.5% stake in the company. It provides discovery and developmental services for new molecular entities across multiple platforms, including small molecules, large molecules and antibodies. The company boasts of world class infrastructure audited successfully by US FDA and other major life sciences partners. The company aims towards bringing novel molecules to the market by supporting research and development efforts of organisations across diverse sectors like pharmaceuticals, biotechnology, nutrition and animal health. Syngene International specialises in conducting discovery, development and manufacturing each product with a distinctive economic advantage. Unlike other traditional business models, these services are offered through flexible business models ranging from a full-time equivalent to a fee-for-service model or a combination of both customised to suit the client’s specific requirement. With over 3,000 scientists and a laboratory base over 900,000 square feet, currently servicing over 250 clients ranging from multinational corporations to start-ups, including eight of the top 10 global pharma companies, Syngene is the company to watch for in the long term. It has three long-duration, multi-disciplinary partnerships with Bristol-Myers Squibb Co, Abbott Laboratories (Singapore) Pte. Ltd. and Baxter International Inc. With a proven track record and an effective combination of scientific talent, global accredited systems, research and development infrastructure and continued focus on protection of the client’s intellectual property, the company is well positioned to benefit from the expected growth in the CRO industry. Biocon’s contract research arm Syngene International reported decent Q3 FY17 numbers .The company’s revenue increased by 23% to Rs 347 crore for the quarter ended 31 December 2016, as against Rs 281 crore in the corresponding quarter of the previous year. 

Profit after tax increased by 12% to Rs 67 crore for the quarter ended 31 December 2016 as against Rs 74 crore in the corresponding quarter of the previous year. During the last four years, the company’s revenue grew at a healthy pace of 28% CAGR and 27% EBIDA, respectively. During this period, profit has steadily improved from 17% to 22%. Syngene International has earmarked a capital expenditure plan of US$200 million envisaged over the next three years and interestingly enough, the company has indicated that all future funding requirements shall be met through internal accruals. The stock presently quoting at Rs 538 is a very good portfolio investment with a price target of over Rs 950 in two years’ time.

Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.

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