Syngene International Ltd Intrinsic Value: 571 share treated only 460

Dear investor,

Please find below mentioned short term fundamental stock for delivery purpose.

 

Company	CMP	Target	BSE Code	NSE Code
Syngene International Ltd.	460	590	539268	SYNGENE

Fundamental

• Market Cap:  18,425 Cr.
• Current Price:  460.20
• 52 weeks High / Low  475.45 / 201.65
• Book Value:  54.35
• Stock P/E: 53.62
• Dividend Yield: 0.11 %
• ROCE: 16.63 %
• ROE: 17.02 %
• Sales Growth (3Yrs): 18.77 %
• Listed on BSE and NSE
• Company Website
• Face Value:  10.00

• PEG Ratio: 3.57
• Promoter holding: 71.25 %
• Pledged percentage: 0.00 %
• Debt:  772.90 Cr.
• Price to Earning: 53.62
• EPS:  10.01
• Net profit:  397.40 Cr.
• Profit growth: 2.09 %
• Profit growth 7Years: 19.36 %
• Net profit preceding 12months: 411.50 Cr.
• Profit growth 3Years: 7.11 %
• Dividend yield: 0.11 %
• Debt to equity: 0.36
• Sales last year:  2,012 Cr.
• Sales growth: 9.27 %
• Unpledged promoter holding: 71.25 %
• Investments:  776.70 Cr.
• Intrinsic Value:  571.76

Syngene International Ltd is an internationally reputed contract research and manufacturing organization. The company has multi-disciplinary skills in integrated drug discovery and developments which includes 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. Reliance Capital is the largest non-promoter institutional holder with holding of 2.42% as on June 2020. The market cap of Syngene International is Rs16,762 cr.
 

Investment rationale
 

Over 2.5 decades of experience in contract research, robust client base: The Company has an integrated service platform for small and large molecules, antibody-drug conjugates and oligonucleotides. Syngene's operations are classified under three business units viz Dedicated R&D Centres, Discovery Services and Development and Manufacturing Services. It has world class facilities approved by US FDA, EMA, AAALAC and major life sciences partners. The company has 331 global clients across industries ranging from pharma, biotech, nutrition, agrochemicals, animal health, specialty chemicals, and consumer goods. The Discovery Services business unit comprises chemistry, biology, toxicology and bioinformatics services for both small and large molecules. The company’s construction activities at the upcoming API manufacturing facility at Mangalore that commenced in FY19 are completed and has commenced commissioning phase.

 

Dedicated research backed by long term contracts: The Company has 1.9 mn sq. ft. world-class R&D and manufacturing infrastructure; ~4600 professional workforce including 4200+ qualified scientists of which 460 are phDs. Company's Dedicated R&D Centres gained from the extension of the multi-year agreement up to 2024 with Baxter Healthcare Corporation, a global healthcare company. Syngene's team of scientists works closely with GSK's global R&D team in accelerating drug discovery. Syngene and Merck KGaA extended the collaboration for a period of three years, until 2022. The Amgen dedicated centre houses around 75 Syngene scientists. Client base includes top companies in pharmaceuticals, biotech, agrochemical, consumer goods and other industries. Over the last five years the Company has increased its client base from 221 in FY15 to 362 in FY20.
 

Strong industrial outlook: Global R&D expenditure increased from $139bn in 2014 to $152bn in 2018 (CAGR of 2.3%) of 75% is outsourced. The outsourcing activities driven by focus on core competencies, emergence of “virtual” companies and shift from fixed to variable cost models. The global CRO (Contract Research Organisations) market value for drug discovery and development stood at USD 32 Bn in 2017 and is expected to reach USD 57.8 Bn by 2023 while Contract Manufacturing Organisation (CMO) market size is expected to reach USD 116.5 Bn by 2023.
 

Beneficiary of currency depreciation: As majority of clients are located outside of India, nearly 94% of sales are denominated in foreign currency, principally USD. With the average hedged rate and billing rate at Rs. 69 per USD for FY19, company had registered a foreign exchange loss of Rs. 1.9 cr for the year (gain of Rs 7.4 cr in FY18). For FY20, gains stands at Rs 14.4 cr and it might further grow for FY21 sighting the ongoing depreciation of currency.
 

Attractive financials and Valuation:  The Company has registered 17% CAGR growth in revenue whereas net profits have clocked 11% CAGR between 2016-2020. In the recent quarter performance of Q1FY21, Syngene reported a marginal yoy revenue growth of 0.2% led by growth in Discovery Services. The EBITDA and profits declined 1% and 19% yoy respectively impacted due to the temporary suspension of operations during the nationwide lockdown. The operating margin was maintained at +30% driven by savings in raw material costs and operational efficiencies. It has a very strong liquidity and cash position of Rs395 cr as on Jun 20. The company has reasonable debt to equity ratio of <0.25x while on net basis, the company is debt free. The return ratios are strong (RoE of +19%) and at current price, the stock is trading at 43x of its one year forward earnings.
 

Duration of recommendation: Short to Medium term.
 

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