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Monday, July 27, 2015

SYNGENE INTERNATIONAL LTD: SUBSCRIBE THIS IPO !!!

Price Band: Rs. 240 - Rs. 250.
Retail Discount : NA . 
Face Value: Rs. 10.00. 
Minimum Lot Size: 60 Shares. 
Issue opens on: 27th July 2015, Monday. Issue closes on: 29th July 2015, Wednesday.
Listing Date on: by 14th August 2015.
Total No. of Shares offered: 2,20,00,000  shares or 11.00 %.
Biocon Shareholders Reservation: 20,00,000 shares of total issue.
Net Public Offer: 2,00,00,000 shares.
QIB Book: 1,00,00,000 shares or 50 % of issue.
Anchor Investor Portion: 60,00,000 shares of QIB
For Mutual Funds Portion: 2,00,000 shares of QIB
Balance for all QIB including Mutual Funds: 35,00,000 shares of QIB
Non – Institutional Bidders: 30,00,000 shares or 15 % of issue.
Retail Book: 70,00,000 shares or 35 % of issue.
Equity Shares outstanding prior Issue: 20,00,00,000 shares.
Equity Shares outstanding post Issue: 20,00,00,000 shares.
Total Size of the Issue: Rs. 528.00 Crs - Rs. 550.00 Cr.
IPO GRADING: Strong Fundamentals
FAIR VALUE RANGE - Rs. 320 - Rs. 340.

KEY FINANCIALS31 Mar 1131 Mar 1231 Mar 1331 Mar 1431 Mar 15
Sales (Cr)322.00417.00550.00700.00860.00
Net Profit (Cr)27.0071.00102.00135.00175.00
Net Profit Margin8.38 %17.02 %18.54 %19.28 %20.34 %
EPS (.)1.403.605.106.708.80
NAV (.)11.0014.8025.9033.0043.70
Net Worth (₹Cr)220.70296.80518.60659.30844.90
ROE (%)12.3323.9219.7020.5020.70
ROCE (%)7.4018.0019.7016.6017.50
*Thee face value of company was Rs. 5 and then it consolidated its face value to Rs. 10 on March 16, 2015.

SYNGENE INTERNATIONAL LIMITED: 
Incorporated in 1993 and headquartered in Bengaluru, Syngene International Limited is a subsidiary of Biocon Limited, a global biopharmaceutical enterprise focused on delivering affordable formulations and compounds. Biocon, owns about 85 % of Syngene, and will reduce its stake to about 74 % through the IPO. Syngene International Ltd is one of the leading Indian-based contract research organizations, offering a suite of integrated, end-to-end discovery and development services for Novel Molecular Entities (“NMEs”) across industrial sectors including pharmaceutical, biotechnology, agrochemicals, consumer health, animal health, cosmetic and nutrition companies. Company’s service offerings also support the development of biosimilar and generic molecules. In the near term, it intends to forward integrate into commercial-scale manufacturing of NMEs. As an experienced CRO with a proven track record of providing quality NME discovery, development and manufacturing services and continued focus on reliability, responsiveness and protection of client’s intellectual property, Syngene is well-positioned to benefit from the expected growth in the CRO industry The company offers services through flexible business models that are customized to their client’s requirements. During Fiscal 2015, Syngene serviced 221 clients, ranging from multinational corporations to startups, including 8 of the top 10 global pharmaceutical companies by sales for 2014. It has several long-term relationships and multi-year contracts with their clients, including three long-duration multidisciplinary partnerships, each with a dedicated research centre, with three of the world’s leading global healthcare organizations Bristol-Myers Squibb Co. (“BMS”), Abbott Laboratories (Singapore) Pte. Ltd. (“Abbott”) and Baxter International Inc. (“Baxter”).

SOME FACTS ON SYNGENE:
Syngene provides contract drug discovery, research and manufacturing services to 17 of the world's top 20 pharmaceutical companies, including Bristol Myers Squibb & Co and Abbott Laboratories Ltd. Its revenue rose 25 % in the last three years. It manages a pool of 2,122 scientists including 258 PhDs and 1,665 scientists with master’s degree, to ensure timely execution of projects, cost effectiveness and quality of the projects, confidentiality and protection of intellectual property. The company owns state-of-the-art research facilities spread over 900000 sq. ft., certified by major regulatory bodies. As an experienced CRO, Syngene is well positioned to capitalize on the advantages of its flexible business models that customizes to their client’s requirements globally. There are great opportunities for CROs from the outsourcing markets and thus increasing their share towards global R&D expenditures. The company’s increasing clientele, expanding capacities as well as capabilities, along with plans for forward integration into commercial manufacturing will enable the company to drive growth by benefiting from the opportunities in future. Syngene is well poised to cash in on growing global pharma R&D outsourcing trend. Global pharmaceutical players are facing structural issues such as profit pressures arising from impending patent cliff, drying product pipeline and rising R&D costs. Surprisingly, however, the new product approvals from the USFDA are on the rise. Hence to maintain the cost balance at one end and maintain the new product introduction at the other, these players are inclined to outsource some of the R&D budget to CROs like Syngene. The parent Biocon is looking for a demerger may be considered when Biocon is less financially dependent on Syngene.

OUTLOOK:
The global CRO market for discovery services was estimated at US$14.7 billion in 2014 and is expected to reach US$22.7 billion in 2018, reflecting a CAGR of 11.5 % (2014-18), according to the IQ4I Report. The global CRO market for development services was estimated at US$28.8 billion in 2014 and is expected to reach US$44.6 billion in 2018, reflecting a CAGR (2014- 18) of 11.6 %, according to the Frost & Sullivan Report. Contract research organisations (CROs) offer outsourced services to support discovery and development for R&D driven organisations across industrial sectors like pharmaceuticals, biotechnology, biopharmaceuticals, neutraceuticals, animal health, agro-chemicals, cosmetics and electronics. CRO services span the range of R&D activities from new molecular entity (NME) discovery, development and manufacturing. Growth in the CRO market has historically been driven by growth in R&D spending and increased outsourcing of R&D activities. CROs offer clients an opportunity to manage costs, have flexible operations and realise efficiencies in R&D and related functions. Also, the need for greater flexibility has reduced the willingness of these players to incur large fixed costs associated with large scale R&D programmes. Outsourcing allows clients to convert a portion of their R&D budgets from a fixed to a variable cost, giving them greater flexibility to shift strategic and development priorities in response to market conditions. India has offered a significant cost advantage and skilled personnel. However, as global pharma outsources more R&D functions, outsourcing to India is increasingly seen as a strategic move to garner quality and value, rather than just a tactical decision to lower costs. High recall value Due to its integrated service offerings coupled with consistent performance and high data integrity ethos, Syngene has enjoyed high recall value, which is reflected from the fact that eight out of top 10 clients have been engaged with the company for the past five years. The company has also established dedicated centre for its three major clients Bristol-Myers Squibb Co (BMS), Abbott and Baxter. BMS has also recently extended this engagement with Syngene to 2020. Syngene stands to gain from forward integration to become a Contract Manufacturing Organization (CMO). Further, Syngene’s plan to foray into CMO of novel drugs will add significant upside over the next 3-4 years. Entry into the CMO business will open up the large revenue source (like Divi’s) and make Syngene a complete turnkey solution provider amongst the Indian bourses.

VALUATION:
Syngene is likely to incur capex of US $200mn in the next 2-3 years for greenfield as well as brownfield expansion. It currently manufactures small & large molecule to support clinical trials for multiple clients. It has shown healthy financial performance in the last 5 years. During the last 4 years, revenue grew 28 % and shown PAT CAGR of 59 %. During the same period its EBITDA grew by 31 %. In FY15, the company derived 96 % of revenue from the export market. During FY15, revenue grew 23 % YoY, to Rs. 860 crore, 95 % of which came via exports, while EBITDA margin was healthy at 34 %, leading to an EBITDA of Rs. 293 crore, up 32 % YoY. Since the company enjoys many tax concessions in form of SEZ unit and additional depreciation on plant and machinery, income tax rates are very low, and stood at just 14 % for FY15. Thus, net profit of Rs. 175 crore was earned in FY15, translating into net margin and EPS of 20.3 % and Rs. 8.89 respectively. On equity of Rs. 199 crore (face value of Rs. 10 each), company has net worth of Rs. 845 crore, as of 31st March 2015. While it has total debt of Rs. 155 crore, balance sheet shows current investments and cash balance of Rs. 262 crore, indicating net cash surplus of Rs. 107 crore, or Rs. 5.36 per share. At upper band of the IPO, Enterprise value of SYNGENE comes at Rs. 5,048 Cr and at lower band it comes at Rs.4,848 Cr. 

According to me one should look for subscribing for SYNGENE INTERNATIONAL LTD IPO, the company has fixed the price band at Rs. 240-250 per share. Based on FY15 annual EPS of Rs. 8.80, SYGENE is offered at P/E range of 27.27x on price of Rs. 240 and at a PE of 28.40x on price of Rs. 250. This Ipo is fairly valued given its operational scale. Extrapolating FY15’s earnings growth rates of 30 % to FY16, company is estimated to clock net profit of Rs. 228 crore for FY16 translating into EPS of Rs. 11.45 , which indicates a PE multiple of 21 times, at upper price band. PE multiple of 22 times, based on current year earnings, is attractive for a high-growth pharma stock clocking healthy margins, with a sound balance sheet, backed by strong management team and pedigree. Since Sun Pharma Advanced Research is loss making and there are no other pure-play CRAMs players listed on Indian bourses, no listed peer is ideal for comparison. Thus, with attractive pricing & strong fundamentals with good institutional holdings the Long term investors should look into subscribing the IPO for good opportunity. Short term investor can subscribe for listing gains.

As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase(Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do have applied for the IPO.

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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
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9 comments :

  1. sir....how we cen book before the launch of the ipo....i'm new to this...please suggest

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