About the Company

Syngene International Limited is a contract research and manufacturing company which provides drug discovery and development services in India and internationally. The company serves start-up companies, pharma/biotech, agrochemical, chemical, nutrition, and animal health companies. It has partnerships with Bristol-Myers Squibb Co.; Baxter International Inc.; Amgen Inc.; Zoetis Inc.; GSK; Merck KGaA; Artelo Biosciences, Inc.; PharmAust Limited; HiMedia Laboratories; and Zumutor Biologics. The company was incorporated in 1993 and is based in Bengaluru, India. Syngene International Limited is a subsidiary of Biocon Limited.


Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 601 539 11.50% 531 13.18% 1568 1466 6.96%
PBT 116 106 9.43% 94 23.40% 275 363* -24.24%
PAT 102 92 10.87% 84 21.43% 243 292 -16.78%


Consolidated Financials (In Crs)
  Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 602 539 11.69% 533 12.95% 1572 1466 7.23%
PBT 117 107 9% 94 24.47% 277 364* -23.90%
PAT 102 92 11% 84 21.43% 244 292 -16.44%

*Contains an exceptional item of gain of Rs 71.3 Cr

Detailed Results

  1. Consolidated revenues were up with 12% YoY growth. Profit has risen 11% YoY in Q3.
  2. EBITDA grew 11% YoY in Q3 with EBITDA margin at 32% in the quarter.
  3. Syngene collaborated with Deerfield Discovery and Development (3DC) to advance integrated drug discovery projects, from early target validation through to preclinical evaluation. 3DC has awarded four new Integrated Drug Discovery (IDD) projects.
  4. Syngene has also expanded its research facility in Genome Valley, Hyderabad, India and added capacity for additional 90 scientists.
  5. Syngene has also set up a new RT-PCR testing facility that is approved by NABL and ICMR and has test >1 Lac samples.
  6. In the Discovery Services division, the Company has received NABL (National Accreditation Board for Testing and Calibration Laboratories) accreditation to provide safety assessment services for testing medical devices from its facility in Bangalore.

Investor Conference Call Highlights

  1. The 4 IDD projects from 3DC are in Oncology and Autoimmune segments.
  2. Syngene has currently close to 175 scientists operating out of the Hyderabad facility.
  3. The company saw EBITDA margin appreciation of 150 bps on improvement in direct cost with raw materials and power cost which has gone down from 28.5% last year to 27% currently.
  4. Staff costs increased by 16% to INR 176 Cr. Other expenses have risen 13% YoY due to new ways of doing business during the COVID-19 times and an increase in cost associated with maintaining necessary health and safety protocol.
  5. Depreciation rose 22% YoY to Rs 70 Cr owing to the investments in the Hyderabad facility, expansion at the main Bangalore campus and the commencement of the Mangalore commercial API plant at the end of the last financial year.
  6. Syngene recorded an exchange gain of INR 8 crores in the quarter. The effective tax rate was at 12.3% vs 13.9% last year. Forex gain in the 9M period was at Rs 12 Cr vs Rs 15 Cr last year.
  7. Capex in 9M was at $53 million. Of this, $8 million pertains to the commercial API manufacturing facility, another USD 16 million was invested in Discovery Services, USD 15 million was invested in dedicated centers, USD 7 million in the biologics manufacturing facility and a balance of USD 7 million in Development Services and other assets.
  8. The company maintains its guidance of spending USD 550 million by end of March 2021. Some part of this may spill over into Q1FY22.
  9. The company continued to work at near 100% operational levels in Q2 and Q3.
  10. Mangalore OpEx is diluting Syngene’s margin by close to 2%. The company has spent $75 million here and will be depreciating this number over 18 years.
  11. The management maintains that the company’s successful track record and its scientific capability are what led 3DC to choose it as its collaborator.
  12. Headcount numbers and people costs will continue to grow in absolute terms as people are a direct revenue generator in terms of how that business model works for Syngene.
  13. There is a general slowness around the whole of the industry globally on starting new clinical trials as all hospitals around the world are running close to full capacity due to COVID.
  14. The management has stated that most of the work Syngene does with BMS is under a research discovery relationship. It is working on the science today that will probably become new product approvals in about 8 years.
  15. The management has stated that it has expanded on the Mangalore facility to be able to win more integrated projects and expand upon the CMO opportunities in the future. The startup period for this venture is expected to be till the next 5 years.
  16. Although the company faces tough competition in the biologics space from global giants like Lonza and Samsung, the management is confident of the company’s value proposition and the space for agile, modestly scaled, and competent Biologics manufacturers in the industry.
  17. Constant currency growth in Q3 is above 10% YoY.
  18. The gestation period for the Mangalore expansion will be around 3-5 years before it starts showing a strong return on capital employed in that investment.

Analyst’s View

Syngene is a fast-rising player in the CRMO space and has established itself well with its associations with industry leaders in the pharma space like Bristol-Myers Squibb, Amgen and others. It has seen a good Q3 with revenues rising 12% YoY and EBITDA margins improving to 32%. The company has seen a good response to its CRO capability and this has resulted in its association with 3DC for its Integrated Drug Discovery platform. The management remains cautiously optimistic on its foray into contract manufacturing with the setup of the Mangalore facility. It remains to be seen how long will it take for the company’s foray into CMO to bear fruit and whether the company can continue its robust growth momentum on its current CRO capabilities. Nonetheless, given its scientific capabilities, its associations with industry leaders for drug discovery, and its expanding reach in the global pharma space, Syngene is a pivotal midcap pharma stock to keep in mind for all investors.




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