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.

 

Q4FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 677 628 7.80% 601 12.65% 2244 2094 7.16%
PBT 192* 153 25.49% 116 65.52% 467* 516** -9.50%
PAT 161 120 34.17% 102 57.84% 404 412 -1.94%

 

Consolidated Financials (In Crs)
  Q4FY21 Q4FY20 YoY % Q3FY21 QoQ % FY21 FY20 YoY%
Sales 677 628 7.80% 602 12.46% 2249 2094 7.40%
PBT 192* 153 25% 117 64.10% 469* 517** -9.28%
PAT 161 120 34% 102 57.84% 405 412 -1.70%

*Contains an exceptional item of gain of Rs 35 Cr

**Contains an exceptional item of gain of Rs 71.3 Cr

Detailed Results

  1. Consolidated revenues were up with 7.8% YoY in Q4. Profit has risen 34% YoY in Q4 and 15% YoY when not accounting for exceptional gains. 
  2. FY21 saw revenue growth of 7.4% YoY while profits fell 1.7% YoY. 
  3. EBITDA margin at 33% in the quarter and 31% in FY21. 
  4. Syngene extended strategic collaboration with Bristol Myers Squibb until 2030.  
  5. It also completed qualification for Mangalore API facility for GMP certification. 
  6. Syngene received ISO/IEC 27001:2013 accreditation for the majority of its units. 
  7. Syngene also commissioned HPAPI lab to support scale up for manufacturing. 

Investor Conference Call Highlights

  1. The contract extension with BMS should provide for a 40% increase in the number of dedicated scientists as well as adding some additional lab space.  
  2. Syngene has 10 clients now on IDD projects.   
  3. In the last quarter, 10 of Syngene’s scientists were cited in globally renowned publications.  
  4. Syngene’s investments in digitization and automation have helped improve the speed of delivery and reduce the turnaround time.   
  5. Digitization initiatives now completed include a complete upgrade of the quality management system, a sophisticated document management system as well as the more widespread use of laboratory information management systems.  
  6. Syngene is manufacturing remdesivir under a voluntary license agreement with Gilead. This is not expected to yield any significant profits.  
  7. The company has added 40 new clients in FY21 taking the total to >400.  
  8. The BMS dedicated center now has more than 600 scientists.  
  9. The raw material cost for the quarter has marginally increased from 25% of revenues to 26% due to a shift of business mix towards manufacturing of biologics.  
  10. The headcount has risen 11% YoY to 5400 employees.  
  11. The company saw a forex gain of Rs 5 Cr in Q4 vs a forex loss of Rs 1 Cr last year.  
  12. The exceptional gains in Q4 were due to returns from insurance.  
  13. The company has added capacity to its Mamilion capabilities with 1 additional 2,000-liter reactor.  
  14. Syngene is also looking to start investing in viral vector development and manufacturing capability that will cater to clinical and commercial supplies of viral vectors to be used for cell and gene therapy. The manufacturing facilities will have a scale of operations up to 200-liter bioreactors, which can be further scaled up based on business needs. This initiative is supported by Biotechnology Industry Research Assistance Council under the National Biopharma Mission.  
  15. BIRAC has also provided Syngene a grant to part-fund this project. The first phase of this plant will require around INR 200 crores of investment, and the plant will be ready for operations in 2 years.  
  16. The CapEx plan is expected to be between INR 750 crores and INR 900 crores for the financial year 2022, including unspent CapEx rollover from the previous year.  
  17. EBITDA margins have historically been in the range of 30-33% and are expected to stay in the same range according to the management.  
  18. The management states that the biggest learning from the pandemic was to reduce dependence on physical sales channels and to enhance digital initiatives.  
  19. The management has warned that there might be some margin compression in the near future owing to the hiring of new scientific and sales people in USA, EU and client locations.  
  20. The company is awaiting approval for Odevixibat which is to be used to treat PFIC for children. This is the only treatment for the disease right now. This program is a good example of Syngene’s core integrated end-to-end offering according to the management.  
  21. The management has guided for revenue growth close to 15% in FY22.  
  22. Sales growth in $ terms excluding other income has been 12% YoY.  
  23. The management states that the inherent advantage of India as a research destination is the widespread availability of Masters and PhDs as compared to western economies.  
  24. Around 10% of revenues come from the non-pharma segment.  
  25. The management maintains that in looking for capex projects, Syngene always looks to maintain asset turnover of 1 or more for a period of 5 or more years while revenue generation period should be at least 15-20 years.  
  26. The management remains confident of the IDD potential for Syngene and states that the company’s ability to construct an integrated value chain right from IDD to manufacturing will be what drives its growth in the medium term. 

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 Q4 with the contract extension with Bristol Myers Squibb until 2030. The company has also been enhancing its digital side to reduce turnaround time and improve efficiencies. The management remains confident that the IDD research capability and the end-to-end value chain construction ability will be what drives growth for Syngene for the next 5 years. It remains to be seen how long will it take for the company’s foray into CMO to bear fruit and whether there are any surprises in store for Syngene from the 2nd wave of COVID-19. 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. 

 


 

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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