Buy Syngene International; target of Rs 640: Dolat Capital Market

Dolat Capital Market's research report on Syngene International

Syngene reported mixed set of numbers in Q2, where the top-line growth has been healthy at 12% YoY ($ term revenue growth – 10%) led by discovery services and steady traction in dedicated R&D segment. However, EBITDA margins were weak at 28.7% (down 60bps YoY, 170 bps QoQ). Operational expenses from Mangalore API plant along with front loaded costs of employee ESOP plan (to be amortized over a period of time) impacted margins. Company continues to maintain its FY21 revenue guidance of low double digit and flattish PAT implying a stronger 2H (1H – revenue growth was 6%). With operations achieving normalcy in 2Q, management believes that COVID has risen uncertainty in business but do not expect it to act as a major disruptor in the long run. The company remains aggressive on the capex front (~US$463mn already spent & another ~US$87 million earmarked for FY21), attributable to order book visibility.

Outlook

We expect FY21 to be an inflection point for Syngene as capex intensity tapers and newly-added capacities/capabilities ramp up from FY22, driving sharp expansion in return ratios. We value Syngene using DCF (WACC: 10.5%, terminal growth: 5%). Our PT of Rs640 implies 48x/39x FY22/FY23 PE.

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