-------- Forwarded Message --------
Subject: Syngene IPO: Target Might Be Around 315 In The Days Ahead
After Listing, But Some Short Term Pain Can't Be Ruled Out (215-240-300
Date: Sat, 25 Jul 2015 12:56:42 +0530
From: Asis Ghosh <asis...@gmail.com>
Reply-To: asis...@gmail.com
To: undisclosed-recipients:;
Syngene is a contract research organization/subsidiary (CRO) of Biocon,
planning to raise Rs.550 cr from its IPO. Syngene is planning further
for commercial manufacturing (forward integration) space and will spend
around $200 million over the next two/three years. The capex will be
invested mostly in setting up of new manufacturing capacity (at
Mangalore) and expanding of existing facilities. After the setting up,
Syngene will be a full-fledged contract research & manufacturing service
player (CRAMS).
Some inputs & possible risks:
* This is basically is an offer for sale (OFS), where the parent
Biocon is selling (de-levaraging) its stake (from 84% to 74%) and
the whole proceeds will go to Biocon and Syngene (i.e. more positive
for Biocon scrip in the short term).
* Syngene will further fund the planned expansion through internal
accruals & debt.
* Presently, Syngene has two business models: R&D and clinical supply
of biopharma (60% revenue) and get around 40% revenue in the form of
fees for service for full time/equivalent dedicated centres, which
has primarily three large global pharma players (Baxter, Abbott and
Bristol-Meyer Squibb).
* The above dependance of 40% revenue from three clients may be a
considerable risk, even any one of them pulls out in future
(partially or fully) and may affect growth rate in revenue.
* Syngene's proposed foray into commercial manufacturing &
diversification in future may help to contain such risk and ensure a
stable revenue base.
* The custom/contract research market is huge and is growing around
11.5% pa, has now around $100 billion market globally.
* No doubt, there will be huge scope going ahead in CRO, any slowdown
in research by these global big pharma MNC(s) may adversely affect
the CRO(S), like Syngene.
* This is the only listed Indian CRAMS (contract research and
manufacturing services) with little/nil competition.
* Company's promoter & its MD have been named respondents in a
criminal & legal proceedings. An adverse outcome in any of these
proceedings may affect the reputation and future business of the
company. (Novartis sued Biocon for patent issue of anti diabetic
drug Galvus).
* Last FY's audited balance sheet, showing contingent liabilities of
around Rs.181cr may adversely affect the profitability of the
company in future, if materializes.
* Around 97% of the revenue of Syngene comes from export and any
unfavorable currency movements may pose some headwinds for the company.
* Syngene has considerable number of bright scientists, which is a
major asset in its R&D wing, but the huge HR cost (nearly 5500
employee in its pay roll) may pose some threat in future if there is
above average increase in employee cost & salary not supported by
incremental higher revenue.
* Syngene's past financial performance has been robust with sales
growing at around 28% annually for the last five years and OPM at
around 30%. But, at the end of the day, EPS is around 6.70 & 8.80
(FY:14/15), translating an average EPS of around 7.75 & current PE
of around 32 at IPO upper band of Rs.250. With and estimated EPS
growth of around 20-25% in FY:16, the company is basically asking
for a valuation(PE) of around 22-25 times of its projected earnings
(EPS @9.75).
* The EBITDA & ROE is well supported by incrementally higher sales
growth and lower finance cost, which may be sustainable in future also.
* Comparing with its nearest Chinese rival (WuXi), if we assume an
average PE of around 22 for the projected FY:16 EPS of 9.75, the
fair valuation of Syngene might be around 215 (9.75*22).
* But, in practical, Indian market is traditionally at higher premium
over its Asian counterpart and "safe heaven" appeal, specially after
recent China market turmoil. Considering the average PE enjoyed by
its near similar & comparable company (Divis Lab & SPARC), our
market may assign a average PE of around 30-32 to Syngene upon/after
listing as also "Bangalore" stamp is there ( now an unique appeal of
"start ups & innovations", where the parent Biocon starts with mere
Rs.10k in a rented garage decades ago and Infy also has similar story).
* Thus, after listing Syngene might be quoted as around 290-315
(9.75*30-32) by our market in the days ahead.
* By using PEG of 1, fair projected valuation of Syngene might also be
around 300.
In brief, the bottom line is that after listing broad range of Syngene
might be around 215-240-290-315 in the near term. It could give
substantial return by next three years or so and investors having eye
sight for long term, could partly subscribe to this issue (because,
immediately after listing it may fall to some extent as there will be
some concern of further dilution of stake by its parent, Biocon).
Initial investors should be also prepared for that scenario also and may
average in any substantial declines after listing.
As par BG metrics, current median valuation of Syngene may be around 230
and projected valuations might be around 260-290-325 (FY:16-18).
SCRIP EPS(TTM) BV(Act) P/E(AVG) LONG TERM SHORT TERM MEDIAN
VALUE 200-DEMA 10-DEMA
SYNGENE 7.75 100.00 30.00 223.58 236.22 229.90 215 240
SYNGENE 9.75 118 30.00 250.77 264.95 257.86 215 240
SYNGENE 12.25 142.5 30.00 281.09 296.98 289.04 215 240
SYNGENE 15.35 171 30.00 314.65 332.45 323.55 215 240
--
Thanks & Regards,
Asis Ghosh
--
Kindly email stock reports at
STOCKRESEARCHER@googlegroups.com
For sharing knowledge
-- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE.
http://www.niftyviews.com/
Disclaimer :-
"The opinions expressed by the members on this board are based on
their individual experience and perceptions and to share information
with other members with the best of intentions to help fellow members
in investment decisions as equity investment is a risky venture.The administrator of
www.Niftyviews.com just provide a platform for the authors to express their opinion
and take no guarantee for the genuineness of the same."ANY member of this forum
doesnt prepare or publish any research report; or ii. provide research report; or
iii. make 'buy/sell/hold' recommendation; or iv. give price target;
---
You received this message because you are subscribed to the Google Groups "Niftyviews.com" group.
To unsubscribe from this group and stop receiving emails from it, send an email
to stockresearcher+unsubscr...@googlegroups.com.
For more options, visit https://groups.google.com/d/optout.
