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YES Securities
Syngene International (Add)
CMP: ₹590.5
Target: ₹620
Syngene International reported another strong quarter of growth with revenues up 21 per cent y-o-y driven by client mining and acquisition of new customers. Discovery chemistry and biology services led the revenue growth followed by dedicated centres. Albeit, headline growth was aided by 6 per cent currency tailwind offset to an extent by 3 per cent drag from absence of export incentives available last year.
Company offered strong commentary on growth due to tailwinds from increased client confidence on outsourcing core chemistry and biology R&D. Margin declined 150 bps q-o-q on higher COGS though quarterly variations apart, company remains in the top margin quartile compared to global peers.
In other key highlight, Mangalore capex on API capacities would be completed in the next 12 months; Syngene would communicate on the R&D capability and revenue potential closer to the date of operations.
We believe Syngene remains on a secular growth path supported by its proven business model as envisaged in increased collaboration with Merck and new lab infrastructure for Baxter during the quarter.
Our positive bias on the stock is based on visibility of revenues and top-class margin performance that is likely to be sustained even after the foray in to commercial API manufacturing over the next two years.
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