Goldman Sach initiates 'buy' on Syngene, Neuland, adds 'sell' tag to Larus Lab

Goldman Sachs expects Syngene to benefit significantly from the China+1 trend due to its end-to-end service capabilities

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Brokerage Goldman Sachs has initiated a 'buy' rating on Syngene International Ltd and Neuland Laboratories Ltd and raised the target price by 20 percent to Rs 875 and by 46 percent to Rs 9,100 from the current market price. The brokerage house also initiated a 'sell' call on Laurus Labs Ltd with a target of Rs 350 a share, down 23 percent.

Goldman Sachs recently expanded its coverage to the India CRO/CDMO sector, noting that Indian companies are becoming increasingly important in the global pharmaceutical supply chain. They expect India's global market share in small molecule CDMO to increase by 30bps and in CRO by 70bps by FY28. In a bullish scenario, these gains could triple.

The main reasons for India's potential growth include improvements in capacities, capabilities, and customer relationships. Key events to watch out for include ARBN’s $250-million Pen-G API commercialisation and biotech funding. They anticipate a 22 percent increase in operating profit over FY24-27, mainly due to a 13 percent increase in revenue and operating leverage benefits, leading to EPS estimates above consensus. Despite high valuations, they argue that the strong earnings outlook justifies higher multiples.

Syngene is the country's largest integrated CRAMS/CRDMO, offering services to various sectors including pharmaceuticals, biotechnology, and consumer goods. Goldman Sachs expects Syngene to benefit significantly from the China+1 trend due to its end-to-end service capabilities. Despite short-term macro challenges in CY24, multiple catalysts are anticipated, including improvements in biotech funding, the ramp-up of manufacturing plants, and new contract wins, especially amid the anti-China sentiment. Progress on the US Biosecure Act could also bring disproportionate benefits to the company.

Neuland manufactures APIs. With a transition towards CDMO services, it has diversified its offerings. Despite growth challenges in FY25 due to a high base, Goldman Sachs sees several catalysts for the company, including improvements in biotech funding, new capacity at unit-3 starting from FY25-end, and the commercialisation of a large molecule in FY26/27. Progress on the US Biosecure Act could also bring significant benefits.

Laurus Labs operates primarily in APIs, formulations, small molecule synthesis, and biologics. The company has evolved from an ARV player to an API manufacturer, and now heavily invests in its CDMO business. While Goldman Sachs acknowledges the company's capex efforts, they issue a 'sell' rating due to an unfavorable risk-reward ratio, lack of catalysts for the CDMO business in CY24, mismatches in new capacity monetisation timelines versus street expectations, slower growth in FY25 compared to peers, and risks associated with margin guidance versus expensive valuations.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.