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26 Aug, 2025 12:21

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Syngene International IPO note by FinQuest Securities
Syngene offers integrated drug discovery and development services with capabilities in medicinal chemistry, biology, in vivo pharmacology and toxicology. It has a research team of 2,122 scientists. Syngene provides contract drug discovery, research and manufacturing services to 17 of the world's top 20 pharmaceutical companies, including Bristol Myers Squibb & Co and Abbott Laboratories Ltd. The company's revenue, EBITDA and earnings grew at a CAGR of 28%, 31% and 59% respectively in the last four years. The company operates in the CRO (Contract Research Organization) space which has a huge potential. The overall growth in the multinational R&D stands at 3-5%but considering the size of spend at ~$140bn the potential seems huge. According to the company out of the total $140bn in global R&D spend ~66% could be outsourced while currently it i s ~50% via clinical trials etc. But going ahead this could go upto 60-70%.

"In January, Biocon sold 10% stake in Syngene for Rs 380 crore to IVF Trustee Company valuing it at Rs 185 per share, but this was based on 9 months earnings (annualized earnings of 9MFY15 were much lower than what was reported for FY15). At Rs.240-250, Syngene is valued at 27-28 times its FY15 earnings and 22x FY16E earnings while the S&P BSE Healthcare index trades at a TTM P/E multiple of 33x. Globally, Quintiles Transnational Holdings Inc is a major player in the CRO space while the management says Wuxi Pharmatec is the closest competitor from China both of which are trading at a 1 year forward PE of 24x. We believe, in India SPARC and, Hikal, though much smaller than Syngene are close competitors in this space. While Hikal is trading at 27x on a TTM basis SPARC is still making losses. Taking into account the future CMO opportunity and long term relationships with clients we believe the earnings should continue to grow at a CAGR of 30%. With an ROE of ~23%, EBITDA margin of ~34% and positive free cash flow, the company could easily trade at 30x its 1 year forward earnings giving an upside of ~35% from the issue price. The incremental growth from CMS could take the company into a much higher growth trajectory, but this growth is at least a year away. The future uptick from the CMS opportunity could result in premium valuations for Syngene in the near term as well", says FinQuest Securities research report.

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