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Growth trajectory maintained, outlook upbeat…

FY21 revenues grew 8.6% YoY to | 2184 crore driven by steady growth across all divisions. Adjusting for loss of export incentives, revenues grew 12% in FY21. EBITDA margins remained flat YoY at 30.8% with better gross margins being offset by higher employee cost amid higher headcount. EBITDA grew 8.7% YoY to | 672 crore. Adjusted PAT grew 4.4% YoY to | 382 crore. Delta vis-a-vis EBITDA was due to higher depreciation and lower other income partially offset by lower tax rate.

Integrated business model, customer stickiness to the fore

Revenues grew at ~15% CAGR in FY16-21 to | 2184 crore due to new client addition on a regular basis and scaled up revenues from existing clients led by integrated service offerings, high data integrity ethos and continuous endeavour to move up the value chain. Eight of the top 10 global pharma companies have been availing services for the last five years. It has a pool of 4700 scientists. The client base has grown from 256 to 400 over FY16-21.

Global pharma landscape conducive to R&D outsourcing

Global pharma players are facing structural issues from the impending patent cliff, a shrinking product pipeline, rising R&D costs and growing competition. To maintain the structural balance and improve profitability, they are inclined to outsource a substantial part of the R&D work. Similarly, the innovative/virtual companies that are extensively working on new products and that may not have the required capital/manpower also tend to outsource a substantial part of their R&D.

Valuation & Outlook

A key notable in Q4 was extension of Syngene's research collaboration with BMS till 2030, which will lead to 40% incremental scientists (currently ~550) and an additional 50,000 sq ft dedicated lab space for BMS. For FY22, the management envisions mid-teen revenue growth on the back of continuous client additions, an extension of existing contracts, increasing manufacturing and biological contributions whereas bottomline growth to be in single-digit amid incremental opex and higher depreciation.

Additionally, capex outlay for FY22 has been increased to | 750-900 crore, likely on the back of BMS extension along with orderbook visibility, which will be a significant determinant of improvement in return ratios going ahead. With elite client additions like Amgen, Zoetis, Herbalife, GSK, etc, and multiple year extension of BMS, Baxter contracts, the company remains well poised to capture opportunities in the global CRO space. We remain positive on the company and maintain BUY despite the recent run up in the stock and arrive at a target price of | 700 (unchanged) based on ~45x FY23 EPS of | 15.5.

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