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Mixed numbers; Remdesivir impacts margins…

About the stock: Syngene is an innovation-led contract research, development and manufacturing organisation offering integrated scientific services from early discovery to commercial supply.

* It is one of the largest listed contract research organisations (CRO) in India

* Revenue breakup: Discovery services (35%), dedicated services (32%), development and manufacturing (33%)

Q1FY22 Results: Syngene reported mixed Q1FY22 results.

* Revenues grew 41% YoY to | 658.5 crore amid lower base, normalisation of all verticals and manufacturing of Remdesivir

* EBITDA margins contracted 178 bps YoY to 27.8%, owing to change in product mix

* Consequent PAT was at | 77.3 crore (up 33.3% YoY)

What should investors do?

Syngene’s share price has grown by ~2.9x over the past five years (from ~| 201 in June 2016 to ~| 583 levels in June 2021).

* Due to the structural story of outsourcing, we remain positive and retain our BUY rating Target Price and Valuation: We value Syngene at | 780 i.e. 50x P/E on FY23E EPS.

Key triggers for future price performance:

* Guided double digit revenues growth for FY22

* 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

* Eight of the top 10 global pharma companies have been availing services for the last five years

* The client base has grown from 256 to more than 400 over FY16-21

Alternate Stock Idea:

Apart from Syngene, in CRO/CRAMS space we also like Divis.

* Divi’s stays a quintessential play on Indian API/CRAMs segment with its product offering, execution prowess

* BUY with target price of | 4825

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