Sell Syngene International Ltd For Target Rs.515 - Yes Securities
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An inline Q; lack of near term surprise keeps us away
Our view
Improvement in guidance from mid‐teens to high teens in FY22 is an acknowledgement of the 21% growth so far in 9m FY22. However, if we remove Remdesivir’ contribution in Q1, growth for FY22 does appear underwhelming in the 14% ball park. Margins have been trended lower in 9m so far (Q1 impact due to lower gross margin in Remdesivir) but expect these to rebound in Q4 and FY23 onwards. Expect revenue growth in the rage of 11‐14% in Q4 coupled with no change to Mangalore ramp up outlook; reiterate our belief in lack of a risk reward at current juncture especially in lieu of lack of revenue or margin surprises; stock has underperformed the wider benchmarks and, while we do not doubt the quality of franchise as Mangalore API scales up, lack of near term catalysts could likely elongate the recent underperformance. SELL stays on unchanged 28x FY24 EPS.
Result Highlights
* An in line quarter with miss on PAT due to higher interest costs and ETR; notably, seeing stronger deliveries in Q4, company raises growth guidance to high teens (clocking 21% growth in 9m FY22 on Remdesivir fueled rise in Q1) v mid‐teens earlier still translating into a tepid 11‐14% YoY growth in Q4 FY22. Ex‐Remdesivir still an underwhelming 14% growth in FY22
* Gross margin came in at 73.2% growing 62bps sequentially, which in turn improved EBITDA margins by 124bps QoQ and flat YoY, coming in at 28.6% vs our expectation of ~28%
* PAT came in at Rs1,040mn including Rs199mn in foreign exchange gain though ex‐FX gain, reported PAT lower than estimate on higher interest costs QoQ. ETR higher sequentially at 23% v 15% in Q2
Valuation
Stock has underperformed the wider benchmarks and while we do not doubt the quality of franchise as Mangalore API scales up, lack of near term catalysts would likely elongate the recent underperformance. SELL stays on unchanged 28x FY24 EPS.
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