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Result Synopsis

Syngene management highlighted RFP flows up 50% YoY albeit on a low base and indeed Q1 has been the best Apr-June period for such proposals in the last 4 years. Company reiterated its confidence that biotech funding is improving which implies H2 and FY26 should see a better environment. While Q1 result came in weaker than expected with sharp fall in gross and EBIDTA margin (owing to higher manufacturing share), management retained its full year revenue and margin guidance range. We have stayed cautious on the stock since at least previous 18-24 months as company navigated a broader CDMO slowdown, lack of growth acceleration and limited margin upside. We believe the first and second issues are now likely to see a reversal as narrative of a biotech funding rebound gains prominence and company highlighted best ever Q1 quarter for RFPs in last four years. We reckon the rebound next year might lead to a growth surprise which is why we have revised FY26 revenue upwards by ~170bps and upgrade to ADD from Reduce. Our revised TP stands at Rs900 (earlier Rs650) based on 45x (earlier 34x) FY26 EPS and believe downgrade cycle of last 12 months is behind us. Reckon a changing FY26 growth expectation and worst of biotech woes being behind can result in a higher target multiple which we have incorporated in our view.

Result Highlights

*  Management retained guidance for revenue and margin despite weaker than expected Q1

*  Gross margin declined 200bps YoY on adverse revenue mix which saw increase in manufacturing share

*  Dedicated centres and biologics manufacturing saw steady growth while discovery business continues to be impacted by biotech funding

*  Acquired Stelis facility should see completion of qualification and modifications in H2 FY25

*  Depreciation lower on reassessment of asset life while PAT included insurance payout related to 2016 fire incident

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