Syngene International IPO note by KRChoksey

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The global Contract Research Organization (CRO) market for discovery services was estimated to be US$14.7 billion in 2014 and is expected to reach 22.7bn USD in 2018, reflecting a CAGR of 11.5% (2014-2018), according to the IQ4I Report. The global CRO market for development services was estimated to be 28.8bn USD in 2014 and is expected to reach 44.6 bn USD in 2018, reflecting a CAGR (2014–2018) of 11.6%, according to Frost & Sullivan. We believe company is well-positioned to capture market opportunities and to benefit from the expected growth in the R&D outsourcing market through its competitive strengths on back of world class infrastructure & qualified pool of scientist. Syngene plans to build on integrated services to “follow” clients’ molecules across discovery, development and manufacturing. We believe the company is a one-stop shop for clients to advance their R&D programs from the discovery stage through preclinical and clinical trials and, with new planned manufacturing facilities to support them through the commercialisation process.

Company intends to evolve from a CRO into a Contract Research and Manufacturing Services (CRAMS) organization with commercial-scale manufacturing capabilities, by leveraging existing relationships with clients and provide forward integration on the discovery and development activities. It currently manufactures developmental batches of both small and large molecules to support clinical trials for multiple clients. It has signed 3 long term manufacturing contracts with clients which will be filed with USFDA in future out of which one is 505(b)2 product filed from Syngene’s facility which can get monetized by FY17. We believe Syngene will benefit from operating leverage once it starts commercial manufacturing for these clients.

Valuation & Outlook
"Syngene has showed revenue & earnings CAGR of around 28% & 59% respectively over FY11-15. Considering earnings CAGR to be around 25% over FY15-17E, the stock trades at 18x FY17E at upper price band of Rs 250. We are positive on the business model of Syngene from the long term perspective alongwith the fact that it is the only profitable listed CRO company, it can command a premium multiple. We recommend “Subscribe” to Syngene International IPO", says KRChoksey research report.