Top five reasons why long-term investors should 'subscribe' to Syngene IPO

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Long-term investors should 'subscribe' to the Syngene International IPO which will open for subscription on Monday, 27 July, and close on 29th July 2015, AnandRathi said in a note.

As an experienced CRO, Syngene is well positioned to capitalize on the advantages of its flexible business models that customize to their clients' requirements globally, said the research firm.

On the valuation front, the company is available in the PE of 27.4x - 28.6x at higher price band. EBITDA margins of the company are in the range of 31-33%, PAT margins at 18-20% and currently it is growing at a CAGR of 27% for the last 3 years, which shows consistency.

Analysts at AnandRathi are positive on the business model of Syngene from the long-term perspective and thus recommend 'long-term subscribe' to the issue.

AnandRathi lists out top five reasons why long-term investors should 'subscribe' to the Syngene International IPO:

World-class infrastructure, systems and processes 

As of March 31, 2015, the company's tangible fixed assets or gross block were Rs.931.1 crore. The infrastructure, along with high standards of regulatory compliance and quality services, provides the sustainable competitive advantage.

The research facilities and systems are certified with ISO standards. Also, the pre-clinical and clinical research facilities are GLP certified and accredited by Association for Assessment and Accreditation of Laboratory Animal Care ("AAALAC"). In 2014, they successfully completed an FDA preapproval inspection of one of their manufacturing facilities.

Talented pool of scientists and an experienced management

Syngene has an experienced and qualified team of scientists across multiple disciplines. As of May 31, 2015, 90.6% of their scientist pool of 2,122 scientists had a Master's degree or a Ph.D.

Their position as an industry leader represents a significant competitive advantage in attracting and retaining high-quality scientists required to successfully execute the innovative business model and to differentiate the service offerings from those of other contract research organizations (CROs).

Fully Integrated Service Platform

Syngene's core operations are grouped into Discovery Chemistry, Discovery Biology, Chemical Development, Formulation, Safety Assessment, Clinical Services, Stability Services, Large , molecule Development, and Manufacturing.

The company offers a wide breadth of quality services to meet their R&D needs, and Syngene intends to continue to expand their service offerings in line with the evolving requirements of their clients in the future.

Attractive and diversified client base with several client collaborations

During the fiscal 2015, Syngene has serviced 221 clients including 8 of the top 10 global pharmaceutical companies by sales for 2014. They have longstanding, extensive relationships with multinational clients such as BMS, Baxter, and Merck & Co, as well as emerging small to mid-sized companies such as Achillion Pharmaceuticals, Inc., Aquinox Pharmaceuticals, Inc. and Saniona AB. Syngene continually strived towards strengthening the client relationships by ensuring that their service offerings keep pace with the clients' requirements.

Financial stability and stable cash flows

Syngene has the financial stability and steady operational cash flows to enable the extension of the platforms in line with the present and future needs of their clientele. The long-term collaborations with certain clients lead to predictable and stable cash flows.

For the financial years 2015 and 2014, Syngene generated total revenue of Rs.871.6 crore and Rs.707.7 crore, EBITDA of Rs. 292.8 crore and 222.6 crore and restated profit for Rs.175 crore and Rs.134.8 crore, respectively.

For the three fiscal years ended March 31, 2015, the total revenue, restated profit and EBITDA grew at a CAGR of 27.7%, 35.1% and 28.3%, respectively.