Syngene International


Though I have been in market for some time, I was never into pharma sector. Now trying to learn and build conviction. Also I am quite new to VP. So if there are any mistakes do point out, we can have a healthy discussion.

Syngene International, a subsidiary of BioCon is coming up with the IPO from July 27 2015 to July 29-2015 with a price band of 240 to 250 for 550 Crore.

At this price band the stock is at 27-29x on FY15 with an EPS of 8.8. For the last 5 years from 2011 to 2015, sales have grown at a very good rate of 28% and earnings at 59%. Though valuations are bit high, most analysts have given it a subscribe rating.

Can you guys comment on the business model of this company and the growth prospects?

Disclosure: I do not own Biocon or any pharma stocks as of now.


I am also inclining towards this as Outsourcing will continue to grow even for Pharma companies like IT and long term outllook looks good.

@Vivek_6954, Need your inputs based on your prior IPO experiences

yet to study it.may apply

more like sub 8 eps for fy 15 - so claim is at 31 PE - i expect other crams players like granulEs or suven or pi industries to gain if syngene ipo gets oversubscribed so that might be better way to play crams ? otherwise i think this would give average returns because of huge asking price of 31 PE

The offer price at 21PE which SEEMS TO BE VERY HIGH.

also allotmemt upto 15 k only is a miniscule allotment thanks to new sebi rules.v

My personal opinion is after a long time we have a good high potential ipo…my analysis of business model makes me believe the company is on a sound footing and future strategy is great…

In this industry one has to go through substantial relationship building phase and syngene has already done that. Forward integration will result in good high margin scale up…only thing is its in a substantial capex phase…how well it handles that will be key.

To add co. will be adding 1200 cr. to GB over next 3-4 years…in subsequent 2 years post addition asset turn should climb to 1.2-1.3 times…with a blended ebitda of 30% (guided by the management in Analyst Meet) this is the sort of opportunity we are sitting at

Syngene seems a great IO and based on PE deals done in the sector (GVK & Sai) and its asian peer wuxi valuation, it might finally settle at 20-22xFY16e EV/EBITDA band post listing…if this actually happens, then IPO seems to have been priced quite reasonably.

Having studied PI Ind in detail. Syngene business model is similar although in different segment but Syngene is involved with innovator even before PI does…only missing thing was crams which should start within two years…

I will advise to look at Indian peers like GVK, Sai, Siro, TCG, Rubicon, etc. in addition to studying PI Ind before attempting to understand Syngene…its an interesting study. I Have looked at past 10-12 years financials and history of peers and its a beauty to see the consistency of Syngene in the segment because of which it has emerged as largest CRIS company of India.



Peer Comparison for Syngene :

Peer Valuation Comparison for Syngene :


FY 15 figures are available in RHP. I expect them to do an EPS of 10.72 for FY 16. On forward basis, it is not expensive. CRO looks like a money guzzler. They raised Rs 380 cr ( Rs 190/share) and is almost spent now. The capital will be double of Biocon. Please also look at CF in RHP and it is not a very comfortable picture . Rs 190 to Rs 250 Is it ok for a p/e investor.

I think we may get this share sometime after listing. The huge capital will be a dampener and it will pull down the stock price.

I will go slow on investing in this. Will also study how this Rs 550 cr is going to be utilised.

I have not studied Prospectus in detail but my understanding is …

  • Proceeds of the IPO is not coming to Syngene‚Ķ all of this will go to parent company Biocon
  • Valuation do not look very expensive that is when you compare it with other indian companies (chart Mahesh as put) or global CRO companies like Quintiles


Yes FY15 figures are available in RHP but since FY15 figures of its Indian peers are not available, chose to provide figures till FY14 only…

Will not like to comment on valuation as I am a firm believer of the fact that ‚Äúbeauty lies in the eyes of beholder‚ÄĚ, however, Have personally studied deeply similar companies before‚Ķ first Divis and then PI Ind‚ĶSome views from my end :

(1) Once listed, Syngene could become a unique company which might not have any comparable peers…its business model’s closest match in the listed space is PI Ind.'s CSM segment model, but its in a different space i.e. agrochemicals…Both have a singular focus and that is New Molecules…however, PI is involved with innovator at a later stage i.e. at process research stage whereas Syngene is involved from very beginning at discovery stage…Once custom manufacturing starts, Syngene will be present right across the lifecycle of a New Molecule…

Divis is also similar and that too in Pharma space but it has generic exposure too and like PI, it is involved with the innovator at a later stage than Syngene.

(2) In unlisted space the closest Indian match is GVK Bioscience but it is also involved in generic space especially via its subsidiary Inogent Lab.

(3) Post listing, it will not only be India’s only pure-play CRO+CRAMS focussing on new molecules but also Asia’s largest listed company in the space as the only bigger peer Wuxi is getting delisted soon (delisting price @23.73xTTM EV/EBITDA & 4.45x TTM EV/Sales & 29.31 TTM P/E).

(4) The beauty of this business model is that once you are into commercial manufacturing of a New Molecule, your failure is more detrimental to your client than yourself…This is because, normally, an innovator doesn’t keep more than two to three suppliers in the initial years of commercial launch of its patented product. So, a supplier gets long term contract inplace with good margins and there is no threat of generic for atleast 6-10 years…So with the success of innovator, supplier also flourishes whereas in case of remote chance of failure of the molecule post launch, you have minimum compensation clause inplace which protects the supplier.

(5) If we talk specifically for Syngene, then it has already signed contracts for three molecules which are under process of commercial launch out of which for one supply might start by FY17…However, stabilisation takes time and we might be able to see the real benefit of this only starting 2HFY18…

(6) Syngene has lined up ~1200 cr. CAPEX over next three years…Key is how well it manages this CAPEX…if it can manage this by judicious mix of internal accruals, debt as well as equity then this company has the potential to be a good wealth creator…

(7) Asset turn is key to margins and with Syngene only at 0.93 with a scope to reach 1.2-1.3 post stabilisation, margins might be very healthy post stabilisation phase of CAPEX…Initially, although management has guided for blended EBITDA margins of 30 % in the analyst meet but I expect a blended EBITDA margin of 27-29 % considering the pace of CAPEX and the fact that manufacturing might only command at best 24-26 % margins in first two years.

Regarding ‚Äėmoney guzzler‚Äô, yes its a business requires continuous CAPEX to support your clients and asset turns in this business are low at only max 1.2-1.5 ; however, as compared to other CAPEX, this businesss CAPEX is normally backed by firm contracts and offtake post commercialisation of NME usually rises gradually for first 6-8 years atleast‚Ķin addition, margins in this business are relatively high which more than compensates for upfront CAPEX you incur‚ĶLet‚Äôs have a look at EBITDA to Fee Cash Flow conversion of Syngene (Clinigene combined) for last 14 years ‚Äď the maximum data I have‚Ķ

Lastly, not a single paisa of INR 550 cr. raised via this IPO is going to be used for Syngene business…entire proceeds go to its parent Biocon to invest in its own other businesses ex-Syngene.


Discl.- Subscribed to IPO.


Thanks Mahesh Excellent insight into the business. I have to learn a lot from people like you in this great forum and ignore guys who just raise issues for the heck of it.

The entire business model is fully described in RHP and that tallies with what yu say on long term. They have as clients 8 out of top 10 global pharma majors( in terms of sales). very good comfort factor.

Most probably the money is going to Biocons Malaysian Plant.

Not yet invested

A nice report on Syngene IPO by Phillip Capital.

Seems Syngene qualifies for a core portfolio stock for me due to

  1. V ethical promoter

  2. Huge opp size

  3. Sticky customers due to data integrity

  4. Scarcity Premium due to first listed player in CRO space.

  5. Play on Indias demographic dividend

Another noteworthy point to the valuation Syngene is asking for comes from its projected market cap at the IPO price, which is around Rs. 5000 crore. In contrast, parent Biocon (of which it is a part), can command a market cap of Rs. 9323 crore only. This comes across as an anomaly as Syngene accounts for only 28% of Biocon’s sales and 33% of Biocon’s profits. Though a subsidiary’s IPO can unlock some value, there seems to be an attempt here to command too much value.

more details

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I do not find it fair to compare valuations of parent company and subsidiary.

For example, Kesar terminals and infrastructure Ltd has a subsidiary named KMLL. If KTIL decides to make KMLL public, it will for sure command a better p/e multiple than KTIL.

Also, KEL owns 9.52% of KTIL. The value of this stake alone is more than market value of KEL, at present.

As far as I am concerned, I’ll pay more for a better business, subsidiary or parent.

Disclosure :- I’m invested, so my views are probably biased. This is not a buy/sell recommendation.

Few Doubts
Why is it being said that being CRO will demand scarcity premium ? All the CRAMS players are also involved in Custom research like Syngene, though the area of expertise will be different. As per DRHP, Syngene intends to evolve into CRAMS player by venturing into commercial manufacturing of drugs after successful completion of clinical trials.

What is the face value of shares. I see that share capital is 27 cr, total outstanding shares - 20 cr.

Does the company hold any patents . Could not find info on same ?

Company has mentioned that they will benefit from commercial production of molecules which are in late stage of clinical trials. but could not find break up of no. of molecules in each stage of trials.
Any idea how many molecules are likely to move to commercial production ?

all foreign directors except for Kiran shaw ? even though the operations are based in india ? Not much of a negative point, i find it strange though.


Valuation is a complex process Prabhakar and its not as simple as you put it…Market valuation often suggests more than what prima-facie meets the eye…

In case of Biocon, since Syngene is a subsidiary and Biocon is only a holding company, therefore, valuation that you see currently doesn‚Äôt fully reflect Syngene valuation in it ‚Äď normally, holding companies reflect only 30 % of the actual value of their subsidiary‚ĶLet‚Äôs do a simple calculation exercise here‚Ķwhat we will do is take the IPO price of Syngene as its market price and deduct 30 % of Biocon‚Äôs 74.5 % stake valuation from its current valuation commanded and then arrive at valuation multiples assigned by the market to its remaining business ex-Syngene‚Ķ

For this let’s first do the financials parameters calculation and arrive at financials of Biocon’s ex-Syngene business…

Now, you will see the beauty of unlocking the value…lets arrive at valuation multiples assigned by the market @CMP 458 for Biocon and @250 for Syngene after deducting 30 % of Biocon’s share in valuation of Syngene (@250)…

A business which was in combination getting valued pathetically now gets valued reasonably…this is because there are whole lot of investors out there who like to invest in stable growing businesses like Syngene as opposed to high-risk-high-reward type of businesses like Biocon (ex-Syngene)…In case Biocon had decided to demerge Syngene into a separate listed entity this same valuation would have got reflected in Biocon share price by making its valuation richer but, since its an IPO investors have an option to chose exposure to only Syngene and not Biocon and so both the businesses now attract their own set of investors and command reasonable valuation on the bourses.




Scarcity premium or not that might get decided by the markets but Syngene is a company with one of the best management which we find in only bluechip companies, an almost clean corporate governance track-record and a high-margin operation with sound business model. Now when all these get combined with high growth opportunity with a good past track-record in business growth as well as high EBITDA to OCF conversion with past 9 out of 14 years exhibiting good FCF too, such company demands attention of serious investors.

With regards to comparison to other CROs, there are not many good CROs in India who are involved with an innovator since discovery stage of a NME and amongst listed ones I can’t find any pure-play NME-focussed CRO company…most of the CRAMS players which are listed have their focus on generics too or are themselves involved in developing products for milestone payments…Also, I can’t find any listed CRAMS player who is involved with an innovator since discovery stage (those who are, are doing normally for only their parent or for specific therapeutic area).

Having said these, still Syngene is not an end-to-end player in NME lifecycle and its post starting of commercial manufacturing operations that it will fill the remaining gap to become an end-to-end player…

From where you got this 27 cr. figure ??..face value of Syngene’s share is 10 and there will be 20 cr. outstanding shares post issue too…

No it does research work for innovator companies who themselves file the patent for the discovery and hold IPR…

once it becomes a listed entity, these data might start flowing in from the company side…Company has signed contracts for three late-stage molecules out of which one is expected to go into commercial production by FY17…

Since outsourcing NMEs’ data is involved, it involves building a lot of trust with the innovator and for that one needs to ensure that board as well as senior management is such that innovators can put complete trust…so, the strategy of composition of board as well as senior management seems interesting…

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Thanks Mahesh for the detailed response.

Regarding share capital, i guess its not that important.
Share cap is mentioned as 271 million ( page 53 of DRHP) as on 31 Dec 2014

I just checked the stock price movement of Wuxi Pharmatech (largest CRO in Asia). It was listed in NYSE on August 9, 2007 at 18.50 and today’s price is 41.62 which is about 124% returns in 8 years (ignoring dividends if any). Any ideas why it was not able to generate more wealth in 8 years (ignoring the 2008 depression)

Disc: Subscribed to IPO.