Syngene International

I strongly disagree with your assessment, Syngene topline has almost doubled in the past 4 years from 1100 cr. in FY16 to around 2000 cr. in FY20 i.e. sales growth has in the 15-20% range. And this is high quality growth because CFO has more than doubled from 308 cr. in FY16 to 677 cr. in FY20. They have used the CFO along with some debt for greenfield expansion.

Syngene management has been very clear in their communication that there won’t be profit growth in FY21 because of new facility commissioning i.e. higher depreciation will kick in. If you look at their long term track record, their EBITDA margins have been in 30-33% over the last decade, which shows the resilience of the business model. Plus India has only 1 CDMO player who is fully integrated i.e. they can do research + make APIs + make final dosage. Its like an IT company with revenue visibility, no issues in cash collection, and remarkably stable margins. Now, I agree that a lot of future growth is captured in the price but this maybe because there are not a lot of companies around with this kind of a profile. You might want to see the kind of valuations that global CRMO players (Lonza, Catalent) command.

About biocon, have you seen growth in their biologics business? With 2 biosimilars in US market, their topline has grown from 530 cr. in FY16 to 1950 cr. in FY20 (for their biologics division). And they have got about 6 more biosimilars in their pipeline (which are known to investors), plus they have started developing biosimilars whose patent will expire after 2025. This is called long term thinking, this is not a business where we should judge management on every quarter. And all this without a single equity dilution over the last decade i.e. their business generates enough cash to sustain their R&D pipeline.

Sorry for the long post, we should try to discuss more on lines of competitive advantages of Syngene vs companies like Lonza, Catalent, etc.

Disclosure: Not invested in Syngene, Invested in biocon (latest position size here)

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