Syngene International IPO – Should you invest?

Syngene International Limited IPOSyngene International IPO – Should you invest?

Biocon subsidiary, Syngene International IPO would open for subscription on 27th July, 2015. Syngene offers integrated drug discovery and development services with capabilities in medicinal chemistry, biology, in vivo pharmacology and toxicology. Should you invest in this Syngene International Limited IPO? What are the risk factors to be considered before you invest in a Syngene International Ltd IPO?

About Syngene International Limited

Syngene offers integrated drug discovery and development services with capabilities in medicinal chemistry, biology, in vivo pharmacology and toxicology

It is one of the leading India-based contract research organisations (“CRO”), offering a suite of integrated, end-to-end discovery and development services for novel molecular entities (“NMEs”) across industrial sectors including pharmaceutical, biotechnology, agrochemicals, consumer health, animal health, cosmetic and nutrition companies.

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Issue details of Syngene International IPO

  • IPO opens: 27-Jul-2015
  • IPO closes: 29-Jul-2015
  • Face Value: Rs 10 per share
  • Issue Price Band : Rs 240 to Rs 250 per share
  • Minimum Shares: 60 shares
  • Minimum amount: Rs 14,400
  • Issue size: Rs 528 to Rs 550 Crores.
  • Lead Managers: Axis Capital
  • Listing: BSE / NSE
  • Download Syngene International IPO Prospectus from SEBI website at this link

Purpose of the IPO:

  • Achieve Listing benefits
  • Sale of 2.2 Crore shares by selling shareholders (Parent company)

Company Financials

  • Company generated revenue of Rs 267.5 Crores for the year ended Mar-10 and Rs 707.7 Crores for the year ended Mar-14.  It earned revenue of Rs  617.5 Crores for 9 months ended Dec-14.
  • Company posted a Profit of Rs 30.4 Crores for the year ended Mar-10 and a Profit of Rs 134.8 Crores for the year ended Mar-2014. Its profit are Rs  119.4 Crores for the 9 months ended Dec-2014.
  • Its diluted EPS for FY 2013-14 is Rs 6.99 and last 3 years weighted Avg EPS is Rs 6.13. EPS for nine months ended Dec-2014 is Rs 6.10.

Syngene International IPO-Financials

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Reasons to invest Syngene International IPO

a) Good revenue growth in last 5 years. It has grown at 42% CAGR. However, in last 3 years, its revenues grown at 35% CAGR.

b) Good profit margins of 18% to 19% in last 3 years.

c) A subsidiary of Biocon, which is biotechnology major.

Reasons not to invest in a Syngene International IPO

  • Company contracts are generally terminable on little or no notice. Any delay in the renewal or the termination of a large contract for services or multiple contracts for services could adversely affect its revenue and profitability.
  • They are dependent on the continued outsourcing of R&D by pharmaceutical, biotechnology, agrochemistry, consumer health, animal health and cosmetic industry companies.
  • They depend on a limited number of clients, and a loss of or significant decrease in business from them could affect its business and have a material adverse impact on company profitability.
  • Company expect that its employee benefits expenses will continue to increase and they may not be able to pass such increase on to its clients, which may adversely impact Company profitability.
  • Company may fail to effectively develop and market new services, which may adversely impact its growth opportunities, prospects and profitability.
  • If the company fails to protect the intellectual property rights of its clients, they may be subject to liability for breach of contract and may suffer damage to its reputation.
  • Company derives almost all of its revenue in U.S. dollars and incur certain costs in U.S. dollars, and hence they are exposed to the risks associated with fluctuations in foreign exchange rates which could negatively impact its profitability and financial condition.
  • Company Promoter and its managing director have been named respondents in a criminal proceeding.
  • Other risk factors (Internal and external) can be viewed in prospectus Page no. 16 onwards.

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What does company say about this IPO?

In a press conference couple of days back, Kiran Mazumdar Shaw, chairman and managing director, Biocon said,

"Syngene will be one IPO that will deliver good shareholder returns. I think when you look at getting to the market you have to look at your own business performance and we believe that Syngene has had a very stellar performance for the last five years and it has been able to sustain its performance.” 

Speaking on growth outlook Peter Bains CEO, Syngene said,

“We have a pretty optimistic outlook in terms of growth when we look at the marketplace. We see growth in multinational R&D spend. It may be mid single digit 3-5 percent but it is of an enormous base of about USD 140 billion. We see a lot of investment coming into new start-up biotechnology companies.” 

Recommendation / Investment strategy

  • At an upper band price of Rs 250 and EPS for FY 2013-14 of Rs 6.99, P/E Ratio works out to be 35.7. At an upper band price of Rs 250 and weighted average EPS of Rs 6.13, P/E Ratio works out to be 40.7. Means company is asking issue price at 35.7 to 40.7 P/E ratio.
  • There is no listed company exclusively in similar business, hence we cannot compare whether the share price is high or low.
  • Syngene International Limited has strong revenue growth story in last 5 years. Good profit margins makes this company valuable. Being a subsidiary to Biocon is added advantage. Investors can invest in this IPO considering risk factors indicated above.

Disclaimer: I have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Syngene International IPO – Should you invest


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