SYNGENE

INTERNATIONAL

SYNGENE IPO FEASIBILITY

ANALYSIS
WHAT PERSPECTIVE SHOULD AN INVESTOR HOLD?
Burning Desires will assist you to overcome the ambiguity to the time perspective of
Syngene IPO Investment.

Subsidiary of Biopharma giant

BIOCON
Issue Open: Jul 27, 2015 - Jul 29,
2015
Issue Type: 100% Book Built
Issue IPO
Issue Size: 22,000,000 Equity
Shares of Rs. 10 (528.00 - 550.00
Crore)
Face Value: Rs. 10 Per Equity
Share
Issue Price: Rs. 240 - Rs. 250 Per
Equity Share
Market Lot: 60 Shares
Minimum Order Quantity: 60
Shares
Listing At: BSE, NSE

Whether to invest for the long term or short term?

This document will answer the following questions

1.

What perspective / Mindset the investor should be prepared with?

2.

Reasons to SUNSCRIBE option

3.

Why Burning Desires advises to go for long term?

Subscribe Syngene IPO for Long Term

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SYNGENE FINANCIALS

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GRAPHICAL REPRESENTATION

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9000.00
8000.00
Rs. In Millions

7000.00
6000.00
5000.00

Total Income

4000.00

Profit After Tax

(PAT)

3000.00
2000.00
1000.00
0.00
2011-12

2012-13
2013-14
Financial Year

2014-15

WHAT DOES IT INDICATES?

Total income is growing at constant rate since last 4 years and if we consider the product portfolio that
Syngene offers, 4 to 5 years analysis becomes sufficient as far as financials are considered.
But a rational Investor should not bother about absolute profit. Means in absolute terms whether a company is
making profit or loss has no relevance.
What Matters than?

Consistency in profit making because rationality appears when an investor starts worrying about
consistency in profit making. Means to what degree there has been a growth in profits.

Furthermore Burning Desires advises to look at sustainability. How far there could be a growth in profit
making?

Have a look at net profit margin.

Net Profit Margin

19.05%

19.34%

18.42%

16.98%

2011-12

2012-13

2013-14

2014-15

Net Profit Margin

The net profit margin is continuously increasing and one of the important facts that we all have to consider is
that Syngene is a subsidiary of BIOCON. It indeed showcases the strong parental support from Biopharma
Giant.
Syngene is a leading contract research and manufacturing organization in Asia providing end-to-end discovery
and development services. Our multi-disciplinary skills in integrated drug discovery and development include
medicinal chemistry, biology, in vivo pharmacology, toxicology, custom synthesis, process R&D, cGMP (Good
Manufacturing Practice) manufacturing and formulation.
No Doubt, Business Model of Syngene is classic example of Flexibility in business operations as far as R & D in
Pharma sector goes.
On the other hand, Syngene have also successfully collaborated with 7 out of top 10 global pharmaceutical and
biotech companies while many of their relationships are governed by confidentiality.
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.

CRO PHARMA (CONTRACT RESEARCH ORGANIZATION) PHARMACEUTICALS

CRO Industry Contract Research Organizations (CROs) offer outsourced services to support discovery and
development for R&D driven organizations across industrial sectors like pharmaceuticals, biotechnology,
biopharmaceuticals, nutraceuticals, animal health, agro-chemicals, cosmetics and electronics. CRO services
span the range of R&D activities from New Molecular Entity (NME) discovery, development and
manufacturing. Growth in the CRO market has historically been driven by growth in R&D spending and
increased outsourcing of R&D activities. The discovery and development process generally involves;

(1) Discovery (target identification, target validation, lead generation, lead optimization and lead selection)
(2) Development (pre-clinical testing, clinical testing and regulatory filings with the FDA and other relevant
regulators) and
(3) Manufacture (process development and early stage manufacture) leading to commercialization
(manufacturing and post-marketing follow-up studies on impact and side effects).

Frost & Sullivan estimates that global R&D expenditure for the pharmaceutical industry in 2014 was
approximately US$139 billion, of which US$105 billion could have potentially been outsourced (According to
IQ4I Research & Consultancy Pvt. Ltd (IQ4I), outsourcing penetration of CRO discovery services in 2013 is
estimated to be 51.9% of the global pharmaceutical and biotech industry but poised to grow to 65.7% in 2015,
reflecting a CAGR of 12.5% According to the Frost & Sullivan Report, outsourcing penetration for the CRO
market for development services as of 2014 is estimated to be 27.3% of the potential outsourcing market for
development services, but poised to grow to 38.7% in 2019, reflecting a CAGR of 12.5%. potential outsourcing
markets provides an opportunity for the industry to increase its share of global R&D expenditures.

The global CRO market for discovery services was estimated to be US$14.7 billion in 2014 and is expected to
reach US$22.7 billion 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 US$28.8 billion in 2014 and is expected to reach
US$44.6 billion in 2018, reflecting a CAGR (20142018) of 11.6%, according to the Frost & Sullivan Report.

TRIGGERS TO SUBSCRIBE

Why Burning Desires advises to Subscribe Syngene IPO, What are the factors that explains to go for Long
Term? Why Investors should restrict themselves to maintain short position in Syngene after getting listed on
BSE and NSE?

1. 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.

2. 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 highquality scientists required to successfully execute the innovative business model and to differentiate
the service offerings from those of other contract research organizations (CROs).

3. 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.

4. 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.

5. 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.
The return ratios have also been robust in the range of over 20%. It has a strong balance sheet with gross
debt at Rs 1.6 billion and cash balance of Rs 1.2 billion in FY15.

FUTURE GROWTH PLAN

Of its 6 molecules, 5 are in Phase 3 and 1 ANDA has already been submitted to the USFDA. Syngene has
already signed commercial supply contract for 3 molecules with its clients. Besides, the company has a list of
potential molecules lined up from its clients to sustain its base business over the medium term. It has
earmarked an investment of US $200 million in the next 2-3 years.

Of this, US $100 million will be incurred on the development of oral dosages, MAb facilities, phase 2 of
Malaysia insulin facility and research lab in Bengaluru, while the balance US $100 million will be utilized for
Greenfield expansion in Mangalore.
HOW BIOCON WILL BENEFIT FROM SYNGENE IPO?
If Syngene International Ltds initial public offering (IPO) succeeds, then the seller Biocon Ltd will take home
around Rs.528-550 crore. The offer is being priced at Rs.240-250 a share, and Biocon plans to use this money
for its own business needs. But money is only a small motivation for this listing. The IPO fulfills a long-standing
expectation among Biocons shareholders that Syngene will be listed. Syngenes resulting market value may
then reflect in better valuations for Biocon. At Rs.240, Syngene is valued at Rs.4,800 crore, compared with
Biocons Rs.9,671 crore.
Thats half its market capitalization, while contributing to 27% of sales and 33% of net profit in FY15. Postissue, Biocon will own a 74.5% stake in Syngene. Stripping the value of this stake out of Biocons valuation, the
resulting sum of Rs.6,095 crore is what the rest of Biocon is notionally valued at. The expectation will be that
Biocons value will increase, after investors strip out Syngenes valuation.
OVERALL,
The fundamentals of the company look sound. With its increasing clientele, expanding capacities as well as
capabilities, along with plans for forward integration into commercial manufacturing, the company is expected
to do well going forward. Furthermore, Syngene's plan to foray into CMO (Contract Manufacturing
Organization) of novel drugs is likely to help the company to see a significant growth in the years to come.
As the company is engaged with research and development in Pharma sector, which is indeed a long term
phenomenon, one should invest in Syngene having a long term perspective in mind as the realization of
upcoming business processes will take time to reflect on companys financial statements.