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Sunday, July 26, 2015

Syngene International Limited IPO Review

Issue Highlights

Price Band
Rs. 240-250
Issue Period
Issue Type
100% Book Built Issue
Issue Size (Quantity)
2,20,00,000 Equity Shares
Issue Size (Amount)
Rs. 528-550 Crore
Face Value
Rs. 10
Min Bid Quantity
60 Equity Shares
Maximum Retail Subscription  Amount
Rs. 1,95,000 (13 Lots)
Karvy Computershare Pvt. Ltd.

Issue Details

·         Issue being an offer for sale by the parent company Biocon Ltd. , Syngene shall not receive any proceeds from the offer
·         The offer shall constitute 11% of post issue equity share capital
·         Outstanding equity shares prior to the offer:20,00,00,000
·         Outstanding equity shares after the offer: 20,00,00,000

·         Offer for Sale: 2,20,00,000 Equity shares
·         QIB Qualified Institutional Bidders): 1,00,00,000 Equity shares
·         NII (Non Institutional Investors) : at least 30,00,000 shares
·         RII (Retail Individual Investors) : at least 70,00,000 shares
·         For Biocon Shareholders: 20,00,000 shares

Anchor Investors

The company has allocated 60,00,000 shares to 13 anchor investors including a prime few like Monetary Authority of Singapore, Government of Singapore, Goldman Sachs India Fund Ltd., DB International (Asia) Ltd. Etc at the price of Rs. 250 per share.

Objects of the Issue
      (1)   To avail the listing benefits
      (2)   To enhance the brand image among clients and to provide liquidity to existing share holders
       N B: issue expenses shall be borne by the selling shareholder

Industry Profile

CRO companies provide outsourced research services to sectors like pharmaceutical, bio-technology, medical device industry etc on contract basis. Due to the rising outsourcing of R&D activities, CRO industry is increasing at a CAGR of 12.5%.The global CRO market is presently worth 14.7 billion USD and is expected to become 22.7 billion USD by 2018.
CRO service providers compete in various segments like NME Discovery, Development and Manufacturing. Under NME Discovery, promising molecules are identified from a broader range of compounds while in Development stage, preclinical (on animals) and clinical tests (on humans in gradual phases) are conducted. Manufacturing segment pertains to the manufacturing of selected molecules.
So far many MNC companies opted for the outsourcing of their discovery & development work to reduce their R&D expenditure but with the evolution of the CRO industry, it is no longer only a cost arbitrage aspect but also an enhanced R&D and time reduction aspect too.

Company Profile

Syngene is a subsidiary of Biocon-the global biopharmaceutical enterprise holding 72.6 % post-issue equity share capital of Syngene. Syngene was incorporated in 1993 at Bengaluru. Syngene is one of the leading domestic CRO (Contract Research Organization) companies of Asia, providing a suit of discovery and development services for NME (Novel Molecular Entities) to pharmaceutical, biotechnology, consumer health care, animal health, agrochemical, cosmetics and nutrition companies.
Syngene is an experienced player of the industry with a proven track of operations and it provides services through flexible business models like FTE (Full Time Equivalent), FFS (Fee for Service) and a combination of the two.
Syngene’s laboratory and manufacturing facilities are spread over a sprawling area of 9,00,000 square ft. in Bangalore and it currently employs around 2,100 scientists.
During the first nine months of FY 15, Syngene served 195 clients including top 10 global pharmaceutical companies (by sales) like BMS, Baxter, Merck etc.
On the date of filing DRHP, Silver Leaf Oak Mauritius (SLO) had 2, 00, 00,000 shares (10 % of the capital) acquired at the cost of Rs. 190 per share.

Risk Factors:

      (1)   Contracts received by the company could  be terminated on short notice periods and as these terminations reduce the resource utilization, the same may  affect the profitability negatively
      (2)   Unfavorable economic conditions or government regulations resulting in a reduction in the R&D outlay of client companies could have an adverse effect on Syngene’s profitability
      (3)   Syngene draws its service revenue from a concentrated clientele and its largest client-Bristol contributed to the tune of 32.2 % (9 months FY 15) while the top-ten clients contributed for around 72 % of the service revenue.
Small client- base enhances the risk of business loss in case one or more clients parting their ways with the company.
      (4)   To match the compliance of the US FDA and maintaining the essential standards is a requisite and failing to which could materially adverse the revenue base of the company
      (5)   Health care reforms in the USA shall be negative for Syngene, as such reforms might reduce the profitability of its client and finally resulting in a business loss for Syngene

Tax Benefits

Presently, Syngene is availing a deduction of 50 % of the eligible profit from exports of goods/services from its units set up in SEZ (Special Economic Zone)

Depreciation Benefits

Syngene is entitled to an additional depreciation @20% of the actual cost of new plant and machinery

Financial Profile **

FY 15 Value
P/E #
PEG Profit (5 Year) # @
OPM (%)
NPM (%)
ROCE (% )#
ROE (%) #
Total Liab/ Networth
AR Collection Period #
Current ratio
EBITDA Margin (%)
Inventory Days
M-cap/Sales #
ROIC (%) #
Revenue CAGR (%) 3 year @ #
Profit CAGR (%)  3 year @ #

# Annualized Data
@ On April 1, 2014, Syngene’s subsidiary Clinigene International Limited –through which clinical research and clinical trial services were being provided- got merged with Syngene.
** Calculations at upper price of Rs. 250

Competition with Peers ###

Though there is no near comparable peer to this company but for the sake of comparison we may compare it to the Chinese research company -WuXi PharmaTech.
Wuxi Pharma
PEG 5 Year #
Profit CAGR % ( 3 Year) #
16.63 %

### Peer data from Yahoo finance and Google finance


The M-cap this issue after the listing will be Rs. 5,000 crore- almost an half of its parent company Biocon Limited’s M-Cap of Rs. 9,323 crore. Biocon plans to demerge Syngene in near future to fund the development of Syngene’s own products. After this issue, Biocon’s stake in the company shall reduce to 74.5 % from the present 85.5 %.
Valuations are not at all cheap and promoters are charging a lucrative premium for its robust business model and the future growth potential. The issue is priced at a premium of around 32 % over the price at which 10 % stake was sold to SLO Mauritius on September 19, 2014.
Companies like Syngene get their business from MNC drug companies which are desirous of keeping their R&D expenditure under control as the same requires a significant investment in the infrastructural setup.
With the initial euphoria settling down, Syngene share may not give stupendous returns in the short run owing to its stretched valuations, but in the long term its prospects are bright.
I shall subscribe to this issue.



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