Syngene International IPO – Views invited

I attended the concall. Management was answering questions in good detail. Most questions, however, were pretty standard like -When will new facility be be operational? What will be the debt mix? what will be the EBITDA margins? what will be the asset turnover after new capcity comes up?

Here are my notes

• New client additions- Building and strengthening client base. Won’t give client numbers every quarter.
• Mangalore facility will complete in FY18. 3 long term agreements can be started at existing Bangalore facility and then move to Mangalore. Mangalore facility to commercialize in FY19.
• Product pipeline- late single digit (8-9?) products are in late stage clinical trials. When these get commercialized depends on clients and regulatory approvals .
• Biologics platform is exciting. They are already a substantial portion of global markets. Growing faster than small molecules. Syngene will mirror client R&D requirements. Biologics platform is less mature than small molecules but Syngene long standing client relations help demonstrate capabilities
• Tax rate- Remain at these levels in FY16. Will move to MAT rates in FY19.
• Capex USD250mn in next 3-4 years. 100mn for Mangalore. Continue to add new and exciting capabilities. High potential in oligonucleotides, viral testing. Want to be first mover in many new areas. 200,000 sq ft R&D capacity will go live next year.
• ANDA submission by a client triggered one of the USFDA inspections. USFDA inspections are product based. If a client files a new product, there could be more inspections.
• Asset turns dipped recently…. Take off CWIP from calculations. We have maintained/grown asset turns.
• Peak debt/equity will be 0.4
• Employee cost gone down. Salary outgo increased 18% but increase is muted because last year had a higher ESOP charge.

My questions
Q: The large Pharma cos want to consolidate their vendor base. In such a scenario, how do we compete against the big players like Quintiles, Paraxel and Covance?
A: We are more integrated than other players. Quintiles, Paraxel etc focus mainly on clinical trials.

Q: Are there any regulatory challenges for Syngene to conduct clinical trials in India? Is India at a disadvantage compared to other countries from a regulatory point of view?
A: Couple of years back there were some regulatory challenges. But policies are improving a lot compared to 2 years back and pendulum has swung back. Syngene is in a strong position to leverage low cost and large population for clinical trials.

Q: When a drug is commercialized, how much of the total sales can come to Syngene because a pharma company would typically have multiple vendors.
A: Can’t say. Varies from case to case basis. There is always an absolute min 2 vendors to mitigate risks.

Q: Pharma and Biotech are our core areas but how do we look at other sectors such as agri, cosmetics etc.? Is there a big focus on these sectors or will the company focus on core for now and explore these areas in a big way later on?
A: Underlying capabilities such as knowledge in chemistry are a core to Pharma and Biotech but also apply strongly to some other sectors- Agri, nutrition and veterinary. Company is aggressively exploring these sectors as well.