Since there is a lot riding on the Uplands project, I decided to call the project marketing/sales department to get some information in addition to what is already available on their site.

• Out of land area of 135 acre, the FSI is only 0.25, that is
  construction will be only on 25% of the area, leaving 75% as open
  spaces.
• Environmental clearance has been obtained. No other
  approvals are pending. Construction of the villas will start this
  month
• The Golf course is ready. Landscaping is ready
• Power and water connections are available.
• All permissions related to the land are available. The land is owned by another party (independent, not Arvind Ltd) which has 25% stake in the project, with 75% being with Arvind Infra. Arvind Infra is responsible for construction, sales and marketing. While master plan has been approved by the civic authorities , approval is awaited for some amendment that they made later.
• Total project is for construction of 800 villas, with 1st phase being 280 villas, whose construction will begin shortly. Possession will be within 36-42 months. The 2nd phase will be
  launched later (timeline not decided yet). The entire project will be completed by 2020.
• No debt is being taken by Arvind Infra (I am not sure how much to rely on this as the info came from the marketing department)
• 4, 5 and 6 bhk villas are available (no apartments). Plot area and construction area options are as follows (see attached file also)

o 4bhk
 (1) plot area 640 sq yard / construction area 325 sq yard – total cost Rs. 1.56 cr (excluding government costs such as stamp duty, registration etc., but including maintenance, club house etc charges)
 (2) 850/430 – 2.06 crores
 (3) 1128/430 – 2.4 crores
o 5bhk – 1500/550 – 3.13 cr
o 6bhk – plot area 2000-2700 sq. yard and construction area 675 sq. yard. Starting from 4.5 crores.

• No cash payment – all white (I checked this specifically). In all their projects it seems.

Rough back of the envelop calculations:
o Average constructed area per villa is appx. 616 sq yard which is 5544 sq ft.
o Average cost per sq. ft. works out to 4200 Rs.
o Average villa cost is Rs 2.25 cr. For 800 villas it is 1800 crores. 75% of which works out to 1350cr. Sort of gells with management presentation which gives their share of revenue as Rs 1200 cr.

This all sounds very posh and upmarket, however chats with a few friends in Ahmedabad indicate that such aspirational projects have a fair bit of demand in that area. If some board members are from Ahd, then their views are solicited.

Cant attach their presentation and floor plans as the file sizes exceed permitted limit.

Current Price List & Payment Schedule-Uplands.pdf (35.3 KB)

I think before you say that P/cash at 14 isn't cheap, I would really like to know what is cheap. That way, for all companies which have net debt, their market price is astronomical, as per your contention. There is the odd case where a company may have high cash relative to its marketcap (smartlink, Hindustan Zinc, NMDC), but that is hardly ever the case. Indeed, what is the point of holding large amounts of cash @8%, rather than returning it to shareholders.

I really don't think you should use such a metric.

Highlights of the Call By Capital Mkt
The consolidated net sales have gone up by 9% to Rs 400.73 crore driven totally by volume. The net profit inclined by 54% to Rs 38.77 crore.Power Brand sales grew by 11%.Gross Margin increased to 51.5% as compared to 47.8% in last year same period. Softening of commodity helped gross margin in Q2. Sees soft commodity regime for next 2 qtrs. 80% of gross margin improvement was able to take to bottom-line.EBIDTA margin was up from 10.7% to 13.8% YoY,A&P to Sales Ratio is at 12.2%. The mgmt said that ASP spend will be 12- 13% for FY16. Even though Q2 was low, ASP overall will be in-line with year guidance. ESOP will come down from December qtr.Other expense – 6 months number can be taken as runrate going fwd.
Fabric Care grew by 12% as Ujala did well. Ujala has grown by 19% in Q2. There is also base effect in Ujala. Expects 9-10% growth in Ujala gng fwd.Weight average price hike of 7% in Q1 taken in UjalaUajal Crisp & Shine launched in Tamil Nadu in June quarter.
Detergent market has grown by 10% value wise in Jan-June 2015 period, as per Neilsen. Henko volume grew by 6%. Value growth is challenging for Henko in current competitive environment. The mgmt said that lots of company has cut detergent prices in range of 25%.
The mgmt said that bucket wash of Henko will activate in coming days, presently only matic wash it is present. Bucket wash is 80% of premium detergent market.
Dishwash grew by 10%. Dishwash bar market has grown by 4% in volume and 3% in value, in Jan-June 2015 period, as per Nielsen. The company has grown by 15% in volume and 7% in value. Dishwash has seen mid teen volume growth in Pril liquid and Exo bar. There was slight drop in price in Exo bar due to price competition. Exo was re-launch in new packaging.
The mgmt said that dishwash liquid category de-grew due to urban problem and bar due to rural problem.Dishwash liquid value growth was more due to selling more bottles and fewer pouches. Pouches non-availability led to more growth of bottle.
Mosquito repellent grew by 14%. Coil market has grown by 4% in volume and 5% in value in Jan-June 2015 period, as per Nielsen. The company in coil has grown by 5% in volume and value. Liquid vaporizer market has grown by 6% in volume and 9% in value in Jan-June 2015 period, as per Nielsen. The company in coil has grown by 35% in volume and 39% in value. Maxo liquid total contribution to Maxo is 30%.Coil category not grown because of hottest September and October month.Liquid Vaporizer category also slowed down.
Maxo card will be launch soon all over India in next 2- 3 months. 15% of mosquito repellent revenue should come from card in next fiscal. Its margin is 5% lower than liquid.
Personal care sales have grown by just 2% as Margo has not done well in Q2.
South and East region is not performing good compared to West and North. As a result, Margo didnt do well, which is strong in South and East .Modern Trade sales contribution is 8% to total sales.Net Debt will be Rs 275-280 crore for March 2016

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.

My base case estimates for FY 16 are as follows:

1. Revenue Rs 580 Cr , NP Rs 118 cr , EPS Rs 24.89 p/e 32.18 (MP Rs 801).
2. ROE without Capex 41% and EBITDA Margin 38%
3. Fair Value comes to Rs 756.
4. As long as they maintain the above ROE and EBITDA, p/e multiple will not come down ( under normal market circumstances)

It is a buy for LT around this price and below this price in dips.

Rgds