Issue Highlights
Price
Band
|
Rs.
240-250
|
Issue
Period
|
27/7/15-29/7/15
|
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)
|
Industry
|
CRO
|
Registrar
|
Karvy
Computershare Pvt. Ltd.
|
Listing
|
BSE,
NSE
|
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
Parameter
|
FY
15 Value
|
P/E #
|
31.5
|
P/B
|
6.4
|
PEG Profit (5 Year) #
@
|
.8
|
OPM (%)
|
23.9
|
NPM (%)
|
19.4
|
ROCE (% )#
|
22.6
|
ROE (%) #
|
20.2
|
Total Liab/ Networth
|
.6
|
TIE
|
19.7
|
AR Collection Period #
|
51.6
|
Current ratio
|
1.2
|
EBITDA Margin (%)
|
33.5
|
Inventory Days
|
50
|
M-cap/Sales #
|
6.1
|
ROIC (%) #
|
26.85
|
Revenue CAGR (%) 3 year @ #
|
25.33
|
Profit CAGR (%) 3 year @ #
|
30.77
|
EV/EBITDA #
|
19.3
|
# 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.
Parameter
|
Syngene
|
Wuxi
Pharma
|
PEG 5 Year #
|
.8
|
2.07
|
Price/Book
|
6.4
|
3.78
|
EV/EBITDA #
|
19.3
|
20.04
|
Profit CAGR % ( 3 Year) #
|
30.77
|
11.46
|
NPM %
|
19.4
|
16.63 %
|
### Peer
data from Yahoo finance and Google finance
Inference
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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