Syngene International rallies 13% in two days; stock nears record high

The management has guided for double-digit revenue growth on the back of continuous client additions
Shares of Syngene International moved higher by 8 per cent to Rs 472.50 on the BSE on Friday, thus rallying 13 per cent in the past two trading days after the company reported a better-than-expected operational performance in April-June quarter (Q1FY21). The stock of the pharmaceutical company was trading close to its all-time high level of Rs 474.75, touched on July 7, 2020.

In Q1FY21, the company’s revenue was flat at Rs 437 crore compared to the same quarter last year, in line with guidance, due to the temporary suspension of operations during the nationwide lockdown. EBITDA (earnings before interest, taxes, depreciation, and amortisation) was down 1 per cent at Rs 142 crore over the previous year quarter. EBITDA margin was maintained at 32 per cent , driven by savings in raw material costs and certain operational efficiencies, partially offset by an increase in staff costs.

ICICI Securities expects Syngene’s revenues to be back on track, going ahead, as the company is currently operating at 90 per cent capacity. The brokerage firm remains positive on the company as steady Q1 numbers despite Covid-19 related BCP (business continuity planning) challenges, validates the stickiness of the business in a tough environment.

The management has guided for double-digit revenue growth on the back of continuous client additions, an extension of existing contracts, increasing manufacturing and biological contributions besides currency tailwinds. Profitability is likely to be muted due to incremental operating expenditure (opex) and higher depreciation.

“Asset turnover from this mega capex will be a significant determinant of improvement in return ratios, going ahead. With elite client additions like Amgen, Zoetis, Herbalife, GSK, etc, and multiple year extension of BMS and Baxter contracts, the company remains well poised to capture opportunities in the global CRO (contract research organisations) space,” it said. The brokerage firm maintains a ‘buy’ rating on the stock with a 12-month target price of Rs 485 per share.

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