Add Syngene International, target Rs 650: Yes Securities

Yes Securities has 'add' recommendation on Syngene International with a target price of Rs 650.

The current market price of Syngene International is Rs 610.45 and time horizon given by the brokerage is one year.

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Q4 revenues clock 30 per cent growth: Syngene ended FY19 on a strong note with 31 per cent yoy growth in revenues driven by strong traction in discovery and development verticals.

In an encouraging note, company guided to higher growth in current fiscal than the adjusted 20 per cent rise clocked in FY19.

Discovery services had a strong year on back of contract renewals and client wins.

Within discovery, biologics has gained prominence and management expects the momentum to continue in the current year as well with deployment of additional lines at Bangaluru site.

Margin at 31.5 per cent gained 750bps yoy and outpaced revenue growth; company boasts of top quartile margin performance globally albeit in Q4 call management alluded to need for higher investments on safety and compliance which would temporary put margin under pressure.

In dedicated centres, contract with GSK lead to new revenue stream while collaboration with Merck was extended till 2022.

Q4 PAT included impact of forex loss of Rs 80mn as against gain last year which puts adjusted PAT growth higher than headline number. In corporate action, Board declared bonus issue of one share for every one share held.

Revenue visibility with best in class margin: Syngene management sounded upbeat on discovery services as biologics ramp up share of traditional R&D as well as strong biotech tailwinds driven by startups in US market.

With the addition of Mangalore manufacturing capacity, Syngene will complete its transformation in to a full-fledged contract manufacturer.

Based on call commentary, we lower FY20 margin which results in nearly 7 per cent earnings cut in current fiscal; retain ADD as stock provides significant revenue visibility coupled with best in class margins.