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Dolat Capital
Syngene International (Buy)
Target: ₹640
CMP: ₹564.20
Syngene reported mixed set of numbers in Q2, where the top-line growth has been healthy at 12 per cent y-o-y ($ term revenue growth – 10 per cent) led by discovery services and steady traction in dedicated R&D segment.
However, EBITDA margins were weak at 28.7 per cent (down 60 bps y-o-y, 170 bps q-o-q). Operational expenses from Mangalore API plant along with front loaded costs of employee ESOP plan (to be amortised over a period of time) impacted margins.
The company continues to maintain its FY21 revenue guidance of low double digit and flattish PAT implying a stronger H2 (H1 – revenue growth was 6 per cent). With operations achieving normalcy in Q2, the management believes that Covid has risen uncertainty in business but do not expect it to act as a major disruptor in the long run.
Apart from operational expenses related to new capacities in both the CRO and CMO segments, Syngene has added significant costs in recent years in areas such as safety, quality, business development, compliance and leadership/scientific talent.
The company remains aggressive on the capex front (nearly $463 million already spent and another $87 million earmarked for FY21), attributable to order book visibility.
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