Kotak Institutional Equities has issued a BUY recommendation for Syngene International, targeting a fair value of Rs 825, with the current market price at Rs 646. The report highlights Syngene’s robust growth trajectory in both its contract research (CRO) and contract development and manufacturing (CDMO) businesses. Despite a temporary setback in its small molecule CDMO segment and a moderation in Librela sales, the company is well-positioned for a swift ramp-up, especially following recent acquisitions and capacity expansions. Syngene’s innovation-driven approach, integrated service offerings, and strong client traction are expected to drive healthy sales and EBITDA growth, making it a compelling investment opportunity for the medium term.

Kotak Institutional Equities: Syngene International – BUY Call with Rs 825 Target

Kotak Institutional Equities is bullish on Syngene International, reiterating a BUY rating and a fair value of Rs 825 per share, offering a significant upside from the current market price of Rs 646. The research house underscores the company’s dual focus on contract research and contract manufacturing, with a clear roadmap for growth across both segments. Investors are advised to capitalize on the current valuation, which is seen as attractive given the anticipated acceleration in revenue and margins over the next three to five years.

Syngene’s Growth Story: CRO and CDMO in Focus

Syngene is witnessing robust traction in its contract research organization (CRO) business, with double-digit year-on-year growth in FY2025. The company’s discovery services are scaling up, supported by a growing pipeline of pilot projects with major pharmaceutical and biotech clients. On the contract development and manufacturing (CDMO) front, Syngene is making strategic moves to capture a larger share of the biologics market. The recent acquisition of biologics facilities—Unit-III and the Baltimore site—positions the company to cater to both animal and human health clients, with commercial operations expected to commence in the second and fourth quarters of FY2026, respectively.

The small molecule CDMO segment experienced a muted performance in FY2025, but the outlook is improving. Syngene has bolstered its sales force to over 50 professionals, many of whom are based outside India, to enhance deal flow and client engagement. The Mangaluru facility, previously underutilized, is now showing early signs of scale-up and is expected to become EBITDA-accretive as utilization improves.

Strategic Acquisitions and Capacity Expansion

Syngene’s recent acquisitions and capacity expansions are set to be major growth drivers. The company now boasts a combined biologics capacity of 50,000 liters, with fungible capabilities across its Bengaluru, Mangaluru, Unit-III, and Baltimore sites. The Bengaluru facility is already operating at optimal asset turnover, while the other units are at various stages of ramp-up. Kotak estimates that, at peak utilization, these facilities could generate incremental sales of approximately Rs 25 billion, nearly 1.5 times the current CDMO revenue and 69% of Syngene’s FY2025 overall sales.

Operating leverage from these expansions is expected to drive significant EBITDA accretion. The research firm forecasts that, at peak, the CDMO segment could contribute an incremental EBITDA of Rs 13 billion, which is 1.2 times the company’s overall EBITDA in FY2025.

Financial Performance and Outlook

Syngene’s financials reflect a company in transition, with short-term headwinds but a clear path to long-term growth. The table below summarizes key financial metrics and projections:

The company is expected to deliver sales and EBITDA CAGRs of 16% and 18%, respectively, over FY2025-28E. Despite a temporary dip in EBITDA margins due to the ramp-up of new facilities and lower Librela sales, the long-term margin trajectory remains positive, with EBITDA margins expected to rebound to the high 20s by FY2027.

Key Investment Highlights

Integrated Service Offering and ‘Follow-the-Molecule’ Strategy

Syngene’s unique integrated model, with a 61:39 CRO:CDMO revenue mix, sets it apart from Indian peers. The company’s ‘follow-the-molecule’ approach allows it to engage with clients throughout the drug development lifecycle, from early discovery to commercial manufacturing. This strategy is bolstered by the SynVent platform, which supports integrated projects and enhances client stickiness.

Innovation and Technology Adoption

Syngene is investing heavily in new capabilities and technology, including oligonucleotides and antibody-drug conjugates (ADCs). The company has expanded its discovery footprint and improved turnaround times, ensuring it remains ahead of demand. With over 5,600 scientists, 60% of whom are in discovery, Syngene is well-positioned to capitalize on the global shift toward outsourced research and development.

Strong Client Relationships and Dedicated Centers

Syngene’s client base includes leading global pharmaceutical and biotech companies, with dedicated centers for Bristol Myers Squibb, Baxter, and Amgen. These partnerships provide stable revenue streams and visibility, with the dedicated centers business expected to grow at a 7% CAGR over FY2025-28E.

Risks and Challenges

While the outlook is positive, investors should be mindful of certain risks. The global biotech funding environment remains volatile, which could impact the pace of new project wins. Additionally, the ramp-up of new facilities may temporarily pressure margins, and the company’s reliance on a few key clients for dedicated centers introduces concentration risk.

Valuation and Target Levels

Kotak Institutional Equities values Syngene at Rs 825 per share, based on a discounted cash flow (DCF) analysis. The current market price of Rs 646 offers a compelling entry point, with an upside potential of over 27%. The research house expects the stock to deliver more than 15% returns over the next 12 months, in line with its BUY rating criteria.

Investors are advised to accumulate the stock at current levels, with a medium-term horizon. The stock’s valuation multiples are elevated but justified by the company’s growth prospects and the potential for margin expansion as new facilities ramp up.

Bottomline: Why Syngene Stands Out

Syngene International is a rare example of an Indian company that has successfully built a global reputation in contract research and manufacturing. Its integrated business model, strategic acquisitions, and focus on innovation position it well for sustained growth in a rapidly evolving industry. With a clear roadmap for capacity expansion and a strong pipeline of projects, Syngene is poised to deliver superior returns to investors who take a long-term view.

In summary, Kotak Institutional Equities’ BUY call on Syngene International is backed by robust fundamentals, a clear growth strategy, and attractive valuation upside. Investors should consider this stock for its potential to outperform the broader market in the years ahead.