Capitaline

Analyst Meet / AGM 13-May-20

Conference Call

Syngene International

Expect capacity utilization of 100% by end of May'20

Syngene international held a conference call to discuss the results for the quarter ended Mar'20 and way forward. Mr. Jonathan Hunt - Syngene's Managing Director and Chief Executive Officer and other members of the senior management team represented Syngene on the conference call.
Highlights of the Concall

The Union Government took the decision to include pharmaceutical and research companies into their categorization as essential services. And that's allowed it to continue to operation. So over the past few weeks, it gradually resumed operations, having introduced strict protection measures across all of its sites. And it is currently running at about a 70% of normal operations. The company is looking to return to as close as 100% of capacity utilization by the end of May'20.

The company commissioned a new research facility at Biocon Park in Bengaluru in Q4FY20. The facility will house multi-disciplinary research laboratories supporting biology, QC microbiology and other research domains. The laboratories are equipped with electronic laboratory notebooks to enable contemporaneous data recording and are built to world class environmental and safety standards. Smart features like open office space and energy efficient designs are an integral part of the design of the facility. Overall the facility will be spread across 152000 sq ft area.

The company also expanded its discovery research capabilities by setting up a new vivarium, spread across 13000 sq in Bengaluru. This will enable Syngene to take on additional work in the areas of immuno-oncology, microbiome and other niche indications.

The construction phase of the commercial scale API manufacturing facility in Mangalore was completed. The plant is currently in a critical phase of completing qualification and preparing for commencement of GMP commercial operations towards the end of this financial year.

In addition to the API facility in Mangalore, Syngene also commissioned its new research facility in Hyderabad, one of India's leading life sciences hub. It also brought online two 2KL bioreactors in its biologics manufacturing plant which will add significantly to its biologics manufacturing capacity.

The company successfully cleared a USFDA inspection of its small molecule bioanalytical laboratory within the Clinical Development unit with no observations or formal discussion points.

The company continued to focus on its efforts to build closer integration between its Discovery Research services as well as enhanced collaboration with the Development Services division. This has reinforced its position as a fully-integrated service provider. A key scientific advance for the year was the extension of the company's cellular and gene therapy research capabilities into CAR-T therapy, an innovative and leading-edge approach to treating cancer. Several projects within Discovery Biology covering hypothesis-testing and validation of new biological targets, as well as the exploration of novel mechanisms related to CAR-T therapies, are underway.

The company successfully cleared regulatory audits by the USFDA, Ministry of Health, Russia and NGCMA, India.

New capacities at Bengaluru, Mangalore and Hyderabad would take time to fully utilize but in the meantime depreciation will have a dampening effect on our profitability in the short term.

The company supply management teams are working with regular and also alternate vendors to ensure uninterrupted supply of raw materials and other necessary items, as well as with its freight forwarders to ensure seamless delivery. And it has also built up stocks or critical materials to avoid short term until interruptions of supply.

The pandemic had a relatively small more positive impact on the fourth quarter as the company thought of a few projects forward as clients accelerated day work ahead of their own lock downs.

The first quarter of FY21 will see some direct impact on the suspension of operations, and near complete suspension of all operations for three weeks of the quarter, and then a gradual return to near full scale through the remainder of the quarter.

The company has no concerns with regards to cash, cash flow or liquidity for the year ahead.

The company has very good visibility on the order book for the second and third quarters and this gives it confidence that any impact will be restricted to the first quarter and should see a clear return to more normal performance from the second quarter onwards.

During the quarter, raw material and power costs as a percentage of revenue stood at 25% which is down four percentage points from last year led by a change in sales mix in favor of discovery services. Discovery services tend to consume a lower level of raw materials than development and manufacturing division.

Power costs as a percentage of revenue also improved led by energy saving initiatives and due to the buying of power from open market at better rates.

During the quarter staff cost increased by 25% which is attributable to three main factors- The first is the ongoing employment costs, which has grown around 12%. a 4% of the growth came from additional r&d facilities and the third is additions of the senior and middle level leadership.

The effective tax rate decreased to 18% in FY 20 as compared to 20% in FY 19 mainly due to the incremental depreciation coming from the new units that that has gone live during the year.

The company expects its Q1FY21 revenues at similar level of Q1FY20 and a 25% drop in its profit.

The company expects a double digit growth rate in revenue for full year and profit at similar level of FY20.

Owing to the uncertainty created by the unprecedented circumstances of the COVID-19 pandemic, the Board of Directors has deemed it prudent not to declare a dividend for the financial year 2019-20 in order to prioritize cash and maintain liquidity. As the business environment evolves over the coming months, the Board will review the dividend payable for FY 2020-21.

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