Rationale

 The reaffirmation of ratings draws comfort from Syngene International Limited's (Syngene) strong business profile and wellentrenched position in the contract research space, its established client relationships and comfortable financial profile. The company also has strong parentage by virtue of it being a subsidiary of Biocon Limited (rated [ICRA]AA+ (Stable)/[ICRA]A1+). Syngene's operating income grew by 8.6% year-on-year (YoY) in FY2021 to Rs. 2,201.4 crore and by 46.1% YoY in Q1 FY2022 to Rs.609.1 crore, aided by healthy performance across segments. Further, Syngene has healthy growth prospects over the medium term, supported by the robust demand for services from contract research organisations (CROs), its new business additions, contract extensions and scope enhancements. Globally, CROs are expected to benefit from the trend of pharmaceutical companies increasingly outsourcing their research activities, and Indian CROs (including Syngene) are in an advantageous position, given their cost competitiveness, despite the growing competition. While the company already has an integrated presence across discovery, dedicated research and development (R&D), development and manufacturing services, the planned scaling up of operations in the newly commissioned Active Pharmaceutical Ingredient (API) manufacturing facility in Mangalore over the near to medium term, would diversify Syngene's operations further and strengthen its position in the drug-discovery-to-manufacture value chain. Syngene currently derives over half of its revenues from its top 10 customers and 74% of its FY2021 revenues from The United States of America (USA). However, the company has been engaging in focused efforts to diversify its client base and has added over 40 new clients in FY2021. Syngene continued to maintain healthy margins and profitability, with operating margins of 30.8% (PY: 30.5%), net margins of 18.4% (PY: 20.3%) and core return on capital employed (core RoCE) of 21.9% (PY: 26.9%) in FY2021. Although the company has capex plans of ~Rs. 750.0 – 900.0 crore ($100 - 120 million) in FY2022, ICRA draws comfort from the anticipated healthy accruals from the business and Syngene's strong liquidity position with cash and liquid investments of Rs. 1,125.51 crore as on June 30, 2021 and repayment obligations totalling to less than Rs.100 crore on existing loans in the next three years. The company remained net debt negative as on June 30, 2021 and is expected to remain so over the medium term.