Jonathan Hunt on growth triggers which led to upgrade of Syngene sales guidance

Let us talk about the positive. You have gone ahead with and raised your FY23 sales guidance to high teens versus mid-teens earlier. What are the growth triggers which made you upgrade the guidance?


I think it is two things – the underlying business momentum is pretty good; we have talked about this over the last couple of quarters that we are starting to see our clients particularly in the Western Europe and the US get back to work trying to catch up on some of the lost time during the pandemic and that is creating a healthy demand environment.

All four of the divisions that we have are performing well and we are seeing good growth and in addition, we get a boost at the top line from currency. Most, if not all our contracts are US dollar denominated. So given the change in the US dollar through to the rupee exchange rate.

We are seeing a little bit of a boost on the top line so those three factors together include a good demand environment, good operational performance from our four divisions and then a boost at the top line from some currency.

You maintain the EBITDA margin guidance of 30%- and single-digit PAT growth for FY23. Why do you expect any margin pressure in the coming month?


We are happy with the margin and they are very good margins by industry standards. They are stable and in line with the guidance and our expectations. Of course, it is a technical issue as you go through the P&L, we take a very conservative approach towards currency hedging, an awful lot of the rates that we have looked in earlier, so it takes quite a while is a bit of a delay before that works its way all the way through to P&L.

But it is much more visible the benefit of the top line earlier so pretty much happy with the margin outlook.

How has the growth been across all the four divisions of the company and how much research business now contributes to your revenue? Should we expect to see any change in your revenue mix going forward?


Nicely balanced across the four divisions and you cannot stop to see that we have signed a 10-year strategic deal with Zoetis in animal health to manufacture an innovative monoclonal antibody that is used to treat dogs with osteoarthritis.

It is a real piece of innovation from Zoetis that we are delighted to sign. That deal is strategic and is in our biologics manufacturing part of the organisation. They should get going with that set up starting during this year and then you will start to see it in the P&L much more strongly from next year so that starts the rebalancing of the organisation.

I think we have talked in the past of it being a single engine plane becoming a twin engine plane and we will start to see that with the manufacturer coming through.

Take us through your capex guidance as well $100 million, what are the expansion plans and how much investment would be dedicated to biologics specifically?


Yes, it is about half of that, so $50 million would be going into the research side of the business, we have got some expansions in new capex coming here in Bangalore with the expansion of the Phase III of our Hyderabad campus.

Half of it is going on to the research side. Around $30 million will be going into biologics specifically, we very much support the deal that we have just announced through Zoetis to put some new capacity in place there and then the remainder of $20 million for the year is spread across the businesses comprising IT to the development business to infrastructure.

Does the demand on biologics CDMO outweigh the small molecules? Additionally does your company boast of a competitive advantage as only few Indian players have demonstrated biologics capabilities?


Over the business cycle and over the medium term, I would expect good growth from both the small molecule manufacturing CDMO business and also from the biologics as having just signed a marquee deal like the Zoetis, biologics is going to be accelerating straight out of the blocks now.

Over the business cycle, we should both do well and biologics really is an area where it is not just about the infrastructure and the capacity and capex that you put in, it is very much about the people and to be successful in biologics it is about industry wisdom and real knowledge is tested and it has taken the best part of the decade for us to really build that capability here in India.