After a muted Q1, Syngene guides for double-digit top line growth

But ongoing capex and depreciation may weigh on bottom line

The Syngene International stock ended 1 per cent lower after the company reported a marginal growth in revenues in the June quarter. The top-line performance was pegged back by the disruption in its operations in April because of the Covid-19 pandemic. However, sales growth led by discovery services was in line with the management’s guidance of flat revenue performance in the June quarter. 

The company, which offers contract research services to pharma companies, expects growth to return in the September quarter of FY21. 

Despite pressure on revenues in the June quarter, the company reported a steady operating performance. Operating profit margins at 32 per cent were the same as in the year-ago quarter, led by an improvement in sales mix in favour of the discovery segment, which requires a lower quantum of raw materials. Besides, operational efficiencies helped cut the costs.  The company has been decreasing its discretionary spends and is saving on travel costs because of the lockdown and flight restrictions. 

These gains would have been higher but for the increased staff costs, as well as the spending on safety programmes for employees. 

Further growth, according to the management, is expected to come from the expansion of opportunities in the current client pie, as well as the broadening of the client base, including medium-sized enterprises. 

 

 

The company, which ended FY20 with 10 per cent growth in the top line, expects to end the current financial year with growth in low double digits. Growth, however, depends on improvement in the Covid-19 situation and does not include the possible impact from a second lockdown. 

Higher depreciation because of the ongoing capex programme and lower other income led to a 19 per cent YoY decline in net profit. The company has guided for a flat bottom-line performance in FY21 after registering 10 per cent growth last year. Analysts expect its profitability to be muted in the current year, given the aggressive capex. 

The company has spent $450 million of the $550 million outlay and would spend the rest this year. Asset turnover from this capex should drive its return ratios going ahead, feel analysts.