Research Analysts. February 17, Scrip I-Direct Code Action Target Upside Syngene International SYNINT Buy in the range of

Transcription

1 Techno Funda Pick Scrip I-Direct Code Action Target Upside Syngene International SYNINT Buy in the range of % Time Frame: 6 Months Research Analysts Dharmesh Shah Siddhant Khandekar dharmesh.shah@icicisecurities.com siddhant.khandekar@icicisecurities.com February 17, 2017

2 Techno Funda Pick: Syngene International (SYNINT) Time Frame: 6 Months CMP: Buying Range: Target: Upside: 16% Stock Data Recommended Price Price Target Week High Week Low days EMA days EMA Week EMA 484 *Recommendation given on i-click to gain on February 16, 2017 at 15:04 hrs Stock price vs. BSE Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Syngene BSE500 Price performance in last two years 80% 30% -20% 41% 35% Year Source: Bloomberg, BSE, ICICIdirect.com Research 12,500 12,000 11,500 11,000 10,500 10,000 9,500 9,000 Key technical observations The share price of Syngene International has approached a crucial value area after 10 weeks of corrective decline off its December 2016 peak of 663. The recent correction has the underpinning characteristics of a secondary corrective phase within the larger uptrend. In the current week s trade, the stock has rebounded after testing the major value area placed around 460 and formed a bullish engulfing candlestick pattern on the daily chart signalling strong demand emerging at the key value area suggesting a potential reversal of trend. Thus, it provides a good entry opportunity from a medium-term perspective. Attracting strong demand at major value area, provides fresh entry opportunity After a strong rally during August-December 2016, rallying from 408 to the life-time high of 663, the stock entered into a corrective phase to work off the excesses developed after the sharp sprint. The corrective decline from the high of 663 saw the stock approach its crucial support area of 460 being theconfluenceof the following technical parameters: The long term trend line support joining major lows since August 2015 is placed around 460 region 80% Fibonacci retracement of the previous rally between August-December 2016 ( 408 to 663) is at 460 The previous consolidation area of August and September 2016 is placed around 460 levels Time wise, the last up move ( 450 to 663) took 10 weeks, whereas the stock has already spent 10 weeks under current corrective decline while retracing 80% of the previous up move. Based on this observation, we believe the current corrective decline has approached price wise and time wise maturity and the stock provides good entry opportunity from a medium term perspective with a favourable risk/reward set up to ride the next up move. Volume behaviour supports overall bullish bias in price The volume behaviour reflects the overall robust price structure as the entire corrective decline since December 2016 has seen thin participation whereas the previous rally witnessed strong volumes. The up move on Thursday's session fromthemajorvalueareaisalsoaccompaniedbystrongvolumeofmorethandoubleofthe50daysaveragevolume of 2 lakh shares per day highlighting strong participation at the major support level. Momentum indicators validate potential reversal from key value area The daily 14 period s RSI has also rebounded from the extreme oversold reading of 16 and has generated a buy signal above its nine period average highlighting build up of strength and augurs well for continuance of bullish momentum. Conclusion We believe the stock has concluded a healthy corrective phase and is set to embark upon the next major up move over the medium term with a favourable reward/risk ratio. We expect the stock to resolve higher and retrace at least 50% of the entire correction ( 663 to 463), which also coincides with the trend line resistance joining the highs of December 2016 ( 663) and January 2017 ( 617) thereby providing upsides towards 565 in the medium term. 2

3 Techno Funda Pick: Syngene International (SYNINT) Daily Bar Chart Stock currently placed at the major value area thus provides good buying opportunity for medium term perspective % Research Analyst Dharmesh Shah dharmesh.shah@icicisecurities.com 349 Major value area at 460 -Long term rising trendline in place since % retracement of the previous major rally - Consolidation area of Aug-Sep 2016 Siddhant Khandekar siddhant.khandekar@icicisecurities.com 294 Volume expansion along with price rebound from major value area highlights larger participation 14 period RSI has generated a buy signal from highly oversold territory Source: Bloomberg, ICICIdirect.com Research 3

4 Techno Funda Pick: Syngene International (SYNINT) Stock Data Particular Market Capitalisation Debt (FY16) Cash (FY16) Key Metrics Amount crore 891 crore 720 crore EV crore 52 week H/L 663/349 Equity capital crore Face value 10 FY16 FY17E FY18E FY19E PE (x) M.Cap/ Revenues (x) EV to EBITDA (x) P/B (x) ROE (%) RoCE (%) Financial Highlights Fundamental View Incorporated in 1993 as a subsidiary of Biocon, Syngene International (SIL) is a leading contract research organisation (CRO), which supports R&D programmes of global innovative companies. SIL offers outsourced services to support discovery and development for organisations across industrial sectors like pharmaceuticals, biopharmaceuticals, neutraceuticals, animal health, agro-chemicals, etc. It currently caters to 256 global players including Bristol-Myers Squibb (BMS), Abbott, Baxter and Amgen, among others. SIL derives~95%ofitsrevenues from exports. In terms of classification on a contractual basis, it derives ~33% of revenues from long term dedicated contracts. The remaining 67% come from 1) Discovery services (27% of revenues; full time equipment (FTE)) and 2) Development & Manufacturing services (40% of revenues; fee for service (FFS)). Global pharma landscape conducive to incremental R&D outsourcing Global pharmaceutical players are facing structural issues from the impending patent cliff, shrinking product pipeline, rising R&D costs and growing competition. At the one end, these companies are shrinking in size due to loss of blockbuster exclusivities while, at the other end, new product approvals by the USFDA are also on the rise. Hence, to maintain the structural balance and improve probability of success they are inclined to outsource a substantial part of the R&D work. Similarly, the innovative/virtual companies that are extensively working on new products and which may not have the required capital/manpower also tend to outsource a substantial part of their R&D. As per a Frost & Sullivan report, global pharma R&D spend in CY14 was at ~US$140 billion of which the outsourced pie was estimated at US$40-45 billion. Integrated business model, customer stickiness to the core SIL s revenues grew at ~28% CAGR in FY11-16 to crore due to a sharp increase in new client addition and scaled-up revenues from existing clients led by integrated service offerings, high data integrity ethos and continuous endeavour to move up the value chain. The capabilities have been vindicated by proven customer stickiness as eight of the top 10 global pharma companies have been availing the services for the last five years. The proposed foray in contract manufacturing (CMO) services from FY17E will further strengthen its service offering to clients. The company owns a pool of 2571 scientists. Long term prospects intact ( crore) FY16 FY17E FY18E FY19E Revenues EBITDA The fourth dedicated centre for Amgen has started showing traction. Tapping customers for a dedicated centre Net Profit bodes well as these are long term commitments with stable cash flows. The Amgen deal is also likely to improve EPS ( ) biologics revenues. Also due to complexity of biologics and customer stickiness in the biologic deals we believe this deal to be more remunerative than the existing dedicated centres going ahead. Aggressive capex across the segments is expected to materialise in the next months. Fundamentally, the company remains well poised to capture opportunities in the global CRO space on account of strategic outsourcing by global innovators in the backdrop of structural challenges such as an impending patent cliff, controlling costs and keeping new products Source: Company, ICICIdriect.com Research introduction flow intact. We have a buy on the stock. 4

5 Strategy Follow up Open Recommendations: Rec. Date Scrip Name Rec Price Target CMP Return till date (%) 10-Jan-17 VA Tech Wabag Jan-17 Maruti Feb-17 Wonderla Summary Performance - Recommendations till date Open Recommendations 3 Total Recommendations 86 Yield on Positive recommendations 18.0% Closed Recommendations 83 Yield on Negative recommendations -8.0% Positive Recommendations 68 Strike Rate 82% 5

6 Notes It is recommended to enter in a staggered manner within the prescribed range provided in the report. The recommendations are valid for six months and in case we intend to carry forward the position, it will be communicated through separate mail. Trading portfolio allocation It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products Please avoid allocating the entire trading corpus to a single stock or a single product segment Within each product segment e it is advisable to allocate equal amount to each recommendation For example: The Daily Calls product carries 3 to 4 intraday recommendations. It is advisable to allocate equal amount to each recommendation 6

7 Recommended product wise trading portfolio allocation Product Allocations Product wise Max allocation in allocation 1 Stock Number of Calls Return Objective Frontline Stocks Mid Cap Stocks Duration Daily Calls 8% 2-3% 3-4 Stocks 0.5-1% 2-3% Intraday Stocks on the Move 6% 3-5% 7-10 Per Months 7-10% 10-15% 3 Months Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Weekly Technicals 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Monthly Call 15% 5% 2-3 Stocks 7-10% 10-15% 1 Month Monthly Technical 15% 2-4% 5-8 Stocks 7-10% 10-15% 1 Month Techno Funda 15% 5-10% 1-2 Stocks 10% and above 15% and above 6 Months Gladiator Stocks 15% 5-10% 1-2 Stocks 15% and above 20% and above 6 Months Cash 10% - 100% 7

8 Pankaj Pandey Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC Andheri (East) Mumbai

9 Disclaimer ANALYST CERTIFICATION We /I, Dharmesh Shah, Siddhant Khandekar Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number INH ICICIICICI Securities is a wholly-owned subsidiary of ICICI Bank which h is India s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. ( associates ), the details in respect of which are available on ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaininga financial interest in the securities or derivativesof any companies that the analysts cover. The information and opinions in this section have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Nonrated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. The research recommendations are based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. These research recommendations and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. ICICI Securities will not treat recipients as customers by virtue of their receiving these recommendations. Nothing in this section constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed herein may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of these recommendations. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. 9

10 Disclaimer ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received ed any compensation from the companies mentioned ed hereinei during the period preceding twelve months from the date of these recommendations for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation forproductsorservicesotherthaninvestmentbankingormerchant banking or brokerage services from the companies mentioned herein in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its Analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this reports. It is confirmed that Dharmesh Shah and Siddhant Khandekar, Research Analysts giving these recommendations have not received any compensation from the companies mentioned herein in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the company/companies mentioned herein asof the last day of the month preceding the publication i of these research recommendations. Since Associates (ICICI group companies) of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned herein. It is confirmed that Research Analysts do not serve as an officer, director or employee or advisory board member of the companies mentioned herein. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented herein. Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned herein. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report or recommendations are not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. 10