Two exit calls on Prime Stocks

N V Chandrachoodamani & Vidya Bala

We first recommended Syngene International in November 2021 at Rs.602 per share as the company was one of the few Contract Research, Development and Manufacturing Organisations (CRDMO) available with significant focus on biologics. After a year of consolidation, the stock had a good up move past Rs.800 by July 2023 during which we moved the stock to “hold”

This was triggered by the maiden commercial biologics manufacturing contract that Syngene won from global animal health major Zoetis worth $500 million in July 2022, over a period of 10 years for its novel drug. Syngene followed it up with the acquisition of a biologics manufacturing facility in Bangalore (near its existing facilites) for $86 million (Rs.702 crore) in July 2023 that triggered optimism on further business momentum.

But business momentum started to slow down by the end of fiscal 2024 after a stellar FY22 and FY23. While FY24 still ended on a healthy note, the business momentum had started to slowdown in Q4FY24 and it continued through Q1 and Q2 of FY25 before recovering in Q3 and Q4. Syngene closed FY25 on a positive note, but profit growth slipped into negative as a combination of low operating leverage and high depreciation costs weighed. The slow down in US bio-tech funding was pulling down the business momentum on the research side (CRO), thanks to the manufacturing contract (CDMO)  that helped it to still maintain the revenue growth

Here’s a quick look into Syngene’s financial performance for last 5 years

Meanwhile, the stock hit a new high of Rs.940 in November 2024 as the passing of US Bio-Secure act was expected to be a huge tailwind for Indian CRDMO players. But this party did not last long as the US President’s stance on manufacturing, trade and tariffs started to roll-out from the beginning of 2025 with a firmer stance that manufacturing of biologics should eventually move to US itself and not to any other country. This came as a bit jolt to Indian CRDMO players including Syngene. 

In the midst of all these, Syngene acquired a manufacturing facility in US for $37 million in March 2025 to be flexible enough to undertake manufacturing both in India and US. The acquisitions further ballooned Syngene’s gross block and depreciation, but with little push to revenues, while hurting its financial performance.

We thought that these headwinds for Syngene would be temporary and expected improvement from FY26 and moved the stock back to buy in May 2025 at Rs.642 per share. The US Bio-secure act was also expected to eventually come favourable for Indian CRDMO players. But then more negatives unfolded since then and led to a deep correction in the stock to the extent of 35-40% led by following events;

In February 2025, Syngene’s long time CEO, Jonathan Hunt, announced his resignation and this came as the first blow to investors. While Ex Biocon CEO, Peter Bains, took up the role then, he also announced his resignation at the end of March 2026. There were also several other top-level resignations recently. It was possible that Peter Bains, 69, assumed the role as a stop gap before a proper transition. As it stands now, Ex-Biocon CEO, Siddharth Mittal, has been roped in as the CEO of Syngene while Chairperson Kiran Mazumdar has stepped in as Executive Chairperson of Syngene. She has also roped in Ex-Biocon HR head to steer Syngene.   

All these points out to crisis management than continued business momentum and it can be some time before Syngene recovers its lost business momentum.

Syngene’s performance significantly weakened in Q2 and Q3 of FY26 as scaling down of manufacturing contract from its animal health client, Zoetis, led to a hit on both margins and profitability. While this is being explained due to inventory adjustment and temporary, Syngene doesn’t have new pipelines in place to deal with/compensate loss of this revenue in the short to medium term.  

Here’s a quick look in to its quarterly financial performance in the last two quarters

One of the expected triggers for Indian CRDMO players post Trump Presidency was the US Biosecure act that would shift manufacturing from China to India. But the watered down version of the Act not only takes away business from China, it is also more towards shifting manufacturing to US than to any other country. This has come as a jolt to Indian CRDMO players and many players including Syngene, Pirmal Pharma and Cohance have taken a deep cut in stock price. Only those players with strong business momentum, independent of this tailwind, are doing well currently. 

With lack of triggers and crisis management under way, Syngene has lost its mojo among the India CRDMO players. It will be a while before it can get back to business momentum.  

In this backdrop we are giving an exit call on the stock. 

It is also possible that the top management led by Kiran Mazumdar Shaw would explore divesting Syngene to a strategic player including PE investors (also part of succession planning) after the crisis management and that should be a welcome move for investors. Syngene is still 52.41% owned by Biocon and Chairperson Kiran Mazumdar Shaw is 73, building the two organisations over last 45 years.

Syngene still stands apart as the largest player in the CRO space (in pure research revenue) and there is no question as to its capabilities, it fell apart while scaling up while the fresh (US Bio-secure act) triggers faded away. Another area where Syngene stands strong is its EBIDTA to OCF conversion rate of over 90% and is still cash rich after making significant investments in capacities/manufacturing assets. 

Those with high risk appetite can still stay put or with reduced exposure on the stock until things turn for better while others can switch to our recent CDMO recommendation to play the growth opportunity in the space.  

Persistent Systems maintains a strong AI focus through platforms like SASVA and iAURA, driving ~50% growth in its data/AI practice over recent years, but this exposes it to sector-wide deflationary pressures from AI productivity gains. While management views AI as a growth catalyst (targeting $2B revenue by FY27), risks from decelerating growth, high multiples, and pre-earnings uncertainty justify an exit to preserve the current modest gains that is left. 

Persistent derives significant revenue from AI-led digital engineering, including agentic AI, GenAI accelerators, and data platforms, with key wins in BFSI (e.g., payroll modernization), healthcare (automation), and hi-tech (R&D platforms). Data & AI practice grew >50% annually for two years via Fortune 1000 deals; Q3 FY26 TCV hit $674M, with AI in client outcomes like cybersecurity and CRM unification. Partnerships with AWS, Microsoft (Frontier Firm), and Databricks amplify this, positioning it ahead of legacy IT peers.

AI introduces deflationary revenue impacts via productivity boosts (e.g., agentic systems reducing billing rates/employee revenue), with brokerages noting 2-3% structural drag on IT growth. Persistent’s Q3 FY26 revenue grew 17.3% YoY but slowed sequentially; management acknowledges AI-led deflation offsetting new deals. 

Regulated sectors (BFSI, healthcare ~core verticals) face compliance hurdles for GenAI, plus talent/wage inflation risks compressing 16.7% EBIT margins (ex-labour code hit).

At 47x P/E (vs. sector ginats at 18-25x), the stock embeds flawless 20%+ growth assumptions. This leaves no margin for sequential slowdowns or AI deflation (2-3% drag), risking 20-30% corrections seen in the IT pack’s YTD stock price declines. We therefore think making an exit is prudent despite operational strengths.

Disclosures and Disclaimers

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (hereinafter referred to as the Regulations).

1. PrimeInvestor Financial Research Pvt Ltd is a SEBI-Registered Research Analyst having SEBI registration number INH200008653. PrimeInvestor Financial Research Pvt Ltd, the research entity, is engaged in providing research services and information on personal financial products. This Research Report (called Report) is prepared and distributed by PrimeInvestor Financial Research Pvt Ltd with brand name PrimeInvestor.

2. PrimeInvestor Financial Research Pvt Ltd, its partners, employees, directors or agents, do not have any material adverse disciplinary history as on the date of publication of this report. 

3.  I, Vidya Bala & N V Chandrachoodamani , author/s and the name/s in this report, hereby certify that all of the views expressed in this research report accurately reflect my/our views about the subject issuer(s) or securities. I/We also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. I/we or my/our relative or PrimeInvestor Financial Research Pvt Ltd do not have any financial interest in the subject companies. I/we or my/our relative or PrimeInvestor Financial Research Pvt Ltd do not have beneficial ownership of 1% or more in the subject companies at the end of the month immediately preceding the date of publication of the Research Report. I/we or my/our relative or PrimeInvestor Financial Research Pvt Ltd do not have any material conflict of interest. I/we have not served as director / officer, etc. in the subject company in the last 12-month period.

4.  I, Vidya Bala, do not hold the stock of Syngene and Persistent Systems as part of my investment portfolio. I, N V Chandrachoodamani, hold the stock of Syngene as part of my investment portfolio and do not hold the stock of Persistent Systems as part of my investment portfolio. I/ analysts in the Company have not traded in the subject stocks thirty days preceding this research report and will not trade within five days of publication of the research report as required by regulations.

5.  PrimeInvestor Financial Research Pvt Ltd has not received any compensation from the subject company in the past twelve months. PrimeInvestor Financial Research Pvt Ltd has not been engaged in market making activity for the subject company.

6.  In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, PrimeInvestor Financial Research Pvt Ltd has not received compensation or other benefits from the subject company of this research report or any other third-party in connection with this report.

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