An Investment Strategy innovated by StockAxis

Biocon Ltd

Stock Rating

Industry Rank:
11
Relative Strength Rating:
92
Outstanding
Acceleration in Earning Rating
59
Positive
Technical Rating
90
Outstanding
Pharmaceuticals & Drugs - Global
CMP: Rs 354.85
Up
No change
Down

Company details

Market cap:
49,752.00
52-week high/low:
Rs. 446.95 / 211.05
NSE volume: (No of shares)
6,673,957.00
BSE code:
532523
NSE code:
BIOCON

Shareholding

(in %)
31-Mar
Promoter
60.67
Public
38.20
Others
1.13
Total
100

Indexed Stock Performance

Biocon Ltd Sensex
Biocon Ltd
One Year Performance

Price performance

Return (%)
1m
3m
12m
36m
Absolute
-0.45
13.10
36.96
116.92
Sensex
0.97
-23.36
-20.62
1.18

+91 22 6639 3000

research@stockaxis.com

Biocon Ltd

Strong pipeline of Biosimilars to provide robust growth in Biologics business

Biocon Ltd., (Biocon) is an innovation-led global biopharmaceutical company committed to enhance affordable access to complex therapies for chronic conditions like diabetes, cancer and autoimmune conditions. Biocon operates in four broad business verticals namely, biologics, small molecules, branded formulations and research services. It has developed and commercialized novel biologics, biosimilars, and complex small molecule APIs in India and several key global markets as well as generic formulations in the US and Europe. It also has a pipeline of promising novel assets in immunotherapy under development.

Biocon Biologics, a subsidiary of Biocon Ltd., is uniquely positioned as a fully integrated ‘pure play’ biosimilars organization in the world and aspires to transform patient lives through innovative and inclusive healthcare solutions. The company’s portfolio of biosimilar molecules comprises a rich pipeline of approved and in-development biosimilars, which are an outcome of its high end R&D and global scale manufacturing expertise. The company has commercialized three of its biosimilars in developed markets like EU, U.S., Japan and Australia.

Investment Thesis

Biocon Biologics is best placed to capture global biosimilar opportunity
The company has commercialized three of its biosimilars in the developed markets like EU, U.S., Japan and Australia. The Biosimilar business reported strong revenue growth of 29% in FY20, driven by new launches and market share gains. Biocon Biologics has received FDA pre-approval for its Malaysia manufacturing facility and has also received favourable court decision with respect to ongoing patent litigation for Insulin Glargine. We believe Insulin Glargine will be a key contributor to growth of the biologics segment. US launch for the same is expected in July 2020, which is a US$2.2 billion market.

 

Stable growth likely in Research services

Syngene is the company’s research service subsidiary. Research services delivered a steady growth y-o-y for FY20, led by strong performance in Discovery and Development services. Syngene has grown its revenue at 19% CAGR over FY18-20. The company has recently added new capacities for biologics manufacturing and new research facility to focus on Biology and Microbiology. With rising R&D outsourcing and increase in capacity, we believe Syngene can provide stable growth.

 

Growth recovery in Small molecules
Small molecules comprises of Active Pharmaceutical Ingredients (APIs) and generics formulations. It is the largest revenue contributing segment for the company. Biocon is one of the largest API producers for statins and immuno-suppressants. Increase in capex and higher R&D spend will aid growth going forward in small molecules segment.

 

Impact of COVID-19

In order to minimise impact to patients, Biocon activated business continuity plans to run essential and critical manufacturing and quality operations with minimal staffing. Still, supply chain disruptions, impaired mobility and industry-wide dislocation have impacted business.

Biocon has gradually ramped up its operations to provide life -saving medicines to patients and partners. The company’s manufacturing operations are being handled with reduced manpower and operations are being gradually scaled up to pre-lockdown levels.

 

Key Risks

Slowdown in approvals: USFDA inspections with unfavorable result will lead to delay in approvals.

Currency volatility: currency volatility is an important factor as majority of revenue come from exports.

Financial Highlights

(Rs Crores)

ParticularsFY18FY19FY20FY21 EFY22 E
Small Molecules1508.001773.002094.002303.002649.00
Biologics770.001517.001951.002733.005606.00
Branded Formulations612.00656.00536.00493.00567.00
Research Services1423.001826.002012.002253.002659.00
Inter-seg-183.00-257.00-226.00-226.00-226.00
Revenue from Operations4130.005515.006367.007557.0011255.00
Revenue Growth %5.30%33.50%15.40%18.70%48.90%
Material and Power cost1825.002136.002299.002569.003602.00
Gross Profit2305.003379.004068.004987.007653.00
Employee Cost846.001062.001328.001587.002138.00
R&D Expenses216.00290.00439.00611.00932.00
Other Expenses414.00633.00698.00831.001238.00
EBITDA829.001394.001603.001958.003345.00
EBITDA Margins %20.10%25.30%25.20%25.90%29.70%
D&A385.00448.00552.00699.00858.00
EBIT444.00946.001051.001260.002488.00
Other Income206.00144.00161.00161.00161.00
Interest & Finance Charges61.0071.0065.0072.0079.00
PBT589.001019.001147.001349.002570.00
Tax157.00194.00250.00337.00642.00
Tax rate %26.70%19.00%21.80%25.00%25.00%
Net Profit before MI432.00825.00897.001012.001927.00
Minority Interest81.0097.00109.00129.00244.00
PAT351.00728.00788.00883.001683.00
EPS3.107.606.307.4014.00
Source: Stockaxis Research, Company Data

Valuation

Despite setback due to Covid-19, the management remains confident of achieving US$1 billion revenue target for Biologics by FY22. Biocon has a strong pipeline of biosimilars to be launched in next 3 to 5 years. We believe Biologics business has huge growth potential given new launches in developed as well as emerging nations and market share gains. Currently, stock is trading at 28x FY22E earnings.