Biocon Limited Stock Analysis

Biocon

Biocon Limited (“Biocon” or the “Company”) is a global biopharmaceutical company committed to enhance affordable access to complex therapies for chronic conditions like diabetes, cancer and autoimmune.

The Company is a leading global player for APIs including statins, immune-suppressants and specialty molecules. Biocon 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.

The Company’s therapeutic basket includes molecules from diabetes, oncology, immunology, dermatology, ophthalmology, neurology, rheumatology and inflammatory diseases.

Financial Performance

Particulars

FY15

FY16

FY17

FY18

FY19

Revenue (In Rs. Cr.)

3,089.80

3,347.40

3,891.10

4,123.40

5,514.40

Growth

8.34%

16.24%

5.97%

33.73%

EBITDA (In Rs. Cr.)

695.80

767.80

979.50

829.10

1,393.70

EBITDA Margin

22.52%

22.94%

25.17%

20.11%

25.27%

EBIT (In Rs. Cr.)

474.80

519.10

702.30

444.00

945.90

EBIT Margin

15.37%

15.51%

18.05%

10.77%

17.15%

PBT (In Rs. Cr.)

519.00

569.00

833.40

588.70

1,019.40

PAT (In Rs. Cr.)

497.40

550.40

612.10

372.40

905.30

PAT Margin

16.10%

16.44%

15.73%

9.03%

16.42%

EPS (In Rs.)

4.15

4.59

5.10

3.10

7.54

EPS Growth Rate

11%

11%

-39%

143.1%

Historic P/E (Closing Price of 31st March)

18.87

17.56

36.99

95.69

40.23

CURRENT P/E (based on price of 17th  December  – Rs. 274.50 )

37.32

D/E

0.32

0.61

0.46

0.37

0.30

Interest Coverage

78.18

26.20

37.67

13.48

19.66

ROCE

10.61%

7.67%

9.47%

5.87%

11.12%

ROE

15.87%

14.11%

17.23%

11.36%

16.72%

FY 2018 – The muted FY18 performance was on account of continued pricing challenges in the generics business coupled with a planned plant shut down for requalification and lower licencing income in the biologics business. In addition, operational expenses related to its Malaysia facility impacted the bottom line.

FY 2019 – Due to the strong performance in the biologic business, Biocon’s net profit rose 64% y-o-y to Rs. 214 Cr. in Q4 FY 2019. For full year FY19, Biocon’s net profit soared 143% to Rs 905 Cr. The Company’s Biologics business, which reported a growth of 97%, thus emerging as a key driver for Biocon’s incremental growth.

Revenues from the biologics vertical, that comprises biosimilars, rose 87% to Rs 451 Cr., driven by the biosimilar Pegfilgrastim gaining market share in the U.S. and sustained sales momentum of trastuzumab and insulins in key emerging markets.

Biocon’s partner Mylan launched Fulphila or biosimilar Pegfilgrastim in July 2018. In terms of volumes, Fulphila market share rose to 16%.

Quarterly Performance

Quarterly Results

Q2 FY 2019

Q3 FY 2019

Q4 FY 2019

Q1 FY 2020

Q2 FY 2020

TTM

Q-o-Q %

Y-o-Y %

Revenue (In Rs. Cr.)

1,321.00

1,540.80

1,528.80

1,465.90

1,572.20

6,107.70

7.25%

19.02%

EBITDA (In Rs. Cr.)

339.60

380.70

403.00

437.50

402.80

1,624.00

-7.93%

18.61%

EBITDA Margin

25.71%

24.71%

26.36%

29.85%

25.62%

 

 

 

PAT (In Rs. Cr.)

354.70

217.20

243.40

206.30

215.70

882.60

4.56%

-39.19%

PAT Margin

26.85%

14.10%

15.92%

14.07%

13.72%

 

 

 

EPS (Rs.)

2.96

1.81

2.03

1.72

1.80

7.36

4.56%

-39.19%

  • On September 2019, Biocon extended its footprint to China, the world’s 2nd largest pharma market, licensed out three Generic Formulations products to China Medical System Holdings.
  • A robust growth of 40% by Biologics and 23% by Small Molecules, coupled with a steady performance by the Research Services business drove the consolidated Revenue.
  • In September quarter, there is an exceptional income of Rs. 171 Cr. – one-time gain as company fair valued its investment in U.S. based Equillium.

BioconWHAT’S DRIVING THE STOCK?

Biocon mostly produces drugs for chronic conditions like diabetics, cancer, etc., and does high-end research in these segments. To sharpen its research edge, Biocon plans to ramp up its R&D investments in the coming years.

Focus on Biosimilars

Through its research partnerships with global pharma companies such as Sandoz and Mylan, Biocon is trying to maximise its full potential as a fully integrated biosimilars company.

  • In May 2019, Health Canada has approved Mylan’s Ogivri, a biosimilar co-developed with Biocon and used for breast cancer and stomach cancer treatment. Ogivri is the second approved biosimilar from Biocon and Mylan’s joint portfolio.
  • Biocon’s partner Mylan launched Fulphila or biosimilar Pegfilgrastim in July 2018
  • The Company recently acquired Pfizer’s biologics R&D facility (60,000 sq ft) at Ticel Bio Park, Chennai. This acquisition will cut development time of pipeline molecules (28 currently, 11 with Mylan, some with Sandoz) by two years.

In H1 FY20, biologic segment which includes biosimilars and insulin contributed 32% to revenue. The Company is heavily spending in this space. The progress has been encouraging with approvals and launches in the US, EU, Japan, Australia and EMs.

Research services (Syngene)

Biocon’s contract research organisation (CRO) arm Syngene contributes 33% of total revenues. The Company caters to 331 clients including eight out of global top 10 global players.  Revenue from the Research Services business this quarter stood at Rs 465 Cr., a growth of 11%, driven by continued growth and consistent performances in the Dedicated R&D Centres and Development Services business.

Syngene operationalized the first phase of new 50,000 sq. ft. research facility in Hyderabad, which will house a team of nearly 150 discovery research scientists.

The management is confident of achieving US$ 1 billion biological revenues by the end of FY22 (~US$140 million in H1FY20).

WHAT’S DRAGGING THE STOCK?

Fall in the Share Price

In the last one year, the stock price of Biocon has fallen due to the heightened activism by the US FDA—Biocon received several observations just like other pharma firms.

Negative US FDA observations

The Company has accelerated the scalability capex and R&D, which is likely to push related expenses higher in the near term.