Biocon Limited - Recovery better than expected - ICICI Securities

Biocon Limited (Biocon) reported a healthy Q1FY21 performance recovering from the weak performance in Q4FY20. Recovery was driven by biosimilars that grew 59.6% QoQ. Consolidated revenues grew 14.6% to Rs16.7bn (I-Sec: Rs14.9bn), adjusted EBITDA margin was down 530bps to 24.7% (I-Sec: 23.3%) and adjusted PAT dropped 27.6% to Rs1.5bn (I-Sec: Rs1.6bn). Lower margin and operational performance was due to decline in profit share in the biosimilars segment and flattish performance in the research services. New launches and continuous recovery hereon would aid margin improvement in the coming quarters. Reiterate HOLD with a revised target price of Rs429/share (earlier: Rs416/share).

- Biosimilars recovers; new launches to provide growth: Biosimilars segment grew 18.9% YoY and 59.6% QoQ in Q1FY21. This includes revenue of Rs1.03bn that were deferred from Q4FY20 due to lockdown. Company witnessed a strong traction in its MoW markets which propelled growth. Recently launched Ogiviri in US gained market share while Fulphila was able to maintain market share despite higher competition. Recent approval for Semglee in US and biosimilar Etanercept in EU which post launch would provide additional growth in the coming quarters. Generics grew 16.1% YoY and 6.55 QoQ to Rs6.0bn driven by steady API sales for its statins and immunosuppressants portfolio and strong growth in the generics formulations. Research services remained flat YoY impeded by the lockdown restrictions, however, company has resumed operations to near normality towards closure of the quarter.

- Lower profit share impacted margin: Gross margin declined 380bps YoY but grew 180bps QoQ to 67.6% due to lower profit share in the biosimilars segment as compared to last year. Sequential gain is benefited with recovery in the biosimilars segment. EBIT margin for biologics segment also improved to 15.0% QoQ. R&D expenditure reduced due to lockdown at 6.4% of sales but is expected to rise over the year. Overall EBITDA margin declined 530bps YoY but improved 310bps QoQ to 24.7%. However, growth in the biosimilars segment with new launches and support from generics segment would aid margin improvement in the coming quarters.

- Outlook: We expect revenue CAGR of 21.9% over FY20-FY22E resulting in EBITDA margin expansion of 670bps with rising contribution from high margin biosimilars segment and 52.9% earnings CAGR over FY20E-FY22E. This would help generate healthy OCF of ~Rs44bn over FY21E-FY22E and improve return ratios.

- Valuation and risks: We marginally alter estimates to reflect new product launches but cut EBITDA estimate of FY21 by 4.7% to incorporate lower margins. We maintain HOLD rating on the stock with a revised SoTP-based target price of Rs429/share (earlier: Rs416/share) as valuations seem fair. Key downside risks: Regulatory risk, delay in product launch and higher competition in its products. Key upside risk: Higher than estimated revenue from its key biosimilar products.

Shares of BIOCON LTD. was last trading in BSE at Rs.399.55 as compared to the previous close of Rs. 415.15. The total number of shares traded during the day was 297182 in over 8198 trades.

The stock hit an intraday high of Rs. 415.15 and intraday low of 397.45. The net turnover during the day was Rs. 120087161.

Source : Equity Bulls

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