January 29, 2018 ICICI Securities Ltd | Retail Equity Research Result Update Biologics, Syngene maintain momentum… Biocon reported flat YoY revenues at | 1058 crore (I-direct estimate: | 1073 crore). Biopharmaceutical segment declined 9% YoY to 369 crore while the biologics segment (excluding licensing income) grew 24% to | 178 crore EBITDA margins contracted 548 bps YoY to 21% (I-direct estimate: 19.4%) mainly due to a below expected gross margin performance and higher employee cost. EBITDA declined 20% YoY to | 222 crore against I-direct estimate of | 208 crore Net profit declined 46% YoY to | 92 crore but came in line with I- direct estimate of | 90 crore Well poised to capitalise on global biosimilars opportunity Biologics segment (~14% of FY17 turnover) includes biosimilars, encompassing Rh-insulin, insulin analogs, monoclonal antibodies & recombinant proteins. It is the first Indian pharmaceutical company to receive biosimilar approval in US. The company has invested heavily in this space in the last two to three years, especially the Malaysian facility. So far, the progress has been encouraging with Trastuzumab launch in US, Glargine launch in Japan besides launches in emerging markets. We expect biologics to grow at ~36% CAGR to | 1390 crore in FY17-20E. Research services (Syngene) to maintain growth momentum Biocon’s contract research organisation (CRO) arm Syngene contributes ~29% to its turnover. The company caters to 293 clients including eight out of global top 10 global players. This segment has consistently been growing in double digits and has recently been the major growth driver for the company as the biopharma segment is slowing down. We expect revenues to grow at a CAGR of ~16% to | 1833 crore in FY17-20E. Small molecules under pressure; branded formulations growing decently Small molecules (~41% of FY17 turnover) comprise APIs like statins, immunosuppressants, specialty APIs & also include generic formulations business witness steep pricing pressure. The company is exploring fewer opportunities but with higher profitability in this segment like moving into formulations & filing own ANDAs, 505 (b)(2) filing, etc. It has already filed few ANDAs, which include complex generics & injectables. We expect small molecules segment to grow at a CAGR 4% CAGR to | 1774 crore in FY17-20E. The branded formulations (14% of FY17 revenue) includes finished dosages business in India and overseas including UAE. It comprises Indian domestic formulations. The company owns 80+ brands encompassing therapies like diabetology, oncology, nephrology, cardiology, immunotherapy, comprehensive care and bio-products. Biosimilar deals, approvals and launches to sustain investors interest In Q3, the company secured its first biosimilar approval (Trastuzumab) in the US, also the first by an Indian pharma company. Although Trastuzumab approval does not imply immediate launch of the product in the US, it endorses the development and manufacturing capabilities of Biocon in the realm of biosimilars. The company has also announced its second partnership in the biosimilar space with Sandoz for global development of next generation biosimilars. This has again vindicated its capability in the biologics (biosimilars). Progress on the biosimilars regulatory front in developed markets and launches in the developed as well as emerging markets are likely to maintain investors optimism for the company. We continue to value the stock on SOTP basis. Accordingly, we arrive at a target price of | 680 per share. Rating matrix Rating : Buy Target : | 680 Target Period : 12 months Potential Upside : 13% What’s Changed? Target Changed from | 560 to | 680 EPS FY18E Changed from | 8.2 to | 8.4 EPS FY19E Changed from | 11.7 to | 11.9 EPS FY20E Changed from | 15.9 to | 16.9 Rating Changed from Hold to Buy Quarterly Performance Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%) Revenue 1,057.9 1,044.4 1.3 968.6 9.2 EBITDA 221.7 276.1 -19.7 182.3 21.6 EBITDA (%) 21.0 26.4 -548 bps 18.8 214 bps Net Profit 91.9 171.4 -46.4 68.8 33.6 Key Financials (| Crore) FY17 FY18E FY19E FY20E Revenues 3921.6 4158.7 4921.5 5801.9 EBITDA 851.2 973.8 1273.1 1557.8 Adj. Net Profit 508.7 501.7 711.3 1015.5 Adj. EPS (|) 8.5 8.4 11.9 16.9 Valuation summary FY17 FY18E FY19E FY20E PE(x) 59.1 72.1 50.9 35.6 EV to EBITDA (x) 10.5 9.6 12.3 15.4 Price to book (x) 9.6 10.2 13.9 17.1 RoNW (%) 42.3 36.9 28.1 22.7 RoCE (%) 9.6 10.2 13.9 17.1 Stock data Particular Market Capitalisation Debt (FY17) Cash (FY17) EV 52 week H/L 439/268 Equity capital (|Crore) Face value (|) | 5 | 300 crore | 37341 crore Amount | 36180 crore | 2205 crore | 1044 crore Price performance (%) 1M 3M 6M 1Y Biocon 17.7 76.2 61.9 86.6 Glenmark 6.0 3.4 -11.8 -29.6 Torrent Pharma -2.6 9.3 10.9 7.7 Aurobindo Pharma -6.5 -15.4 -10.9 -9.4 Research Analyst Siddhant Khandekar [email protected]Mitesh Shah [email protected]Harshal Mehta [email protected]Biocon (Biocon) | 603
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Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Reuters, Company, ICICIdirect.com Research
Key events
Date Event
Nov-12 Enters into an option agreement with Bristol-Myers Squibb (BMS) for Biocon's IN-105 (oral insulin product candidate)
Feb-13 Out-licenses three insulin analogue products to Mylan. Mylan will have the rights to develop and market Biocon's Glargine, Lispro and Aspart.
Nov-13 Receives marketing approval from Drugs Controller General of India to launch its biosimilar Trastuzumab (anti-cancer) in Indian market.
Jan-14 Biocon launches its biosimilar CanMab in Indian market
Sep-14 Biocon Research buys back the 7.69% stake held by GE Equity International Mauritius valuing Syngene at | 2800 crore.
Jan-15 Silver Leaf Oak acquires 10% stake in Syngene International, Biocon's Research Services Subsidiary at a valuation of | 3800 crore
Jul-15 Syngene IPO starts from July 27, 2015 at a price range of | 240-250
Oct-15 Acquired API unit of Acacia Life Sciences Private Limited at Vizag
Jun-16 Biocon and Mylan to Present Phase 3 Trastuzumab Biosimilar Data at the American Society of Clinical Oncology (ASCO) Annual Meeting
Jul-16 Biocon's Insulin Glargine launched in Japan
Jul-16 European Medicines Agency accepts Biocon-Mylan proposed biosimilar Pegfilgrastim (gNeulasta) for review
Aug-16 European Medicines Agency accepts Biocon-Mylan proposed biosimilar Trastuzumab (gHerceptin) for review
Jan-17 USFDA accepts Biocon’s biologics licence application for its biosimilar oncology drug Trastuzumab
Jul-17 USFDA Oncologic Drugs Advisory Committee (ODAC) recommends approval of Biocon/Mylan’s proposed biosimilar Trastuzumab, a biologically similar version of
Roche's breast-cancer drug Herceptin
Dec-17 USFDA approval for Ogivri, a biosimilar Trastuzumab co-developed by Biocon and Mylan
Jan-18 Collaborates with Sandoz for a global partnership to develop, manufacture and commercialize a number of next generation biosimilars
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Investor Name Latest Filing Date % O/S Position Position Change
ICICI Securities Ltd | Retail Equity Research Page 17
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