biocon (biocon) | 664content.icicidirect.com/mailimages/idirect_biocon_q3fy19.pdf · biocon was...
TRANSCRIPT
January 25, 2019
ICICI Securities Ltd | Retail Equity Research
Result Update
Well rounded growth; beat on all fronts…
Biocon’s Q3FY19 numbers were a comprehensive beat vis-à-vis I-
direct estimates on all fronts. Revenues grew 45.6% YoY to | 1540.8
crore (I-direct estimate: | 1382.4 crore) mainly due to 136.6% YoY
growth in biologics to | 449 crore (I-direct estimate: | 379.6 crore)
EBITDA margins improved 375 bps YoY to 24.7% (I-direct estimate:
26.2%) mainly due to improvement in product mix. EBITDA grew
71.7% YoY to | 380.7 crore against I-direct estimates of | 362.1 crore
Adjusted net profit grew 131.6% to | 212.9 crore (I-direct estimate:
| 188.7 crore) mainly due to strong operational performance and
lower tax rate (16.7% vs. 25.2% in Q3FY18)
Well poised to capitalise on global biosimilars opportunity
Biologics segment (18% of FY18 in total revenues) 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 and
Pegfilgrastim approvals (and the launch of latter) in the US, Adalimumab
in EU and Glargine launch in Japan, EU and Australia besides launches in
emerging markets. We expect biologics to grow at 58% CAGR to | 3060
crore in FY18-21E.
Research services (Syngene) to maintain growth momentum
Biocon’s contract research organisation (CRO) arm Syngene contributes
33% of total revenues. The company caters to 316 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 small molecules segment is slowing down. We
expect revenues to grow at a CAGR of 19% to | 2401 crore in FY18-21E.
Small molecules start showing promising growth
Small molecules (35% of FY18 total revenue) comprise APIs like statins,
immunosuppressants, specialty APIs & also include generic formulations
business. 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 ~14% CAGR to | 2222 crore in FY18-21E. The branded
formulations (14% of FY18 total revenue) includes finished dosages
business in India and UAE. It comprises Indian domestic formulations.
The company owns 80+ brands encompassing therapies like
diabetology, oncology, nephrology, cardiology, immunotherapy etc.
Biosimilar deals, approvals, launches to sustain investors interest
Robust Q3 performance was primarily driven by biologics segment on the
back of new launches across developed and emerging markets and
geographical expansion in emerging markets. Overall, FY19 panning out
on a strong footing mainly due continuous strong traction in its “growth
segments” (Biologics and Syngene). Small molecules segment has also
started showing promising growth. Strong growth in biologics is likely to
improve overall margins as well. Thus, progress on the biosimilars
regulatory front in developed markets and launches in the developed as
well as emerging markets are likely to be key levers for the company. We
value the stock on SOTP basis. Accordingly, we arrive at a target price of
| 760 per share.
Rating matrix
Rating : Buy
Target : | 760
Target Period : 12 months
Potential Upside : 14%
What’s Changed?
Target Unchanged
EPS FY19E Changed from | 11.5 to | 17.3
EPS FY20E Changed from | 15.4 to | 27.4
Rating Unchanged
Quarterly Performance
Q3FY19 Q3FY18 YoY (%) Q2FY19 QoQ (%)
Revenue 1,540.8 1,057.9 45.6 1,321.0 16.6
EBITDA 380.7 221.7 71.7 339.6 12.1
EBITDA (%) 24.7 21.0 375 bps 25.7 -100 bps
Net Profit 212.4 91.9 131.1 165.9 28.0
Key Financials
(| Crore) FY18 FY19E FY20E FY21E
Revenues 4129.7 5619.7 7201.0 8569.2
EBITDA 829.1 1391.6 1840.3 2261.2
Adj. Net Profit 372.4 767.1 1038.6 1645.8
Adj. EPS (|) 6.2 12.8 17.3 27.4
Valuation summary
FY18 FY19E FY20E FY21E
PE(x) 107.0 43.2 38.4 24.2
EV to EBITDA (x) 7.2 12.8 15.0 19.5
Price to book (x) 8.1 13.1 15.4 17.7
RoNW (%) 48.0 28.6 21.5 17.1
RoCE (%) 8.1 13.1 15.4 17.7
Stock data
Particular
Market Capitalisation
Debt (FY18)
Cash (FY18)
EV
52 week H/L 718/543
Equity capital (|Crore)
Face value (|) | 5
| 300 crore
| 41143 crore
Amount
| 40578 crore
| 1620 crore
| 1055 crore
Price performance (%)
1M 3M 6M 1Y
Biocon 10.3 9.0 21.8 11.1
Glenmark -4.3 5.7 14.8 2.4
Torrent Pharma 6.0 18.9 26.8 33.3
Aurobindo Pharma 10.0 9.3 34.5 23.4
Research Analyst
Siddhant Khandekar
Mitesh Shah
Biocon (Biocon) | 664
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis
Q3FY19 Q3FY19E Q3FY18 Q2FY19 YoY (%) QoQ (%) Comments
Revenue 1,540.8 1,382.4 1,057.9 1,321.0 45.6 16.6 YoY growth mainly due to 137% growth in Biological segment. Beat vis-à-vis I-
Direct estimates due to higher-than expected growth across segments
Raw Material cost 528.1 484.7 423.8 446.7 24.6 18.2 YoY improvement mainly due to better product mix
Employee cost 294.4 293.6 235.3 288.9 25.1 1.9
R & D Expenditure 77.0 76.1 52.9 77.0 45.6 0.0 Gross R&D spend was | 120 crore in Q2FY19
Other Expenditures 260.6 165.9 124.2 168.8 109.8 54.4 YoY increase and miss vis-à-vis I-Direct estimates mainly due to higher profit
sharing and forex loss
Total Expenditure 1,160.1 1,020.3 836.2 981.4 38.7 18.2
EBITDA 380.7 362.1 221.7 339.6 71.7 12.1
EBITDA (%) 24.7 26.2 21.0 25.7 375 bps -100 bps YoY improvement mainly due to better product mix
Interest 18.6 18.8 14.7 18.8 26.5 -1.1
Depreciation 116.7 112.2 97.4 112.2 19.8 4.0
Other income 25.6 56.9 33.9 54.4 -24.5 -52.9
EO -5.8 0.0 0.0 -188.8 0.0 NA
PBT 276.8 288.0 143.5 451.8 92.9 -38.7
Tax 46.1 72.0 36.1 73.2 27.7 -37.0
MI 26.0 26.4 21.7 23.0 19.8 13.0
Adj. PAT 212.4 188.7 91.9 165.9 131.1 28.0 Strong growth and beat vis-à-vis I-Direct estimates mainly due to strong
operational performance and lower tax rate (16.7% vs 25.2% in Q3FY18)
Key Metrics
Small Molecules 462.0 410.6 357.0 427.0 29.4 8.2 YoY growth largely driven by robust sales in APIs and continued growth in the US
generic business. Beat vis-à-vis I-Direct estimates mainly due to higher than
expected traction from new launches
Biologics 449.0 379.6 189.8 367.0 136.6 22.3 YoY growth and beat vis-à-vis I-Direct estimates was on the back of strong
performance across portfolio of insulins, monoclonal antibodies (MAbs) and other
biologics in key developed and emerging markets
Branded Formulations 212.0 156.1 156.1 164.0 35.8 29.3 YoY growth and beat vis-à-vis I-Direct estimates was mainly due to one-off sales in
the UAE
Contract Research 467.0 431.1 387.7 419.0 20.5 11.5 YoY growth mainly on the back of 1) decent traction in discovery services and
biologics businesses, 2) scientists ramp up and 2) favorable currency movement
(6%). Excluding currency impact and one-offs, adjusted YoY growth was ~18%
Licensing income 7.0 5.0 11.8 5.0 -40.7 40.0
Source: Company, ICICI Direct Research
Change in estimates
(| Crore) Old New % Change Old New % Change
Revenues 5,400.4 5,619.7 4.1 7,164.7 7,201.0 0.5 Changed mainly due to better than expected sales in 3QFY19
EBITDA 1,342.9 1,391.6 3.6 1,877.5 1,840.3 -2.0
EBITDA Margin (%) 24.9 24.8 -14 bps 26.2 25.6 -64 bps Factored in higher transfer of profit sharing to partner for EM sales
Net Profit 692.9 767.1 10.7 925.6 1,038.6 12.2 Delta vis-à-vis EBITDA mainly due change in tax assumption and increase other
income and lower interest cost due to expected higher free cash flow
EPS (|) 11.5 12.8 11.2 15.4 17.3 12.4
FY19E FY20E
Source: Company, ICICI Direct Research
Assumptions
Current
Growth (%) FY17 FY18 FY19E FY20E FY19E FY20E
Small Molecules 1,607.5 1,484.9 1,771.6 1,984.2 1,720.2 1,926.6 Changed mainly due to better than expected sales in 3QFY19
Biologics 622.5 770.2 1,548.0 2,353.9 1,430.4 2,304.6 Changed mainly due to better than expected sales in 3QFY19
Branded Formulations 548.9 611.5 689.9 772.7 652.7 731.0 Changed mainly due to better than expected sales in 3QFY19
Contract Research 1,192.7 1,423.1 1,784.7 2,070.2 1,717.3 2,182.5 Changed mainly due change in currency expectations
Earlier
Source: Company, ICICI Direct Research; * excludes Licensing income
ICICI Securities Ltd | Retail Equity Research Page 3
Company Analysis
Biocon was established in 1978 by first generation entrepreneur Dr Kiran
Mazumdar-Shaw. Unlike most pharma companies that are chemical
based, Biocon has carved out its niche in the more complex
biotechnology field. Over the decades, Biocon has successfully evolved
into an emerging global biopharma enterprise, serving its partners and
customers in over 75 countries. As a fully integrated biopharma company,
it delivers innovative biopharmaceutical solutions, ranging from discovery
to development & commercialisation. In 2004, it came out with its maiden
IPO.
Four of its biosimilar products (Trastuzumab, Pegfilgrastim, Adalimumab
and Insulin Glargine) have already reached the critical milestone of global
Phase III clinical trials. The company has initiated filings of biosimilars in
the US and EU besides launches in Japan. It has entered into a
partnership with Mylan for six biosimilar programs (Trastuzumab,
Pegfilgrastim, Adalimumab, Bevacizumab, Etanercept and Filgrastim) and
three insulin analog programmes (Glargine, Lispro and Aspart).
The company has received approval for its Insulin Glargine from the
Japanese regulator in March 2016. It has developed and manufactured
Insulin Glargine BS Injection Kit (FFP). FFP in Japan has commercialised it.
The company also achieved its first ANDA approval, Rosuvastatin
Calcium in US.
Recently the company also entered in to a partnership with Sandoz, a
Novartis division and a global leader in biosimilars, for an exclusive
portfolio of next-generation biosimilars in the area of immunology and
oncology. This synergistic partnership will leverage the capabilities of
both partners for an ‘end to end’ play encompassing development,
manufacturing, regulatory approval and commercialisation globally. This
collaboration addresses some of the long term biosimilars opportunities
beyond the near term opportunities being addressed by existing
partnership with Mylan.
Exhibit 1: Current status of biologics pipeline
Molecule Phase I Phase III
EU USFDA EU USFDA
Pegfilgrastim Biocon Biocon
Trastuzumab Biocon Biocon
Insulin glargine Biocon Biocon Biocon
Adalimumab Biocon
Bevacizumab Biocon
Insulin aspart Biocon
Regulatory Submission Approved/Marketed
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 4
Exhibit 2: Revenues to grow at CAGR of 27.5% in FY18-21E
2877.33089.8
3381.0
3921.64129.7
5619.7
7201.0
8569.2
0.0
1000.0
2000.0
3000.0
4000.0
5000.0
6000.0
7000.0
8000.0
9000.0
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Revenues
(|
crore)
Source: Company, ICICI Direct Research
Biocon has realigned its segments after the adoption of Ind-As. They are-
1) small molecules, 2) research services (Syngene), 3) branded
formulations and 4) biologics.
Biologics – The Biologics segment includes novel biologics and
biosimilars, including Rh-insulin, insulin analogs, monoclonal antibodies
and recombinant proteins. This segment accounts for ~18% of FY18 total
revenue. Biocon is mainly focusing on the following therapies-
diabetology, oncology and immunology. This segment has been
specifically carved out to tap numerous biosimilar opportunities
especially in the next three to five years. Globally, the biosimilar space is
still in a nascent state for want of guidelines by most countries including
the US. Biocon’s biosimilar pipeline currently includes 10 products in
different phases of completion. Out of these 10 products, the four diabetic
products- Rh Insulin, Glargine, Lispro and Aspart were the subject matter
of two deals first with Pfizer and then with Mylan (excluding Rh Insulin). In
Q3, Biocon secured the first ever biosimilar approval (gTrastuzumab) by
an Indian pharma company in the US. 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 second partnership in
biosimilar space with Sandoz for global development of next generation
biosimilars. The company has invested heavily in this space over the last
two to three years, especially the Malaysian facility, which is now
functional. The progress, so far, has been encouraging with launches in
emerging markets, Glargine launch in Japan and filing arrangements in
the EU and US. We expect Biologics to grow at a CAGR of 58.4% to
| 3060 crore in FY18-21E.
9.5% CAGR
27.5% CAGR
ICICI Securities Ltd | Retail Equity Research Page 5
Exhibit 3: Recent progress on biosimilars front
Date Event
Nov-18 Biocon-Mylan launches Insulin Glargine in EU
Nov-18 Biocon-Mylan receives EU approval for biosimilar Pegfilgrastim and Trastuzumab
Jul-18 Biocon's partner Mylan has launched Fulphila (pegfilgrastim-jmdb) in the US
Jun-18 Mylan entered in to a commercialization agreement with Lupin for biosimilar Etanercept for certain markets. Biocon has retained its economic interest in this
arrangement vis-a -vis Mylan in accordance with its existing collaboration agreement and would benefit from the accelerate commercialization of this product
Jun-18 Biocon-Mylan received USFDA approval for Fulphila (pegfilgrastim-jmdb) as the first biosimilar of Neulasta. Mylan has launched Fulphila in the US
Apr-18 Biocon/Mylan have in-licensed Humira biosimilar from Fujifilm and expects to launch in Europe in H2CY18
Mar-18 Mylan and Biocon receive approval for Semglee Biosimilar Insulin Glargine in EU and Australia
Jan-18 Collaborates with Sandoz for a global partnership to develop, manufacture and commercialize a number of next generation biosimilars
Dec-17 USFDA approval for Ogivri, a biosimilar Trastuzumab co-developed by Biocon and Mylan
Jul-17 Biocon's partner Fujifilm launches insulin Glargine in Japan
Jul-17 USFDA Oncologic Drugs Advisory Committee (ODAC) recommended approval of Biocon-Mylan's proposed biosimilar Trastuzumab in all eligible indications
Jan-17 USFDA accepts Biocon’s biologics licence application for its biosimilar oncology drug Trastuzumab
Aug-16 European Medicines Agency has accepted Biocon-Mylan Proposed Biosimilar Trastuzumab (gHerceptin) for Review
Jul-16 European Medicines Agency has accepted Biocon-Mylan Proposed Biosimilar Pegfilgrastim (gNeulasta) for Review
Jul-16 Biocon's Insulin Glargine Launched in Japan
Jun-16 Biocon and Mylan to present Phase 3 Trastuzumab Biosimilar Data at the American Society of Clinical Oncology (ASCO) Annual Meeting
Mar-16 Biocon's Insulin Glargine Receives Regulatory Approval in Japan
Mar-16 Biocon inks co-development & commercialisation agreement with Lab PiSA for Rh-insulin in US
May-15 Biocon-Mylan's PEG-G-CSF and Adalimumab enter Phase III clinical trials; patient recruitment for one Insulin Glargine Phase III study completed
Source: Company, ICICI Direct Research
Exhibit 4: Biologics to grow at CAGR of 58.4% in FY18-21E
342.0
622.5
770.2
1548.0
2353.9
3060.1
0
500
1000
1500
2000
2500
3000
3500
FY16 FY17 FY18 FY19E FY20E FY21E
(|
crore)
Biologics
Source: Company, ICICI Direct Research
Exhibit 5: Branded formulations to grow at CAGR of 12.3% in FY18-21E
347.9
391.4
430.0 440.0
548.9
611.5
652.7
731.0
0
100
200
300
400
500
600
700
800
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(| c
rore
)
Branded Formulations
Source: Company, ICICI Direct Research
11.8% CAGR
12.3% CAGR
ICICI Securities Ltd | Retail Equity Research Page 6
Exhibit 6: Small molecules sales to grow at CAGR of 14.4% in FY18-21E
1387.0
1607.5
1484.9
1771.6
1984.2
2222.3
0
500
1000
1500
2000
2500
FY16 FY17 FY18 FY19E FY20E FY21E
(|
crore)
Small Molecules
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 7
Exhibit 8: Trends in overall R&D cost (ex capitalisation)
130.6
168.8
265.5 272.4
215.8
275.8
410.5
493.4
4.5
5.5
7.9
6.9
5.2
4.9
5.8
5.7
0
100
200
300
400
500
600
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
(|
crore)
3.0
4.5
6.0
7.5
9.0
(%
)
R & D cost R & D cost (% revenues)
Source: Company, ICICI Direct Research
Exhibit 9: Trends in EBITDA margins
687.1 695.8 635.8
851.2 829.1
1391.6
1840.3
2261.2
22.5
18.8
21.7
20.1
26.4
25.6
24.8
23.9
-300
100
500
900
1300
1700
2100
2500
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
(|
crore)
18
20
22
24
26
28
(%
)
EBITDA EBITDA Margins (%)
Source: Company, ICICI Direct Research
Research services revenues (FY18)
Dedicated,
35%
Discovery,
25%
Development,
40%
Exhibit 7: Contract research to grow at CAGR of 19% in FY18-21E
714.7822.0
1060.01192.7
1423.1
1784.7
2070.2
2401.4
0
500
1000
1500
2000
2500
3000
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E(|
crore)
Contract Research
Source: Company, ICICI Direct Research
19.1% CAGR
18.8% CAGR
ICICI Securities Ltd | Retail Equity Research Page 8
Exhibit 10: Net profit to grow at CAGR of 64% in FY18-21E
413.8497.4
550.4612.1
372.4
922.2
1038.6
1645.8
16.1
14.4
16.3
15.6
9.0
16.4
14.4
19.2
0
200
400
600
800
1000
1200
1400
1600
1800
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
(|
crore)
4
6
8
10
12
14
16
18
20
(%
)
Net Profit Net Profit Margins (%)
Source: Company, ICICI Direct Research
Exhibit 11: Return ratios likely to improve on the back of better profitability…
11.7
6.5
9.4
8.1
13.1
15.4
10.4
17.7
13.7
12.5
7.8
10.5
7.2
12.8
15.0
19.5
6
10
14
18
22
FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E
(%
)
4
6
8
10
12
14
16
18
20
22
(%
)
RoCE (RHS) RoNW (LHS)
Source: Company, ICICI Direct Research
SWOT Analysis
Strengths – It is an early entrant in a more lucrative biotech space with
proven track records. The space has high entry barriers due to complexity
of the molecules and tougher trials requirement. Four dedicated centres
catering to the top global players.
Weakness - Its largest segment i.e. small molecules has been witnessing
constant pricing pressure and capacity constraints. Other emerging
segments such as biosimilars will take some time to scale up.
Opportunities – A huge opportunity beckons for biosimilars as globally
seven out of the top 10 drug brands are biologics. Some of them will lose
patent exclusivity in the next five to seven years. The price erosion in
biosimilars is much less than that of chemical compound based drugs.
Threats- (i) Backtracking by Mylan may increase the R&D cost sharply, (ii)
pricing pressure in branded formulations, (iii) increased scrutiny by
USFDA and other regulators worldwide.
ICICI Securities Ltd | Retail Equity Research Page 9
Exhibit 12: Trends in quarterly performance
(| Crore) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 YoY (%) QoQ(%)
Revenues 807.1 945.0 992.0 954.1 1044.4 931.1 933.7 968.6 1057.9 1169.5 1123.8 1321.0 1540.8 45.6 16.6
Raw Material Cost 303.1 322.6 400.2 353.8 374.7 348.4 365.8 377.6 423.8 475.2 433.8 446.7 528.1 24.6 18.2
% to revenues 37.6 34.1 40.3 37.1 35.9 37.4 39.2 39.0 40.1 40.6 38.6 33.8 34.3
Gross Profit 504.0 622.4 591.8 600.3 669.7 582.7 567.9 591.0 634.1 694.3 690.0 874.3 1012.7 59.7 15.8
Gross Profit Margin (%) 62.4 65.9 59.7 62.9 64.1 62.6 60.8 61.0 59.9 59.4 61.4 66.2 65.7 579 bps -46 bps
Employee cost 152.2 166.5 178.5 180.4 194.2 193.9 213.3 225.5 235.3 257.0 261.4 288.9 294.4 25.1 1.9
% to revenues 18.9 17.6 18.0 18.9 18.6 20.8 22.8 23.3 22.2 22.0 23.3 21.9 19.1 -314 bps -276 bps
R & D 67.9 100.0 51.4 65.0 85.0 65.0 58.2 53.9 52.9 51.0 44.0 77.0 77.0
% to revenues 8.4 10.6 5.2 6.8 8.1 7.0 6.2 5.6 5.0 4.4 3.9 5.8 5.0 0 bps -83 bps
Other Expenditure 99.1 159.0 98.8 114.9 114.4 136.3 104.3 129.3 124.2 153.3 146.7 168.8 260.6 109.8 54.4
% to revenues 12.3 16.8 10.0 12.0 11.0 14.6 11.2 13.3 11.7 13.1 13.1 12.8 16.9 517 bps 414 bps
Total Expenditure 622.3 748.1 728.9 714.1 768.3 743.6 741.6 786.3 836.2 936.5 885.9 981.4 1160.1 38.7 18.2
% to revenues 77.1 79.2 73.5 74.8 73.6 79.9 79.4 81.2 79.0 80.1 78.8 74.3 75.3
EBIDTA 184.8 196.9 263.1 240.0 276.1 187.5 192.1 182.3 221.7 233.0 237.9 339.6 380.7 71.7 12.1
EBITDA Margin (%) 22.9 20.8 26.5 25.2 26.4 20.1 20.6 18.8 21.0 19.9 21.2 25.7 24.7 375 bps -100 bps
Depreciation 63.9 64.8 66.1 68.3 70.3 72.5 98.8 93.6 97.4 95.3 99.1 112.2 116.7 19.8 4.0
Interest 1.5 16.6 5.7 6.5 8.8 5.0 16.1 13.8 14.7 16.9 17.6 18.8 18.6 26.5 -1.1
OI 21.6 21.4 40.9 38.4 47.5 43.2 54.0 50.8 33.9 67.5 68.8 54.4 25.6 -24.5 -52.9
PBT 141.0 136.9 232.2 203.6 244.5 153.2 131.2 125.7 143.5 188.3 190.0 263.0 271.0 88.9 3.0
Tax 21.8 59.1 55.2 41.7 54.4 10.3 37.6 42.5 36.1 40.7 52.1 73.2 46.1 27.7 -37.0
Tax Rate (%) 15.5 43.2 23.8 20.5 22.2 6.7 28.7 33.8 25.2 21.6 27.4 27.8 17.0
PAT 119.2 77.8 177.0 161.9 190.1 142.9 93.6 83.2 107.4 147.6 137.9 189.8 224.9 109.4 18.5
PAT Margin (%) 14.8 8.2 17.8 17.0 18.2 15.3 10.0 8.6 10.2 12.6 12.3 14.4 14.6
Exceptional Items (EI) 0.0 -268.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -188.8 -5.8
Net Profit before MI 119.2 346.2 177.0 161.9 190.1 142.9 93.6 83.2 107.4 147.6 137.9 378.6 230.7 114.8 -39.1
Add/(less) MI 17.7 21.1 15.8 19.8 19.5 20.9 16.4 20.3 21.7 22.3 18.6 23.0 26.0
Net Profit after MI 101.5 325.1 161.2 142.1 170.6 122.0 77.2 62.9 85.7 125.3 119.3 355.6 204.7 138.9 -42.4
Net Profit (excl.EI) 101.5 56.7 161.2 142.1 170.6 122.0 77.2 62.9 85.7 125.3 119.3 166.8 198.9 132.1 19.2
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 10
Conference call highlights
The company received EU approval for Fulphila (Pegfilgrastim;
anti-cancer) and Ogivri (Trastuzumab; anti-cancer)
Mylan (Biocon’s partner) has launched Semglee (insulin glargine)
and Hulio (Adalimumab; Rheumatoid arthritis)
As per management, Fulphila has gained mid-teen percent of
market share (Syringes) in the US
Trastuzumab is likely to be launched in Q4 in the US
Adalimumab US launch will be only after July 31, 2023 as per the
agreement with AbbVie
Gross R&D spend during the quarter was at | 106 crore. The
management expects R&D spend for FY19 at | 450 crore. For
FY20 it could be | 500 crore
The management has guided for mid-teen percent of sustainable
growth in the branded formulations
The management has guided for ~| 500 crore capex (ex-
Syngene) for FY19 and | 600 crore for FY20
The new Monoclonal Antibodies (MAb) facility at Bangalore is
likely to get commissioned in 2021
The management has hinted ay possible value unlocking for
Biologics either via QIP or IPO in the future
ICICI Securities Ltd | Retail Equity Research Page 11
Exhibit 14: One year forward PE
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
1/25/2016
4/25/2016
7/25/2016
10/25/2016
1/25/2017
4/25/2017
7/25/2017
10/25/2017
1/25/2018
4/25/2018
7/25/2018
10/25/2018
1/25/2019
(|)
Series1 41.0x 32.4x 18.0x 12.2x 6.5x
[
Exhibit 15: One year forward PE of company vs. CNX Pharma Index
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
1/25/2016
4/25/2016
7/25/2016
10/25/2016
1/25/2017
4/25/2017
7/25/2017
10/25/2017
1/25/2018
4/25/2018
7/25/2018
10/25/2018
1/25/2019
(x)
Biocon CNX Pharma
Source: Company, ICICI Direct Research
Exhibit 16: Valuation
Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE
(| crore) (%) (|) (%) (x) (X) (%) (%)
FY18 4130 5.3 6.2 -26.8 109.0 48.9 7.2 8.1
FY19E 5620 36.1 12.8 106.0 44.0 29.1 12.8 13.1
FY20E 7201 28.1 17.3 35.4 39.1 21.9 15.0 15.4
FY21E 8569 19.0 27.4 58.5 24.7 17.4 19.5 17.7
Source: Company, ICICI Direct Research
Exhibit 13: Valuation
Particulers FY21E EPS (| cr) Multiple (x) Per share (| )
Biocon (ex Syngene) 16.9 28.0 472.9
Syngene
Targeted Market Cap 13500
Biocon's Holding 71.1%
Holding Company Discount 20.0%
Syngene valuation 7674
Per share valuation 128
NPV (BIosimilars) 155
SOTP valuation 760
Source: ICICI Direct Research
Recommendation history vs. Consensus
0
100
200
300
400
500
600
700
800
Oct-18Aug-18May-18Mar-18Dec-17Oct-17Aug-17May-17Mar-17Dec-16Oct-16Aug-16May-16Mar-16Dec-15Oct-15
(|
)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
(%
)
Price Idirect target Consensus Target Mean % Consensus with BUY
ICICI Securities Ltd | Retail Equity Research Page 12
.
Financial summary
Profit and loss statement | Crore
Year-end March FY18 FY19E FY20E FY21E
Total Operating Income 4129.7 5619.7 7201.0 8569.2
Growth (%) 5.3 36.1 28.1 19.0
Raw Material Expenses 1642.4 1990.9 2542.3 3009.4
Employee Expenses 931.1 1187.5 1453.8 1644.2
R&D Expenditure 215.8 275.8 410.5 493.4
Other Expenditures 511.3 774.0 954.2 1160.9
Total Operating Expenditure 3300.6 4228.1 5360.7 6308.0
Operating Profit (EBITDA) 829.1 1391.6 1840.3 2261.2
Growth (%) -2.6 67.8 32.2 22.9
Depreciation 385.1 444.7 533.5 616.0
Interest 61.5 73.6 65.3 42.3
Other Income 206.2 181.5 144.0 214.2
PBT before Exceptional Items 588.7 1054.8 1385.5 1817.1
Less: Exceptional Items 0.0 -194.6 0.0 0.0
Total Tax 156.9 254.1 318.7 417.9
PAT before MI 431.8 995.3 1066.8 1399.2
Minority Interest 80.7 97.8 126.7 147.0
Adjusted PAT 372.4 767.1 1038.6 1645.8
Growth (%) -26.8 106.0 35.4 58.5
EPS (Adjusted) 6.2 12.8 17.3 27.4
Source: Company, ICICI Direct Research
Cash flow statement | Crore
Year-end March FY18 FY19E FY20E FY21E
Profit/(Loss) after taxation 453.1 922.2 1038.6 1645.8
Add: Depreciation & Amortization 385.1 444.7 533.5 616.0
Net Increase in Current Assets -248.7 -574.3 -690.6 -605.1
Net Increase in Current Liabilities 128.4 408.9 478.7 435.2
Other Operating Activities -55.8 73.6 65.3 42.3
CF from operating activities 662.1 1275.1 1425.4 2134.2
(Purchase)/Sale of Fixed Assets -913.1 -1100.0 -1100.0 -900.0
(Increase)/Decrease in Investments 168.9 0.0 0.0 -500.0
Increase/ (Decrease) in Minority Interest 0.0 46.8 51.4 56.6
Other Investing Activities 600.3 -23.3 -24.6 -26.0
CF from investing activities -143.9 -1076.5 -1073.2 -1369.4
Proceeds from issues of Equity Shares 16.8 0.0 0.0 0.0
Inc/(dec) in loan funds -114.1 -300.0 -200.0 -500.0
(Payment) of Dividend and Dividend Tax -78.7 -92.8 -103.8 -164.6
Interest Paid -63.7 -73.6 -65.3 -42.3
Other Financing Activities 0.0 0.0 0.0 0.0
CF from financing activities -239.7 -466.4 -369.2 -706.9
Net Cash flow 278.5 -267.8 -16.9 57.9
Opening Cash 1044.3 1322.8 1055.0 1038.0
Closing Cash 1322.8 1055.0 1038.0 1095.9
Free Cash Flow 831.0 1275.1 1425.4 1634.2
Source: Company, ICICI Direct Research
Balance sheet | Crore
Year-end March FY18 FY19E FY20E FY21E
Liabilities
Equity Capital 300.0 300.0 300.0 300.0
Reserve and Surplus 4880.8 5710.2 6644.9 8126.1
Total Shareholders funds 5180.8 6010.2 6944.9 8426.1
Total Debt 1920.1 1620.1 1420.1 920.1
Minority Interest 467.7 514.5 565.9 622.5
Other NCL & LT Provisions 410.1 451.1 496.2 545.8
Source of Funds 7978.7 8595.9 9427.1 10514.6
Assets
Gross Block - Fixed Assets 5847.4 6772.4 8082.9 9332.9
Accumulated Depreciation 2174.3 2619.0 3152.5 3768.4
Net Block 3673.1 4153.4 4930.4 5564.4
Capital WIP 1302.8 1477.8 1267.3 917.3
Total Fixed Assets 4975.9 5631.2 6197.7 6481.8
Goodwill on Consolidation 26.4 26.4 26.4 26.4
Investments 675.2 675.2 675.2 1175.2
Inventory 722.5 941.4 1206.3 1435.5
Debtors 1063.9 1386.2 1776.3 2113.8
Cash 1322.8 1055.0 1038.0 1095.9
Other Current Assets 428.0 461.1 496.8 535.2
Total Current Assets 3537.2 3843.7 4517.4 5180.3
Creditors 1005.3 1309.9 1678.4 1997.4
Provisions 46.5 76.7 106.8 137.0
Other Current Liabilities 959.2 1033.4 1113.3 1199.5
Total Current Liabilities 2011.0 2419.9 2898.6 3333.8
Net Current Assets 1526.2 1423.8 1618.7 1846.5
Deferred Tax Assets 193.4 212.7 234.0 257.4
Other Non Current assets 581.6 626.6 675.1 727.3
Application of Funds 7978.7 8595.9 9427.1 10514.6
Source: Company, ICICI Direct Research
Key ratios
Year-end March FY18 FY19E FY20E FY21E
Per share data (|)
Reported EPS 6.2 15.4 17.3 27.4
BV per share 86.3 100.2 115.7 140.4
Dividend per share 0.5 1.5 1.7 2.7
Cash Per Share 22.0 17.6 17.3 18.3
Operating Ratios (%)
Gross Margin 60.2 64.6 64.7 64.9
EBITDA margin 20.1 24.8 25.6 26.4
EBIT Margin 10.8 16.9 18.1 19.2
PAT Margin 9.0 13.7 14.4 19.2
Inventory days 63.9 61.1 61.1 61.1
Debtor days 94.0 90.0 90.0 90.0
Creditor days 88.9 85.1 85.1 85.1
Asset Turnover 0.5 0.7 0.8 0.8
EBITDA Conversion Ration 79.9 91.6 77.5 94.4
Return Ratios (%)
RoE 7.2 12.8 15.0 19.5
RoCE 8.1 13.1 15.4 17.7
RoIC 9.8 18.2 20.9 23.2
Valuation Ratios (x)
P/E 107.0 43.2 38.4 24.2
EV / EBITDA 48.0 28.6 21.5 17.1
EV / Net Sales 9.6 7.1 5.5 4.5
Market Cap / Sales 9.6 7.1 5.5 4.6
Price to Book Value 7.7 6.6 5.7 4.7
Solvency Ratios
Debt / EBITDA 2.3 1.2 0.8 0.4
Debt / Equity 0.4 0.3 0.2 0.1
Current Ratio 1.1 1.2 1.2 1.2
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 13
ICICI Direct coverage universe (Healthcare)
Company I-Direct CMP TP Rating M Cap
Code (|) (|) (| Cr) FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E
Ajanta Pharma AJAPHA 1136 1,225 Buy 10002.5 57.4 53.0 47.9 61.5 19.8 21.4 23.7 18.5 41.3 30.0 22.8 24.5 32.3 23.0 17.2 18.7
Alembic Pharma ALEMPHA 591 620 Hold 11143.2 21.2 21.9 30.4 27.1 27.9 27.0 19.5 21.8 25.3 18.0 19.9 17.2 21.0 18.6 21.4 16.6
Apollo Hospitals APOHOS 1318 1,440 Buy 18342.3 15.9 8.5 26.6 48.2 83.0 155.9 49.5 27.3 6.1 6.3 9.8 13.7 6.0 3.6 10.4 16.4
Aurobindo Pharma AURPHA 786 915 Buy 46034.8 38.8 41.6 42.6 53.1 20.3 18.9 18.5 14.8 24.4 20.0 18.0 16.7 24.2 20.7 17.8 18.4
Biocon BIOCON 664 760 Buy 39846.0 8.5 6.2 12.8 17.3 78.3 107.0 51.9 38.4 9.4 8.1 13.1 15.4 10.5 7.2 12.8 15.0
Cadila Healthcare CADHEA 348 415 Buy 35605.8 14.5 17.5 16.5 18.9 23.9 19.8 21.1 18.4 13.1 16.7 14.2 13.1 21.4 20.5 16.8 16.8
Cipla CIPLA 504 510 Hold 40581.5 12.5 18.3 17.5 23.1 40.3 27.5 28.7 21.8 7.7 9.6 11.0 13.9 8.0 10.4 9.2 11.0
Divi's Lab DIVLAB 1501 1,700 Buy 39858.8 39.9 33.3 55.0 65.5 37.6 45.1 27.3 22.9 25.3 20.0 26.8 26.3 19.8 14.9 20.7 20.5
Dr Reddy's Labs DRREDD 2669 2,700 Buy 44307.0 78.0 57.0 97.0 134.8 34.2 46.8 27.5 19.8 7.3 6.1 8.9 11.9 10.5 7.2 11.2 13.7
Glenmark Pharma GLEPHA 647 660 Hold 18257.7 42.2 28.5 32.9 36.8 15.3 22.7 19.7 17.6 19.5 14.6 16.0 15.2 26.5 15.6 14.9 14.5
Indoco Remedies INDREM 203 165 Hold 1870.7 8.4 4.5 -1.8 7.2 24.3 45.4 -115.4 28.1 8.7 6.2 0.4 8.5 11.8 6.1 -2.5 9.2
Ipca Laboratories IPCLAB 785 845 Buy 9917.4 15.4 19.0 32.4 42.3 50.9 41.4 24.2 18.6 8.7 9.1 13.8 17.1 7.9 8.9 13.5 15.4
Jubilant Life JUBLIF 714 920 Buy 11365.5 36.9 41.3 62.5 76.6 19.3 17.3 11.4 9.3 13.8 14.9 19.4 21.3 16.8 15.7 19.4 19.4
Lupin LUPIN 860 870 Hold 38906.9 56.7 20.8 27.6 39.1 15.2 41.4 31.1 22.0 16.6 10.4 10.4 12.4 19.0 6.9 8.6 11.0
Narayana Hrudalaya NARHRU 190 270 Buy 3882.9 4.1 2.5 2.3 6.6 46.0 75.9 81.7 28.8 12.5 6.3 7.1 12.0 8.8 4.9 4.4 11.1
Natco Pharma NATPHA 677 860 Buy 12505.5 26.3 37.7 41.7 24.9 25.7 17.9 16.2 27.2 33.6 27.4 26.6 14.8 29.5 22.7 21.2 11.6
Sun Pharma SUNPHA 429 460 Hold 102928.6 29.0 13.0 14.7 21.1 14.8 33.1 29.2 20.3 20.3 9.8 10.2 13.3 19.0 8.2 8.8 11.5
Syngene Int. SYNINT 593 675 Buy 11868.0 14.4 15.3 16.3 17.5 40.8 38.4 35.9 33.5 16.0 15.9 16.8 16.5 20.3 17.7 16.1 14.8
Torrent Pharma TORPHA 1876 1,850 Hold 31746.0 55.2 40.1 41.9 62.5 34.0 46.8 44.8 30.0 18.9 11.2 12.9 16.9 21.5 14.7 13.7 17.8
RoE (%)EPS (|) PE(x) RoCE (%)
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 14
RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorises them as Strong
Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is
defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 15
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