BUY

Results Update Biocon Ltd

Target Price
17th May 2024 Pharmaceutical
340

More Challenges Ahead; Gaining Market Share

(CMP as of 16th May 2024)
Est. Vs. Actual for Q4FY24: Revenue – INLINE; EBITDA Margin – INLINE; PAT – BEAT CMP (Rs) 309
Changes in Estimates post Q4FY24 Upside /Downside (%) 10.1%
FY25E/FY26E: Revenue: 0.7%/0.6%; EBITDA:0.4%/0.1%; PAT: -8.9%/-2.9%
High/Low (Rs) 321/217
Recommendation Rationale
Market cap (Cr) 36,650
 Revenue grew by 3.8% YoY, majorly driven by Biosimilars (+12.2% YoY) while Generic and
Avg. daily vol. (6m)Shrs. 12,00,000
Research Services grew by 0.3% and -7.8% YoY respectively.
No. of shares (Cr) 120
 Gross margins improved by 24bps QoQ as the product mix is more favourable towards
Biosimilars. The company reported EBITDA margins of 23.4%, improving by 442bps QoQ Shareholding (%)
due to higher operating profitability and lower other expenses.
Sep-23 Dec-23 Mar-24
 Reported PAT stood at Rs 223 Cr, which was better than our expectations.
Promoter 60.6 60.6 60.6
 Gross margins at 65.8% decreased by 162bps/163bps YOY/QoQ. The company got Rs106
FIIs 9.5 8.0 5.6
Cr one-time expenses on account of the integration of the Biocon Biologics business across
MFs / UTI 7.5 8.3 8.6
the globe.
Others 22.4 23.1 25.2
Sector Outlook: Positive
Company Outlook & Guidance: Biosimilars are continuously gaining market share across
Financial & Valuations
geographies and the launch of products like gLiraglutide in Generics along with a strong pipeline
Y/E Mar (Rs Cr) FY24 FY25E FY26E
of upcoming Biosimilars like Stellara and YESFILI show a strong outlook for business in the
Net Sales 14,756 16,452 18,235
upcoming quarters.
EBITDA 3,299 3,837 4,368
Current Valuation: Blended EV/EBITDA of 9.2x for FY26E earnings.
Net Profit 1,298 1,230 1,650
Current TP: Rs 340/share (Earlier TP: Rs 285/share)
EPS (Rs) 10.8 10.2 13.7
Recommendation: BUY PER (x) 28.6 30.2 22.5
Financial Performance P/BV (x) 15.5 13.0 11.0
Biocon’s Reported PAT beat our expectations by 11% YoY while reported Revenue and EBITDA EV/EBITDA (x) 1.5 1.4 1.3
stood mostly in in line with expectations. Revenue grew by 3.8% YoY, majorly driven by ROE (%) 5.1% 4.7% 5.9%
Biosimilars (+12.2% YoY) while Generic and Research Services grew by 0.3% and -7.8% YoY
respectively. Gross margins improved by 24bps QoQ as the product mix is more favourable Change in Estimates (%)
towards Biosimilars. EBITDA margins at 23.4% improved by 442bps QoQ due to higher operating Y/E Mar FY25E FY26E
profitability and lower other expenses. Reported PAT stood at Rs 223 Cr and was better than Sales 0.7% 0.6%
expectations. EBITDA 0.4% 0.1%

Biocon Biologics is reporting strong tractions after vertical integration of biosimilar business across PAT -8.9% -2.9%

the geographies, major drugs like gTrastuzumab, gPegfilgrastim and Semglee have gained Market
ESG disclosure Score**
Share to 18%, 21%, and 15% in the US markets respectively in Q4FY24. Hulio and Avebmy
Environmental Disclosure 54.6
Biosimilars are gaining MS in Europe. The company has a strong pipeline to launch bUstekinumab
Social Disclosure Score 52.7
in the US market and YESAFILI in the Canadian Market.
Governance Disclosure Score 89.9
The Generic performance was impacted by pricing and demand challenges in the API business as
Total ESG Disclosure Score 65.7
well as due to the impact of certain regulatory delays. Despite all these factors, formulations
Sector Average N.A.
business grew 36% YoY, reflecting the prudent investments made in building formulations,
capabilities, capacities and product range. Over the past few years. Statin and Source: Bloomberg, Scale: 0.1-100
**Note: This score measures the amount of ESG data
immunosuppressant formulations led the growth momentum, which was also seen across all major a company reports publicly and does not measure the
geographies. During the fiscal formulation, the share of product sales increased to ~35% from company's performance on any data point. All scores
are based on 2022 disclosures
25% last year and it is expected to increase and overtake APIs as a share of business mix in the
coming years.
Outlook: Biosimilars are continuously gaining market share across the geographies. The launch Relative performance
of products like gLiraglutide in Generics along with a strong pipeline of upcoming Biosimilars like 145

Stellara and YESFILI provides a strong outlook for business in the upcoming quarters. The 105
industry is continuously supporting the Biocon Business. Therefore we change our
65
recommendation to BUY.
25
Key Financials (Consolidated) Nov-22 Mar-23 Jun-23 Oct-23 Jan-24 May-24
(Rs Cr) Q4FY24 QoQ (%) YoY (%) Axis Est. Variance % Biocon Ltd. BSE Sensex
Net Sales 3,917 8.7% 3.8% 3,850 2% Source: ACE Equity, Axis Securities
EBITDA 916 34.0% -8.2% 900 2%
EBITDA Margin 23.4% 442 -304 23.4% - Ankush Mahajan
Net Profit 223 -72.7% 330.7% 200 11% Research Analyst
EPS (Rs) 1.9 -72.7% 330.7% 1.7 11% Email: [email protected]
Source: Company, Axis Research

1
Key Risks to our Estimates and TP
 The USFDA inspection and issuing of WL/OAI or 483 observations may impact the revenue growth

 Entry of new players may increase pricing pressure in the injectable portfolio

 Delay in launching new Biosimilars in the market

Valuations: SOTP-based Value Per Share

EBITDA Stake Multiple Valuation

FY26 (Rs Cr) (%) EV/EBITDA (x) (Rs Cr)

Small Molecules 332 100.0% 14 4,654

Biosimilars 2,770 70.0% 16 31,028

Syngene Research 1,267 55.0% 24 16,729

Enterprise Value 52,411

Net debt 11,920

Equity Value 40,491

Share Price 340

Change in Estimates

New Old % Change

(Rs Cr)
FY25E FY26E FY25E FY26E FY25E FY26E

Sales 16,452 18,235 16,337 18,127 0.7% 0.6%

EBITDA 3,837 4,368 3,820 4,362 0.4% 0.1%

PAT 1,230 1,650 1,350 1,700 -8.9% -2.9%

Source: Company, Axis Securities

2
Results Review
Particulars (Rs Cr) Q4FY23 Q1FY24 Q2FY24 Q3FY24 *Q3FY24 Q4FY24 YoY% QoQ %
Net Sales 3,774 3,423 3,462 3,954 3,604 3,917 3.8% 8.7%
Growth (%) 56.7% 60.0% 49.3% 34.4% 22.5% 3.8%
Total Expenditure 2,777 2,708 2,721 3,027 2,920 3,001 8.1% 2.8%
Raw Material Consumed 1,229 1,210 1,127 1,232 1,232 1,330
Gross margins (%) 67.4% 64.7% 67.4% 68.8% 65.8% 66.1% -138 24
Employee Expenses 569 579 622 721 721 742
% of sales 15.1% 16.9% 18.0% 18.2% 20.0% 18.9%
Other Expenses 979 919 971 1,074 968 930
% of sales 25.9% 26.9% 28.1% 27.2% 26.9% 23.7%
EBITDA 997 714 742 927 683 916 -8.2% 34.0%
EBITDAM (%) 26.4% 20.9% 21.4% 23.4% 19.0% 23.4% -304 442
Interest 249 233 248 267 267 227
Depreciation 364 358 389 415 415 407 11.9% -1.8%
Other Income 155 94 158 566 110 49
Associate P/L -40 -33 -24 -24 -24 -3
Exceptional Items -3 0 -24 21 21 -9
PBT 497 184 215 808 109 319 -35.8% 193.2%
Tax 82 35 42 55 55 96
Tax (%) 16.5% 18.9% 19.4% 6.8% 50.6% 30.1%
Reported PAT 415 149 173 753 54 223 -46.2% 314.3%
Adjusted PAT 418 149 197 54 54 232 330.7% -72.7%
Source: Company, Axis Securities, *Reported & Adjusted Financials

Revenue Breakup:
Particulars (Rs Cr) Q4FY23 Q1FY24 Q2FY24 Q3FY24 *Q3FY24 Q4FY24 YoY% QoQ %

Generics 717 700 676 703 703 718 0.3% 2.1%

Biosimilars 2102 2015 1969 2483 2133 2358 12.2% 10.5%

Research services 994 808 910 854 854 917 -7.8% 7.4%
Source: Company, Axis Securities

3
Financials (consolidated)
Profit & Loss (Rs Cr)
Y/E Mar, Rs. Cr FY23 FY24E FY25E FY26E
Net sales 11,174 14,756 16,452 18,235
Other operating income 36.5% 32.1% 11.5% 10.8%
Net Revenue 8,663 11,457 12,615 13,867
3,663 4,898 5,314 5,808
Cost of goods sold 67.2% 66.8% 67.7% 68.2%
Contribution (%) 2,181 2,664 2,978 3,301
Other operating costs 19.5% 18.1% 18.1% 18.1%
1,699 2,741 3,027 3,319
EBITDA 15.2% 18.6% 18.4% 18.2%
Other income 2,512 3,299 3,837 4,368
22.5% 22.4% 23.3% 24.0%
PBIDT 419 974 887 797
Depreciation 2,093 2,324 2,950 3,572
Interest & Fin Chg. 18.7% 15.8% 17.9% 19.6%
E/o income / (Expense) 1,113 1,569 1,657 1,767
Pre-tax profit 376 866 400 420
Tax provision -167 -84 -100 -100
(-) Minority Interests -291 -12 -6 4
Associates 897 1,525 1,587 2,129
Adjusted PAT 28.3% 14.9% 22.5% 22.5%
Other Comprehensive Inc 254 227 357 479
Reported PAT 643 1,298 1,230 1,650
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

Y/E Mar, Rs. Cr FY23 FY24E FY25E FY26E
Share Capital 600 600 600 600
Reserves & Surplus 21,889 24,675 25,725 27,194
Shareholders Fund 22,489 25,275 26,325 27,795
Total Debt 18,019 16,277 14,777 13,277
Long Term Provisions 5,544 2,012 2,468 2,735
Total Non Current Liabilities 21,043 15,437 14,393 13,160

Trade Payables 3,983 6,272 5,641 6,245

Other Current Liabilities 2,008 6,235 6,581 7,294

Capital Employed 52,043 56,071 55,791 57,346
Gross Block 12,135 14,061 15,061 16,061
Depriciation 5,074 6,643 8,300 10,067
Net Block 7,061 7,418 6,761 5,995
CWIP 2,588 3,985 2,588 2,588
Fixed Assets 36,706 38,637 36,407 35,640
Deferred Tax Asset(Net) 0 0 0 0

Other Non Current Assets 3,002 2,255 3,948 4,376

Current Investments 1,327 316 1,327 1,327
Inventories 4,244 4,944 5,499 6,095
Trade Receivables 3,573 6,231 5,595 6,195
Cash & Cash Equivalents 2,400 2,259 1,864 2,436
Other Current Assets 791 1,430 1,152 1,276
TOTAL ASSETS 52,043 56,071 55,791 57,346
Source: Company, Axis Securities

4
Cash Flow (Rs Cr)
Y/E Mar, Rs. Cr FY23 FY24E FY25E FY26E
PBT 897 1,525 1,587 2,129
Add: Depreciation 1,113 1,569 1,657 1,767
Add: Interest 419 974 887 797
Cash flow from operations 2,429 4,068 4,131 4,692
Change in working capital -259 266 1,164 164
Taxes 254 227 357 479
Miscellaneous expenses 0 0 0 0
Net cash from operations 2,434 3,575 2,610 4,049
Capital expenditure -27,399 -3,499 573 -1,000
Change in Investments 253 1,011 -1,011 0
Net cash from investing -27,146 -2,488 -438 -1,000
Increase/Decrease in debt 13,115 -1,742 -1,500 -1,500
Dividends -72 -180 -180 -180
Proceedings from equity 0 0 0 0
Interest -419 -974 -887 -797
Others 12,741 1,668 0 0
Net cash from financing 25,365 -1,228 -2,567 -2,477
Net Inc./(Dec.) in Cash 652 -141 -395 572
Opening cash balance 1,748 2,400 2,259 1,864
Closing cash balance 2,400 2,259 1,864 2,436
Source: Company, Axis Securities

Ratio Analysis (%)

Y/E March FY23 FY24E FY25E FY26E
Sales growth % 36.5 32.1 11.5 10.8
OPM (%) 22.5 22.4 23.3 24.0
Oper. profit growth % 27.5 31.3 16.3 13.9
COGS / Net sales % 32.8 33.2 32.3 31.9
Overheads/Net sales % 0.2 0.2 0.1 0.1
Depreciation / G. block % 9.2 11.2 11.0 11.0
Effective interest rate % 28.3 14.9 22.5 22.5
Net wkg.cap / Net sales 0.3 0.3 0.3 0.3
Net sales / Gr block (x) 0.9 1.0 1.1 1.1
RoCE % 4.2 4.3 5.5 6.5
Debt / equity (x) 0.8 0.6 0.6 0.5
Effective tax rate % 28.3 14.9 22.5 22.5
RoE % 2.9 5.1 4.7 5.9
Payout ratio (Div/NP) 11.2 13.9 14.6 10.9
EPS (Rs.) 5.4 10.8 10.2 13.7
EPS Growth % -16.7 101.8 -5.2 34.1
CEPS (Rs.) 21.1 12.9 12.8 10.9
DPS (Rs.) 0.6 1.5 1.5 1.5
Source: Company, Axis Securities

5
 Biocon Price Chart and Recommendation History

(Rs)

Date Reco TP Research

21-Jan-22 BUY 425 Result Update

29-Apr-22 BUY 425 Result Update

29-Jul-22 HOLD 335 Result Update

15-Nov-22 HOLD 310 Result Update

16-Feb-23 HOLD 260 Result Update

11-Aug-23 BUY 287 Result Update

13-Nov-23 HOLD 260 Result Update

12-Feb-24 HOLD 285 Result Update

17-May-24 BUY 340 Result Update

Source: Axis Securities

6
About the analyst

Analyst: Ankush Mahajan

Contact Details: [email protected]

Sector: Midcaps/ Pharma Sector

Analyst Bio: Ankush Mahajan is MBA (Finance) from SMVDU with over 12 years of research experience in the
Midcaps/ Pharma Sector

Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. ASL is a
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4. I/We, Ankush Mahajan, MBA - (Finance), author/s and the name/s subscribed to this report, hereby certify that all of the views expressed in this research report
accurately reflect my/our views about the subject issuer(s) or securities. I/We (Research Analyst) also certify that no part of my/our compensation was, is, or will
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7
 DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

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CHADAWAR

CHADAWAR Date: 2024.05.17 09:40:54

+05'30'