Download pdf - Biocon (Biocon) | 664content.icicidirect.com/mailimages/IDirect_Biocon_Q3FY19.pdf · Biocon was established in 1978 by first generation entrepreneur Dr Kiran Mazumdar-Shaw. Unlike

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

[email protected]

Mitesh Shah

[email protected]

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


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


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



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)


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


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


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


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


11.8% CAGR

12.3% CAGR


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



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


(|

crore)

3.0

4.5

6.0

7.5

9.0

(%

)

R & D cost R & D cost (% revenues)


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


(|

crore)

18

20

22

24

26

28

(%

)

EBITDA EBITDA Margins (%)


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


19.1% CAGR

18.8% CAGR


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


(|

crore)

4

6

8

10

12

14

16

18

20

(%

)

Net Profit Net Profit Margins (%)


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


(%

)

4

6

8

10

12

14

16

18

20

22

(%

)

RoCE (RHS) RoNW (LHS)


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.


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



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


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


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


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


.

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


Cash flow statement | Crore


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


Balance sheet | Crore


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


Key ratios


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



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 (%)



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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

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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;

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ICICI Direct Research Desk,

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