Biocon Limited - Q4FY21 Result Update - ICICI Securities

Subdued biosimilars impacted performance

Biocon Limited (Biocon) reported lower than estimated Q4FY21 performance. The miss on our estimates was largely due to subdued biosimilars revenue which declined 13.7% QoQ to Rs6.6bn (I-Sec: Rs8.5bn). Consolidated revenues grew 18.1% to Rs18.4bn (I-Sec: Rs19.5bn), adjusted EBITDA margin was up 210bps YoY and QoQ to 23.7% (I-Sec: 24.7%) and adjusted PAT declined 31.6% to Rs970mn (I-Sec: Rs2.4bn). Higher S,G&A expenses and employee costs kept margins in check. However, new launches coupled with recovery in the environment would support margins in the near term. Reiterate ADD with a revised target price of Rs435/share (earlier: Rs443/share).

- Biosimilars disappoint: Biosimilars segment grew 53.2% YoY during the quarter supported by steady market share in Ogiviri and Fulphila in the US, sales from the recently launched Semglee in US market, traction in the emerging markets. However, this high growth is on a COVID-19 impacted base. Sequentially, biosimilars declined 13.7% due to price erosion and inventory push in channel in the previous quarter. Hence, growth was lower than expected. Research services grew 8.4% YoY with steady performance across its business segments. Adjusting for export incentives, growth was in double digits and in line with estimates. Generics growth remained low at 2.7% YoY (+3.0% QoQ) to Rs5.8bn due to pricing pressures in key products and delay in new launches.

- Margin improves with room to grow further: Company reported 290bps YoY improvement in gross margin with improving business mix and higher contribution from biosimilar segment. However, staff and S,G&A expenses jumped 16% and 22% respectively on a YoY basis. This sharp jump in costs is related to higher investment towards the biosimilars and generics pipeline and has offset some of the improvement resulting in 210bps YoY jump (+210bps QoQ) to 23.7%. PBT margins for biosimilars declined to 10.3% from 14.4 QoQ due to declining sales. New launches and recovery in the environment would support margins in the near term but expansion linked expenses and rising R&D would keep growth in check.

- Outlook: We expect revenue CAGR of 20.1% over FY21-FY23E driven by new biosimilar launches in FY22 in developed markets resulting in EBITDA margin expansion of 680bps and earnings CAGR of 53.9% over FY21-FY23E. This would help generate healthy FCF of ~Rs9bn over FY22E-FY23E. Return ratios would also improve with RoE and RoCE reaching 15.4% and 9.1% by FY23E.

- Valuation and risks: We reduce revenue estimates by 4-5% over FY22E-FY23E to factor-in lower sales in biosimilars and reduce EBITDA estimates by 3-4% over FY22E-FY23E to account for higher expenses towards R&D and personnel. Maintain ADD with a revised SoTP-based target price of Rs435/share (earlier: Rs443/share) Key downside risks: adverse regulation, delay in product launch, and higher competition in products.

Shares of BIOCON LTD. was last trading in BSE at Rs.379.65 as compared to the previous close of Rs. 393.95. The total number of shares traded during the day was 588488 in over 14513 trades.

The stock hit an intraday high of Rs. 392 and intraday low of 378. The net turnover during the day was Rs. 225401077.

Source : Equity Bulls

Keywords