Biocon Limited - Long-term rating placed on 'Watch Developing', short-term rating reaffirmed

CRISIL Ratings has placed its 'CRISIL AA+' rating on the long-term bank facilities of Biocon Ltd (Biocon) on 'Rating Watch with Developing Implications'. The rating on the short-term bank facilities has been reaffirmed at 'CRISIL A1+'.

On February 28, 2022, Biocon Biologics Ltd (BBL; a subsidiary of Biocon) announced that its Board of Directors, at a meeting held on February 27, 2022, approved the proposed acquisition of the biosimilar business of US-based Viatris Inc. Accordingly, BBL entered into a definitive agreement with Viatris Inc to acquire its biosimilars business for a total consideration of USD 3.335 billion, including cash up to USD 2.335 billion and compulsorily convertible preference shares (CCPS) in BBL of USD 1 billion. The upfront cash payment of USD 2 billion is expected to be funded by ~USD 800 million raised through equity infusion in BBL and the remainder is to be funded by debt. The transaction is expected to close in the second half of calendar year 2022, subject to satisfaction of closing conditions and certain regulatory approvals.

CRISIL Ratings will continue to monitor progress on the transaction and will remove the ratings from watch and take a final rating action once the regulatory approvals are in place and the transaction is concluded. While this transaction will enable BBL to attain commercialisation expertise in the developed markets and realize the higher revenue and associated profits from its partnered products, its debt protection metrics could moderate in the near-term due to the large debt expected to be taken for the acquisition. Nonetheless, CRISIL Ratings expects the debt protection metrics to improve back to almost current-levels by fiscal 2024.

CRISIL Ratings will remain in discussion with BBL's management to better understand the terms of debt funding for the transaction as well as the synergy benefits that may emerge post completion of the transaction. CRISIL Ratings also notes that the company may undertake an initial public offering (IPO) over the next two years depending on the market conditions.

Earlier, in September 2021, BBL and Serum Institute Life Sciences Pvt Ltd (SILS), announced a strategic alliance as part of which BBL will offer around 15% stake to SILS at a post-money valuation of around USD 4.9 billion, for which it will get committed access to 100 million doses of vaccines per annum for 15 years. This alliance is subject to regulatory approval and is on track to be implemented by October 1, 2022. CRISIL Ratings expects this alliance to strengthen BBL's business risk profile and product offerings over the medium term and will continue to monitor the developments in this regard.

The ratings continue to reflect the established position of Biocon in the biopharmaceutical (biopharma) segment, diversified revenue and healthy pipeline of biosimilar products. The ratings also factor in its strong financial risk profile, driven by healthy debt protection metrics. These strengths are partially offset by uncertainty regarding payoffs in the research and development (R&D)-driven model for development and commercialisation of biosimilars and novel molecules. The company is also susceptible to regulatory uncertainties and intense competition.

Shares of Biocon Limited was last trading in BSE at Rs. 338.20 as compared to the previous close of Rs. 334.70. The total number of shares traded during the day was 128151 in over 3521 trades.

The stock hit an intraday high of Rs. 340.00 and intraday low of 333.20. The net turnover during the day was Rs. 43129727.00.

Source : Equity Bulls

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Biocon INE376G01013 RatingUpdate