Biocon Ltd. share price target

Biocon reported a muted set of numbers for Q1FY21 with revenues growing at 14% on annual comparison but EBIDTA contracted by~6% and PAT by 27% on back of rising costs of Biologics business and higher R&D; spends.

Capital investment and product development are on track for the Generics segment, additional We maintain our EPS estimates for FY21/FY22 and value BIOS at 30x (20% discount to its five-year avg.), arriving at TP of INR450. BIOS is well-placed to deliver a 39% earnings CAGR over FY2022, led by new launches / increased market share for existing products in the Biologics segment and superior performance from the Generics / Research Services segment. New contracts, led by Mylans efforts, would lead to better market share going BIOS is on track with regard to developing Insulin Aspart. Considering new launches and strong traction from existing products, we expect a 43% CAGR in revenue to INR40b over FY2022. An increase in the number of customers and better traction from existing customers are expected to drive a 12 13% CAGR in Research Services revenue over FY2022E. BIOS delivered 16% YoY growth in this segment, led by favorable demand for API.

Q1FY21 revenues grew 14% YoY to | 1671 crore (I-direct estimate: | 1651 crore) mainly due to 18.9% YoY growth in biosimilars to | 692 crore. The Generics segment grew 16.1% YoY to | 599 crore. Research services segment remained flat YoY at | 422 crore. EBITDA margins contracted 512 bps YoY to 24.7% (I-direct estimate: 22.2%) mainly due to lower gross margins and higher R&D; costs. EBITDA declined 5.5% YoY to | 413 crore against I-direct estimate of | 366 crore. Adjusted PAT declined 27.6% YoY to | 149 crore (I-direct estimate: | 127 crore). Delta vis--vis EBITDA was due...

Insulin Glargine (Semglee) is Biocon-Mylans third biosimilar to be approved by the USFDA in a span of 24 months. Considering two competitors (Innovator- Sanofi; Biosimilar by Eli Lilly/Boehringer Ingelheim team; EL/BI) are already in the market and Biocon-Mylan are the third to get USFDA approval with other peers still under clinical phase, we expect Biocon (BIOS) to garner USD130m on an annualized basis from this opportunity, post commercialization in 2HFY21. BIOS recently received the USFDAs approval for its Insulin Glargine (biosimilar version Semglee) for both versions (vial and pen). Further, BIOS-Mylan has recently won a favorable ruling from the US Patent and Trial Board (USPTAB) in the patent litigation against Sanofi for 4 device patents for Lantus SoloSTAR. Moreover, in Mar20, the US district Court of New Jersey ruled that Sanofis 844 patent (product patent) was not infringed by Mylans Insulin Glargine product.

We recommend a BUY on Biocon with a Target Price of Rs 385, an upside of ~10% from CMP of Rs. 350 and Stop Loss Rs 332.

The company's medium-term growth outlook remains intact on new product launches and strong pipeline despite challenges amidst COVID19 pandemic. Therefore, we upgrade our rating to BUY on the stock with a revised target price of Rs. 390 based on 31x FY22E adj. EPS. Growth in topline despite Corona-led lockdowns Biocon recorded revenue growth of 3.4% YoY to Rs. 1,581cr, primarily driven by Small molecule segment (+14.6% to Rs. 541cr) on strong growth in generic formulation and steady increase in API sales. Research services business also grew 13.7% YoY to Rs. 607cr backed by robust growth in discovery services and development services. This...

Biocon reported a tepid performance for Q4FY20 mainly on account of the one-off impact of the lockdown on the sales of Biologics (including Small Molecules) business; Biologics reported YoY de-growth of ~3% at Rs. 898 cr.

The biologics segment (31% of FY20 revenues) includes biosimilars and insulin. The company is heavily spending in this space. The progress has been encouraging with approvals and launches in the US, EU, Japan, Australia and Emerging Markets. Post Mylan Upjohn (Pfizer) merger, the scope has been extended to China as well. We expect biologics to grow at ~79% CAGR to | 6240 crore in FY20-22E mainly due to a strong US pipeline (Pegfilgrastim (launched), Trastuzumab (launched), Glargine (expected by the end of FY21E), Aspart (expected in FY22E) and...

Nevertheless, BIOS remains confident of achieving its target of USD1b sales by FY22 (from USD270m in FY20), led by new launches and increased market BIOS product development and capacity building for Small Molecules is on track, which should be an additional growth driver over the next 4-5 years. We remain positive on BIOS led by its biosimilar pipeline and capacity enhancement, which should aid market share gain in launched products. The biologics segment, led by potential launches/increased market share gain in existing products and research services (robust business outlook) is expected to drive 38% earnings CAGR for BIOS over FY20-22. BIOS would incur total capex of USD400m over the next 2 years, of which, INR 200b would be in Small Molecules and the rest would be in the Biologics Glargine, Bevacizumab and Aspart provide strong confidence for USD1b Market share of Pegfilgrastim at 6% should grow with capacity expansion.

The new product launches are expected to drive revenue growth and improve EBITDA margin in the upcoming quarters. However, given the uncertainty concerning supply disruptions from China due to corona virus scare we retain the Hold rating with a revised target price of Rs....