Biocon India's Q3FY18 results (Underperformer) - Inline quarter
Q3FY18 result highlights
- Consolidated revenues at Rs10.6bn (+1.3% yoy) were marginally lower vs our est of Rs10.8bn. BioPharma revenues at Rs7.2bn vs est of Rs7bn
- Biologics revs came at Rs1.89bn (+27% qoq) vs est of Rs1.83bn; Mgt attributed it to regulatory (plant requalification) which led to production and supply disruptions. Small molecules at Rs3.69bn (-9% yoy) vs est of Rs3.6bn continued to be impacted by the US issues. Syngene reported better revs at Rs3.7bn (+5% qoq) vs est of Rs3.6bn
- EBITDA of Rs2.2b (-20% yoy) was marginally below est of Rs2.3bn. P&L R&D spends of Rs529m vs est Rs550m. Biocon capitalized Rs413mn (Rs392m in Q2FY18) of R&D.
- Other income stood lower at Rs339mn (Rs508mn in Q2FY18) vs est of Rs500mn; Tax rate was higher at 24.1% (32.3% in Q2Y18) vs est of 22%. Consequently reported PAT was down at Rs0.92bn (down 46% yoy) vs est of Rs1.04bn
Key positives: USFDA approval for Trastuzumab
Key negatives: Lower gross margins
Impact on financials: We have maintained our FY18E est, reduced our FY19E estimate by 7% and introduced FY20 estimates.
Valuations & view
Overall Q3FY18 financial performance was broadly inline and fairly uneventful. Biocon’s FDA approval for biosimilar Trastuzumab provides comfort on the company’s ability to secure approvals for other biosimilar drugs in its portfolio. Going forward, Biocon-Mylan’s ability to compete with fairly formidable competitors /innovators will determine the scale of their success. Given that commercialization revenues from the US/EU will accrue FY20/21 onwards and a fairly muted core business, we believe the current stock price factors in most positives and doesn’t account for the uncertainties inherent in monetization of biosimilars in developed markets. We value Biocon’s core business at Rs207/sh (18x FY19E EBITDA) and biosimilar portfolio at Rs224/sh (~$2.4bn). Maintain Underperformer with a SOTP-based TP of Rs436. Receipt of FDA approval and clarity of launch timelines for biosimilar Pegfilgrastim will be a key monitorable.
Biocon is an Indian biopharmaceutical company. Through its subsidiaries, Co. manufactures biotechnology products and is engaged in research and development in biotechnology. Co. provides a range of products from fermentation derived small molecules to recombinant proteins and antibodies. It has developed and taken a range of novel biologics, biosimilars, differentiated small molecules and recombinant human insulin and analogs from 'Lab to Market'. In research services, Co., through Syngene International Limited, is engaged in the business of custom research in drug discovery while the other subsidiary Clinigene International Limited (Clinigene) is engaged in clinical development.
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