Biocon India's Q2FY19 results (Underperformer) - Beat driven by biosimilar pick-up a quarter ahead of expectations
Q2FY19 result highlights
- Consolidated gross revenues stood higher at Rs13.8bn (+36%/15% yoy/qoq) vs est of Rs13bn driven by beat across segments primarily by biosimilars. Net revenues stood at Rs13.2bn (+36%/18% yoy/qoq) vs our est of Rs12.2bn. BioPharma revenues came at Rs9.6bn vs est of Rs8.6bn.
- Biologics revs came at Rs3.7bn (+136%/47% yoy/qoq) vs est of Rs3bn led by contribution from US market Fulphila (Pegfilgrastim) supplies to Mylan. Biocon reiterated $200m biosimilar revenues guidance.
- EBITDA came at Rs3.4b (+86%/43% yoy/qoq) vs est of Rs2.6bn further aided by surprisingly lower COGS (higher biosimilar sales); COGS stood at 38.5% vs 43.9% in Q1 and est of 44%. Resultant GPs stood higher at Rs8.1bn (Rs6.3bn in Q2) vs est Rs6.8bn neutralising the impact of higher overheads. Notably this sharp QoQ increase in GPs is pretty surprising.
- Employee cost came at Rs2.6bn (+29% yoy; est of Rs2.45bn); Other exp at Rs1.5bn (+43% yoy; est of Rs1.25bn); and R&D costs at Rs769m (Ras442mn in Q1) vs est Rs500m
- Adjusted PAT came at Rs1.84bn vs est of Rs1.28bn. Biocon also booked exceptional gain of Rs1.7bn (net of tax) on fair value of investment in its associate Equillium Inc post its IPO. Reported PAT came at Rs3.5bn
Key positives: Higher biosimilar sales led by Pegfilgrastim launch in US; higher sales across most segments;
Key negatives: Higher SG&A cost and R&D cost
Impact on financials: We have broadly maintained our FY19E/FY20E earnings estimate.
Valuations & view
With commencement of Pegfilgrastim revenues in US, Biocon’s biosimilar portfolio commercialization has well and truly begun. Going forward, Biocon-Mylan’s ability to compete with fairly formidable competitors /innovators will determine the scale of their success. We believe that while Biocon is best positioned amongst Indian players to leverage on the global biosimilar theme and will have the best earning growth amongst peers over the next 2-3 years, the same is already adequately captured in the current valuations. Given that meaningful biosimilar revenues are yet to accrue and a fairly muted core business, the current stock price factors in most positives and doesn’t account for the uncertainties inherent in monetization of biosimilars in developed as well as emerging markets. We value Biocon’s core business at Rs267/sh (20x FY20E EBITDA and Syngene at 18x) and biosimilar portfolio at Rs240/sh (~$2.1bn). Maintain Underperformer with a SOTP-based TP of Rs507. ​
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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