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MOSL: BIOCON (Neutral)-Mixed results-key approvals awaited in CY18

BIOCON: Mixed results; key approvals awaited in CY18

(BIOS IN, Mkt Cap USD3.6b, CMP INR652, TP INR600, 8% Downside, Neutral)

 

• Sales growth strong; PAT growth tepid: Biocon reported sales growth of ~26% YoY to INR11.7b (13.4% beat), largely led by strong growth in the Biologics (ex-licensing income) and Research Services segment. Some growth was offset by lower growth in Small Molecules and Branded Formulations. Gross margin declined 400bp YoY due to change in product mix. However, EBITDA margin contracted by a marginal ~30bp YoY to 19.9%, as fall in gross margin was partially offset by lower other expense and R&D spend (as % of sales). Though EBITDA grew ~24% YoY to INR2.3b (8.5% beat), PAT grew 2.5% YoY to INR1.3b (48.6% beat) due to higher tax and interest outgo. PAT growth was aided by higher other income (INR670m v/s INR430m in 4QFY17). For FY18, sales grew 5.3% to INR41.3b, EBITDA declined 15.4% to INR8.3b, and PAT was INR3.7b.
• Segment-wise performance for the quarter mixed: Biologics saw significant growth of 63% YoY (ex-licensing income) led by Insulin and Biosimilar Monoclonal Antibodies (mAbs). The company expects growth in Biologics to continue on launches in newer markets. Specifically, Semglee launch in Europe and Australia is expected in 2HCY18. Small Molecules growth was muted (8% YoY), amid pricing pressure in the US market. Branded Formulations grew moderately by 14% YoY due to operational challenges.