21 October 2015
2QFY16 Results Update | Sector:
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INR m)
Free float (%)
496 / 397
TP: INR460 (+2%)
Revenue below estimate; earning recovery remains modest
Biocon’s PAT at INR3.1b was well ahead of estimates due to extraordinary income of
INR3.1b during 2Q; adjusted for the same, PAT was flat YoY at INR1.0b (14% lower
than our estimates). Revenue grew 11% YoY (6% miss) to INR8.3b, affected by weak
performance of the biopharma segment. EBITDA at INR1.9b was in line with estimates
as margins improved 80bp YoY to 22.8% (v/s est. 22%).
Biopharma continues to report sluggish growth:
Overall revenue grew 11% YoY to
INR8.3b, led by 30% YoY growth in contract research services while
biopharma/India businesses reported dismal performance (up 6/3% YoY).
Biopharma/India sales were affected by (1) pricing pressure on older API portfolio,
(2) higher exposure to Middle East (credit issues), (3) capacity constraints and (4)
portfolio rationalization in domestic business (more specialty focus). 2Q sales
included licensing income of INR20m.
Higher R&D activities to cap margin improvement:
2Q EBITDA margin at 22.8%
was up 80bp YoY due to 300bp YoY improvement in gross margins during the
quarter. Better product mix in biopharma business and higher contribution from
Syngene were the key drivers for margin expansion. However, we expect further
margin improvement to be constrained by higher R&D intensity on (a) ramp-up of
ANDA filings and (b) progression of biosimilar projects in clinical trials (five
molecules in Phase 3 clinical). We project EBITDA CAGR of 16.6% on stable
margins over FY15-17E (~23%).
Modest earning outlook limits upside:
We expect BIOS’ earnings outlook to remain
muted (15% EPS CAGR v/s ~20% for peers) as big investment projects like
biosimilars/Malaysia insulin plant are unlikely to generate significant revenue before
FY18. With weak return ratios (12.3% RoE—FY15) and low free cash flows (high capex
phase), valuation upside remains limited. Reiterate
with a target price of INR460
(16x on SEP’17E EPS).
Financials & Valuation (INR b)
EPS Gr. (%) -2.8
BV/Sh. INR 163.5
(Amey.Chalke@MotilalOswal.com); +91 22 3982 5423
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