RECOMMENDATION – BUY

STOCK INSIGHT BSE Code 532523 NSE Code BIOCON Industry Pharmaceuticals &

Drug Market Cap. (in cr.) 27744cr Market cap. (Free float)

10820.16cr

O/s Shares (No.)(latest)

120 (in cr.)

Face Value 5 52 week High/Low 341.5/211.3

STOCK STATISTICS

Adj. EPS 7.54 Book Value 100.33 P/E ratio 30.77 Dividend Yield 0.16 Return on Equity 18% PAT Margin (%) 18.17% P/Bv 6.09 Debt Equity Ratio 0.4

528.4587.4

671.8431.8

1,001.704.154.59 5.1

3.1

7.54

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4

6

8

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2015 2016 2017 2018 2019

PAT(in Cr.) EPS

3,089.80

3,347.40

3,819.10

4,123.40

5,514.40

0.00 2,000.00 4,000.00 6,000.00

2015

2016

2017

2018

2019

Revenue (in cr.)

BIOCON CMP- 231

TARGET- 282 Overview of Company

Biocon Ltd manufactures biotechnological products catering to the healthcare segment.Biocon has evolved from manufacturing pharmaceuticals like statins and immunosuppressant, to discovering, developing and producing biologics in chronic therapies such as diabetes, oncology and immunology for global markets. This has translated into a diversified and differentiated pipeline of fermentation-derived complex generics, biosimilars that include insulins and monoclonal antibodies, and novel biologics. Biocon produces anti diabetic agents like Acarbose, Pioglitazone, Repaglinides & Rosiglitazone. In the biological segment they produce Insulin, Erythropoietin (EPO), Filgrastim (GCSF), Streptokinase & Monoclonal Antibodies.

Key Highlights

Consolidated Revenue grew 31% to Rs. 5658.8 cr in FY19 from Rs. 4335.9 cr in FY18.

Segment growth FY19 -Biologics recorded an annual growth of 97% while Research Services and Small Molecules registered a growth of 28% and 18% respectively.

Adjusted EPS increased from 3.1 to 7.54 Y-O-Y

Bonus declared 1:1

Biosimilars and Small Molecule APIs and Formulations are expected to come online in FY20

Launched Ogivri, (biosimilar trastuzumab) in Europe and Australia

Launched Semglee, (Insulin Glargine) in Australia

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Price Comparison of Sensex and Biocon

Biocon Sensesx

Business Segments

FY20 seems to be an exciting year for Biocon as all the growth verticals including Biologics, Small Molecules,

Branded Formulations and Research Services, build on their performances of FY19, opening up immense growth

opportunities for the Company.

GROWTH IN BIOLOGICS

FY19 has been a landmark year for the biosimilars business. Biosimilars business is gaining global recognition with three of their molecules being commercialized in developed markets viz. Pegfilgrastim in U.S., Trastuzumab in Europe and Canada, and Insulin Glargine in Europe and Japan.

Biocon has recently set up a subsidiary, Bicara Therapeutics, based

in Boston, to anchor the development of these novel immuno-

oncology assets.

Ogivri (biosimilarTrastuzumab), co-developed by Biocon and its

partner Mylan for breast and gastric cancer was launched in

Canada and Australia. Biocon also extended commercialization of

Ogivri in Europe market.

Biocon’s partner Mylan, which recently launched in-licensed

biosimilar Adalimumab (Hulio) in Europe and have extended the

commercialization rights for the biosimilar from Europe to global

markets. Biocon retains its economic interest in this expanded in-

licensing arrangement and will gain a share of profits from global

markets.

Biocon’s Malaysia Glargine manufacturing facility receives EU GMP

certification. This approval expands Biocon’s capacities to serve

the growing need of people with diabetes in Europe.

Company enters into strategic partnership with Sandoz for

development and commercialization of immunology and oncology

biosimilars.

SEGMENT WISE REVENUE

BIOLOGICS (in cr.)

SMALL MOLECULES(in cr.)

285.7

529.6

701.8770.2

1516.9

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1600

2015 2016 2017 2018 2019

1443.2 1458.31640.5

1507.7

1772.8

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2015 2016 2017 2018 2019

GROWTH IN SMALL MOLECULES

The Small Molecules segment reported an increase of 18% in

revenue in FY19, driven by a strong growth in APIs as well as

Generic Formulations. The successful launch of formulations in the

U.S., better product mix in APIs and an improved pricing

environment contributed to the robust performance of this

segment.

All Small Molecules manufacturing sites, both APIs and

formulations, have valid EIRs/ EU cGMP certifications. Over the

years Biocon has built a good track record with the leading

regulatory agencies across the globe including U.S. FDA and EMA.

Biocon has signed a license and supply agreement with a

subsidiary of China Medical System Holding Ltd. (CMS) for three

generic formulation products in greater China.

Biocon has initiated a greenfield project at Visakhapatnam, Andhra Pradesh, to secure their anticipated growth in fermentation-derived APIs, including their strong portfolio of immunosuppresants. This facility will be operational over the next 3 years.

GROWTH IN BRANDED FORMULATION

During FY19, Basalog who is ranked as No .2 insulin Glargine brand , sale grew 34% while Insugen is positioned among the Top 3 brands of rh-Insulin in India ,sales grew 21%, outpacing the covered market growth of 17% and 13% respectively. Insugen and Basalog reported combined sales of over 2 billion in FY19.

During FY19, Biocon launched the first biosimilar Trastuzumab in UAE under the brand name CANHERA, second biosimilar introduction in the market after Glaricon (Insulin Glargine) in FY18. However, in the near term their UAE business is impacted by certain adverse pricing decisions taken by the local health authorities and inventory adjustments.

GROWTH IN RESEARCH SERVICE

Syngene has been a strategic growth driver for Biocon and in FY19 has delivered a revenue growth of

28% at Rs. 18,256 million driven by a robust performance across its divisions.

Strengthening its long term relationships with its prime clients, Syngene has further expanded its

multi-year agreements with key clients like Baxter till 2024 and Bristol-Myers Squibb till 2026. Syngene

continues to acquire more clients and is currently servicing over 330 clients across the globe.

SEGMENT WISE REVENUE

Branded Formulation (in cr.)

Research Service (in cr.)

521.2440.9

548.9611.5

656.4

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2015 2016 2017 2018 2019

851.4

1107 1192.51423.1

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Biosimilars Portfolio

PEER COMPARISION (consolidated FY19)

Company Name Revenue PBIDT PAT PBIDTM% PATM% ROCE% ROE% Latest Book Value (Rs)

P/E

Biocon 5658.8 1538.1 1001.7 26.26 18.17 16.1 18 100.33 30.66

Lupin 17082.2 3246.24 611.73 19.00 3.58 8.48 4.55 298.87 51.24

Cipla 16362.41 3344.72 1509.61 20.44 9.22 11.94 10.37 185.62 22.06

Glenmark Pharmaceutical

9865.47 1793.94 924.99 18.18 9.38 16.47 17.21 202.14 9.63

Source :- Ace Equity Biocon’s return on equity, return on capital employed and profit after tax margin is better than its peers.

Quarterly Update (consolidated)

In Q1FY20, consolidated net sales grew 30.44% to Rs 1,465.9 Crore from Rs 1,123 Crore in Q1FY19.

Consolidated net Profit reported a growth of 70.97% at Rs 235.6 Crore (vs. Rs 137.8 Crore in Q1FY19).

Consolidated Operating profit reported a growth of 13.22%(Q-O-Q) and 41.04%(Y-O-Y)

Source :- Ace Equity

Particulars Jun-19 Mar-19 Q-O-Q% Jun-18 Y-O-Y%

Net Sales 1,465.90 1,528.80 -4.11 1,123.80 30.44

Total Expenditure 1,028.40 1,125.80 -8.65 886 16.07

PBIDT (Excl OI) 437.5 403 8.56 237.8 83.98

Profit After Tax 235.6 254.6 -7.46 137.8 70.97

PBIDTM% (Excl OI) 29.84 26.36 13.22 21.16 41.04

PATM% 16.07 16.65 -3.49 12.26 31.07

Adj. EPS(Rs) 1.72 1.78 -3.37 1.00 72.00

Foreign Promoter

20.9%

Indian Promoter

39.8%

FII 16.4%

Mutual Funds

3.%Banks 1.3%

SHAREHOLDING PATTERN

FINANCIAL PERFORMANCE (consolidated FY19)

In FY19, Biocon reported a robust growth of 31% with consolidated revenue of Rs. 5658.8 cr. During the

year three strategic business segments, Small molecules, Biologics and Research service , cross the 15

billion revenue milestone.

Annual revenue performance was supported by a robust growth of 97% in biologics segment, 28% in

Research Services segment, 18% in Small Molecules segment and modest 7% in Branded Formulation

segment.

Net worth of company almost double from RS 2394cr in FY15 to Rs. 6019.9cr in FY19.

Cash flow from the operating activity increases from Rs. 662.1 in FY18 to Rs. 1154.6 in FY 19.

FINANCIAL STATEMENTS

PROFIT AND LOSS STATEMENTS (Rs. in cr)

Particulars Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

Gross Sales 5514.40 4129.70 3921.60 3381.00 3122.40

Total Income 5658.80 4329.60 4048.20 3426.60 3142.90

Total Expenditure 4120.70 3294.30 2911.60 2579.60 2394.00

PBIDT 1538.10 1035.30 1136.60 847.00 748.90

PBIDTM(%) 27.89 25.07 28.98 25.05 23.98

Interest 70.90 61.50 26.00 29.30 8.90

Tax 212.30 156.90 161.60 142.20 95.70

PAT 1001.70 431.80 671.80 587.40 528.40

PATM(%) 18.17 10.46 17.13 17.37 16.92

Adjusted EPS 7.54 3.10 5.10 4.59 4.15

Source :- Ace Equity

BALANCE SHEET (Rs. in cr)

Particulars Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

Sources of Funds

Equity Paid Up 300 300 100 100 100

Reserves and Surplus 5720.8 4812.3 4670.2 3933.8 3132.7

Net Worth 6019.9 5111.4 4769.3 4032.9 3231.8

Total Debt (Long Term plus Short Term) 2423 2264 2302.5 2477.7 1117.2

Capital Employed 8520.1 7443.9 71393 6510.6 4386.9

Application of Funds

Gross Block 7095 5873.3 5436.1 3403.6 3034.2

Investments 1011.8 675.2 1253.8 905.1 230.3

Cash and Bank balance 1057.2 1322.8 1044.3 1538.6 937.5

Net Current Assets (Inc. Current Investments) 1785.2 2007.3 2369.4 2305.2 1007.9

Total Current Liabilities 3037.6 2141.3 1678.3 1665.7 1554.7

Total Assets 11867.7 9796.3 9196.7 8386.6 6375.4

Source :- Ace Equity

CASH FLOW STATEMENT (Rs. in cr)

Source:- Ace Equity

RATIOS DESCRIPTION Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

Adjusted EPS (Rs.) 7.54 3.10 5.10 4.59 4.15

ROE (%) 18.00 8.74 15.26 16.17 17.22

ROCE (%) 16.10 8.92 12.59 13.93 15.30

Total Debt/Equity(x) 0.40 0.44 0.48 0.61 0.35

Source:- Ace Equity

OUTLOOK AND RECOMMENDATION

At the CMP of Rs 231, Biocon trades at 30.66x its FY19adjustedEPS. The company has strong fundamentals and we expect strong growth in its revenue on account of partnership with Mylan and Sandoz. The company continued to maintain its profit margins and profitability at healthy levels. With this we rate Biocon ‘buy’ with price target of Rs. 282 at 37.4x its adjustedEPS. For Disclosure & Disclaimer, click here.

For Private Circulation Only

DESCRIPTION Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

Profit Before Tax 1214.90 610.00 849.70 751.30 624.10

Adjustment 260.30 355.70 204.40 42.00 74.00

Changes In working Capital -29.10 -106.50 -211.10 -176.20 -354.00

Tax Paid -291.50 -197.10 -203.00 -246.50 -133.40

Cash From Operating Activities 1154.60 662.10 640.00 370.60 210.70

Cash Flow from Investing Activities -713.80 -684.00 -498.50 -1141.70 -508.70

Cash from Financing Activities -241.70 -239.70 -177.50 1067.60 186.20

Net Cash Inflow / Outflow 199.10 -261.60 -36.00 296.50 -111.80

Opening Cash & Cash Equivalents 449.00 710.20 757.50 457.50 557.00

Closing Cash & Cash Equivalent 659.30 449.00 710.20 757.50 462.60