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Biosimilars performance below expectations…

Q4FY21 revenues grew 16.3% YoY to | 1839 crore. Biosimilars grew 53.2% YoY to | 664 crore due to low base effect. Research services segment grew 8.4% YoY at | 659 crore. Generic sales grew 2.7% YoY to | 578 crore due to pricing pressure and stockpiling by customers in H1FY21. EBITDA margins improved 355 bps YoY to 23.7% mainly due to strong gross margins and lower R&D cost.

EBITDA grew 36.8% YoY to | 436 crore vs. I-direct estimate of | 470 crore. Adjusted PAT grew 96.6% YoY to | 243 crore. Delta vis-à-vis EBITDA was due to higher other income, which included | 160 crore gain from fair valuation of Bicara Therapeutics.

Well placed to capture global biosimilar opportunities

The Biosimilars segment (38% of FY21 revenues) includes biosimilars and insulin. The company is heavily spending in this space. The progress has been encouraging with approvals and launches in the US, EU, Japan, Australia and Emerging Markets. Post Mylan Upjohn (Pfizer) merger, the scope has been extended to China as well. We expect this segment to grow at ~35% CAGR to | 5081 crore in FY21-23E mainly due to a strong US pipeline (Launched - Pegfilgrastim, Trastuzumab, Glargine; Aspart (expected in FY22E) and Bevacizumab (delayed)) besides launches across the globe.

Research services (Syngene) to maintain growth momentum

Biocon’s contract research organisation (CRO) arm Syngene contributes 30% of total revenues. The company caters to 400+ clients including eight out of global top 10 global players. We expect revenues to grow at a CAGR of ~19% to | 3078 crore in FY21-23E.

Generics growth steady

The generics segment (32% of FY21 total revenue) comprises APIs like statins, immunosuppressants, specialty APIs & also include generic formulations business. The company is exploring fewer opportunities but with higher profitability in this segment. We expect the generics segment to grow at a CAGR 8% CAGR to | 2725 crore in FY21-23E.

Valuation & Outlook

For Q4FY21, while topline was below estimates amid lower than expected Biosimilars ramp-up, EBITDA margins and bottomline were higher due to lower-than-expected R&D expenses and higher other income. Due to operational, regulatory and commercial challenges amid Covid-19, its US$1 billion target for biosimilars by FY22 has been postponed.

The management expects better topline growth in FY22 vs. FY21. Operationally, however, the company remains committed to accelerated spending on capex, R&D that is likely to push related expenses higher in the near term. Timely launches, ramp up of biosimilars in developed as well as EMs and Syngene’s performances remain key levers for the company. We maintain HOLD and arrive at our revised target price of | 400 (vs. | 450 earlier) on an SoTP basis.

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