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Strong performance across all segments

Biocon Limited is an integrated biopharmaceutical company engaged in discovering, developing and producing biologics in chronic therapies. Key products include statins, immunosuppressants, anti-diabetic drugs and specialty enzymes.

* Q3FY22 revenue rose 17.1% YoY to Rs. 2,174cr, driven by strong growth in Biosimilars (+27.6% YoY) and Research services (+9.7% YoY).

* EBITDA grew by 25.4% YoY to Rs. 537cr, with a margin of 24.7% (vs. 23.0% Q3FY21), on account of improved margins in both biosimilars and generics. PAT rose 11.0% YoY.

* Company’s outlook remains solid backed by new product launches and strategic alliance with serum for vaccine production which will be key drivers for the company’s financials in the medium-long term.

* Further, the company has partnered with Tabuk Pharmaceuticals to commercialize specialty products in the Middle East.

* We reiterate our BUY rating on the stock with a revised target price of Rs. 460 based on 29.5x FY24E adj. EPS.

Biosimilars segment aids topline growth

Consolidated revenue for Q3FY22 was up 17.1% YoY to Rs. 2,174cr (+18.1% QoQ), driven by a strong performance across all business segments. Biggest contributor to the revenue growth was the Biosimilars business. Biocon Biologics Ltd. recorded revenue of Rs. 981cr, a growth of 27.6% YoY (+32.2% QoQ) helped by robust demand across products and geographies and the launch of 351(k) biosimilar Insulin Glargine in the US. Research services revenues were Rs. 641cr, representing 9.7% YoY growth (+5.1% QoQ). Key growth drivers for Research business were Discovery services and the Dedicated R&D centers. Generics segment revenue grew 7.1% YoY to Rs. 607cr (+14.6% QoQ) led by the launch of Everolimus this quarter.

Strong core metrics improves margins

EBITDA for the quarter surged 25.4% YoY to Rs. 537cr on account of improved performance across both Biosimilars and Generics segments. Overall EBITDA margin expanded 170bps YoY to 24.7% (-520bps QoQ). The decrease in margin on QoQ basis was a result of a one-time mark-to-market loss on Adagio investment. Excluding the impact of loss on Adagio, EBITDA for the period would have been Rs. 614cr reflecting margin of 28% (-190bp QoQ). PAT saw a moderate growth of 11.0% YoY to Rs. 187cr (+35.3% QoQ) at the end of the quarter.

Key concall highlights

* Company recently formed a strategic alliance with Serum Institute, enabling it to enter the vaccine space.

* Biocon has been selected to participate in the government's Production Linked Incentive Scheme 2.0, from which Biocon will receive financial incentives of up to Rs. 250cr over a period of six years.

* Company launched the Insulin Glargine in the US, paving the way for interchangeable Biosimilars (Semglee) in the region.

Valuation

Entry into the vaccine space, successful product launches, strong demand and focus shifting towards commercializing should support long-term growth prospects for the company. We believe that the company will end this fiscal year on a strong growth trajectory, and we expect earnings to grow at 32.8% CAGR over FY21-24E. Hence, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 460 based on 29.5x FY24E adj. EPS.

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