Neutral Biocon Ltd For Target Rs. 260 - Motilal Oswal Financial Services Ltd
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* BIOS delivered lower-than-expected 4QFY23 operational performance, led by lower traction in biologics (ex-licensing income) and generics business. This was offset to some extent by strong execution in Research services (Syngene) business.
* We reduce our earnings estimate by 6%/2% for FY24/FY25 to factor a) in reduction in vaccine business, on account of restructuring of a deal with Serum institute, b) regulatory delays for key approvals (b-aspart/bbevacizumab), and c) sustained momentum in research services business. We value BIOS on an SoTP basis (17x EV/EBITDA for 70% stake in Biocon Biologics (BBL), 54% stake in Syngene, and 10x EV/EBITDA for generics business) to arrive at a price target of INR260.
* BIOS is enhancing its business prospects across segments – product pipeline/synergy building with viatris in the biosimilar segment, adding capacity/new launches in the generics segment and healthy demand for research services. However, the current valuation factors in the upside potential in earnings. We reiterate our Neutral stance on the stock.
Product mix benefit offset by higher opex for the quarter
* BIOS had a licensing income of INR1.8b for the quarter. Adj. for the same, BIOS 4QFY23 revenues grew 50% YoY to INR36b (our est. INR39b).
* Biosimilars (53% of sales) grew 2x YoY to INR19.2b. Research services (26% of sales) were up 31% YoY to INR10b. Generics sales were flat YoY to INR7.2b (19% of sales).
* Gross margin expanded 60bp YoY to 62.8%, driven by change in product mix.
* However, EBITDA margin contracted 140bp YoY to 23.2% (est: 23.6%) due to higher R&D/other expenses (up 150bp/360bp YoY as a percentage of sales), offset by lower employee expenses (down 310 bp YoY as a percentage of sales).
* Consequently, EBITDA increased 42% YoY to INR8.4b (est: INR9.2b).
* There has been exceptional item of INR1.1b (related to fund raise by Bicara).
* Adjusting for the same, PAT declined 58% YoY to INR1.1b (est: INR2.5b), due to higher interest and depreciation.
* For FY23, Revenue/EBITDA increased 35%/22% YoY to INR110b/INR24b, while adj. PAT declined 27% YoY to INR6.4b.
Highlights from the management commentary
* From the current stake of 70% in BBL, BIOS do not intend to dilute more than 10% stake.
* BIOS indicated that the launch of g-Revlimid is not expected to occur in FY24.
* BIOS expects to deliver 35-40% core EBITDA margin in the biologics segment in FY24.
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