IGI Logo

On the verge of Viatris deal closure

Work in progress to strengthen biosimilar pipeline

* Biocon (BIOS) delivered an operationally in-line quarter. While biologics/ generics sales continued to ramp-up on higher volume off-take, the profitability was hurt to some extent by intensified competition. Syngene’s superior execution led to the improvement in overall operating profit for 2Q.

* We maintain our EPS estimates for FY23/FY24. We value BIOS on an SoTP basis (at an EV/EBITDA of 25x/10x for the Biosimilars/Generics business and 65% stake in Syngene) to arrive at our TP of INR300.

* The Viatris deal closure, start of vaccine business under strategic alliance with Serum Institute and better business prospects in generics/Syngene are expected to drive 41% earnings CAGR over FY22-24. Having said this, the ROCE remains muted at mid-single digit on high capital base post-Viatris acquisition. Further, the current valuation provides limited upside and hence we maintain our Neutral rating on the stock.

Increased competition/higher R&D spend/opex contract margins YoY

* BIOS’ 2QFY23 revenue grew 26% YoY to INR23.2b (in line), fueled by 34% YoY growth in biosimilars (INR10b; 43% of sales), and 26% YoY growth in research services (INR7.7b; 33% of sales). Generics sales rose 18% YoY to INR6.2b (27% of sales).

* Gross margin (GM) dipped 180bp YoY to 63.4% on high raw material costs.

* EBITDA margin contracted 400bp YoY to 20.3% (est: 20.8%). Higher other expenses and higher R&D costs (+220/250bp YoY as a % of sales) were offset by lower employee expenses (-250bp YoY as a % of sales).

* EBITDA increased 5.5% YoY to INR4.7b (in line) for the quarter.

* In 2QFY23, there was a MAT credit balance charge of INR1.1b. Accordingly, Adj. PAT declined 30% YoY to INR1.7b (est: INR1.8b).

* For 1HFY23, revenue/EBITDA rose 24%/9% YoY to INR44b/INR9b, respectively, while adj. PAT declined 3% YoY to INR3.5b.

Highlights from the management commentary

* With regulatory approvals in place, the acquisition of Viatris would happen shortly.

* Currently, BIOS may take mezzanine debt of USD420m to fund the acquisition. However, it is in talks with private equity investors to raise equity funds. The company may also explore further stake sale in Syngene.

* Compared with previous indication of USD800m/USD200m annual sales/EBITDA for Viatris, it clocked USD185m sales for 2QFY23.

* BIOS guided for high single-digit YoY growth in generics sales in 2HFY23.

* It has received a CRL with respect to b-Aspart. The related discussion is scheduled with the USFDA to get further clarity regarding product review.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer