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Biocon delivered a muted 1Q, with Revenue/EBITDA/PAT growing 15%/21%/-95% YoY. The revenue growth was supported by a strong trajectory in Biologics (+18% YoY), Research Services (+11% YoY) and a steady Generics (+6% YoY). During the quarter, the EBITDA margins came in at 19% (+93bps), it was lower than expectations on account of expansion drag on Generics’ margins. The Generic segment is expected to recover in 2HFY26, with new launches and capacity ramp-up, the management has guided for double-digit growth in FY26. Parallely, the strong growth in Biologics was seen all across the key markets, which was largely led by existing molecules. With ~5 more biosimilars expected to be added and ramped up over the next three years, the coming few years are going to be monumental in Biocon’s journey. In our understanding, the EBITDA margin profile of the company will change from ~19% in FY25 to 25-26% in FY28. Further, the recent QIP has enabled the firm to retire debt, thus strengthening their balance sheet. We anticipate the Revenue/EBITDA/PAT to grow at a CAGR of 13%/22%/24% over FY25-28. Thus, we maintain BUY, valuing the company using SOTP methodology to arrive at a TP of INR 424.

• Generics: At 6% YoY growth, the performance was in line with company’s expectations. The growth was primarily driven by recent drug launches – Liraglutide in EU, Dasatinib & Lenalidomide in US, and was aided by higher volumes in key APIs. The company has received Liraglutide’s approval in India and will be commercialising the same through partners, however the opportunity is time-limited due to Semaglutide. The R&D investments stood at 10% of top-line and primarily geared towards GLP-1. Segmental margins were muted because of capacity expansions (peptide API plant, fermentation expansion in Vizag, and Cranbury New Jersey facility in the U.S), however, full year basis these will expand as the capacity ramp-ups take place. For FY26, company will focus on new launches and has guided for double digit growth led by Liraglutide.
• Biologics: The quarter saw 18% YoY growth, led by robust demand across key markets. For 1Q, Emerging Market:Advance market mix was at 23%:77%. During the quarter, the company received FDA approval for Kirsty (bAspart), first inter-changeable rapid-acting insulin in US, launch due b/w now and end of CY. The company has partnered with Civica Inc. to locally manufacture insulin Aspart in the U.S. bAspart makes the 12 approved biosimilar for Biologics globally. The company also launched Yesafili (bAflibercept) in Canada, Biocon’s 10th commercial molecule globally. The company entered a new segment – bone health, with the EU, MHRA and UK approval for bDenosumab. US approval for the same is expected between October-December. Focus going forward is scaling up commercial products and preparing for future launches.
• Research services: The segment saw a 11% YoY increase in revenue, led by continued momentum in research services as pilot programes transition into long-term contracts. The EBITDA grew 19%, leading to an expanded margin of 25% (vs 23% in 1QFY25). During 1Q, the company commenced operations at Unit III biologics facility in Bengaluru. Bayview facility (US) remains on track for commissioning later this year.

Biocon   

• Financial Highlights: -Revenue at INR 39.4bn (-2%/+5.3% vs street/JMFe) and is +15% YoY -Gross Profit of INR 25.4bn, +17% YoY, with gross margin at 64.4% (+131bps YoY) -EBITDA at INR 7.5bn (-11%/0% vs street/JMFe) and is +21% YoY -EBITDA Margin at 19.0% (-192bps/-111bps vs street/JMFe) and is +93bps YoY -PAT at INR 314mn (-72%/-68% vs street/JMFe) and is -95% YoY, last year base included an exceptional gain of INR 10bn Segmental analysis -Generics at INR 6.9bn (-3.9% vs JMFe; +5.8% YoY) -Biosimilars at INR 24.6bn (+9.2% vs JMFe; +18.0% YoY) -Research services at INR 8.8bn (+0.6% vs JMFe; +10.8% YoY)
• Change in estimates: The FY26 EBITDA margins have been revised downwards on account of lower expected margins in Syngene due to delayed recovery in Biotech space, as well as softer Generics’ margins due to expansion drag. The expansion on Generics front has also increased annual depreciation and ammortization, leading to further downards movement in PAT. Further, there is expected relief on the finance cost in the coming times. Biocon recently raised ~INR 45,000mn in a QIP round, a part of it is being used to repay financial debt and a part towards giving exit to investors in Biocon Biologics. This has led to debt repayment on an earlier note than we had initially assumed, thus increasing our earnings estimates for FY27. For the QIP, the company issued additional equity to the incoming investors, thus increasing the number of shares from 1201mn to 1337mn. This increase in shares has led to a ~10% dilution in our EPS expectations across years. (Exhibit 2)

Key takeaways from Concall

Overall -

• The top-line performance was enabled by strong performance in Biosimilars and CRDMO, and a steady performance in Generics
• During the quarter, the company launched Yesafili in Canada, Biocon’s tenth biosimilar globally, and received USFDA approval for bAspart
• The company successfully raised INR 4,500 crores through QIP during the quarter, marking company’s first equity fundraise since IPO in 2004. These funds will be used to increase stake in Biocon Biologics, provide an exit to private equity investors, reduce exposure to structured equity instruments, and reduce interest burden.
• The company commissioned a new GLP-1-focused injectable facility – commercial supply is expected by FY27
• Consolidated net debt stood at ~USD 1.15bn; ~USD 1.1bn in Biologics, ~USD 100mn in Generics and ~USD 120mn cash positive in Research. QIP funds will be used partially to retire the OCD of Goldman Sachs (~USD 200mn) and the OCD interest would start showing a reduction from 2Q onwards. The bank interest will continue for a foreseeable future as they are on 5 year bonds, which are due for repayment in '29.
• Human insulin: doubled the capacity of the drug product line in the Malaysia facility, going to be operational imminently. However, it will only cater to certain markets till regulatory inspections are through.
• GLP-1 products – Liraglutide file is under review with FDA, approval for the same is expected to come this fiscal with launch expected in this fiscal. Company is going to file for Semaglutide in many upcoming markets, including Canada, in 2Q. The company expects approval in some of the markets by CY26 end/early CY27. The company is not going to be amongst the first entrants, but won’t be too far from those players either. So far, Canada has not approved a single GLP-1. Review cycle is typically short in Canada - 8/9 months.
• Adalimumab – prices have started to settle. Biocon continues to bid aggressively.

Generics -

• Performance was in-line with company’s expectations – delivering a 6% revenue growth over the previous year.
• Sequential financial performance reflects the one-time positive impact of Lenalidomide launch quantities in Q4FY25.
• 1Q YoY growth was primarily driven by revenues from recent drug product launches – Liraglutide in the E.U., Dasatinib and Lenalidomide in the U.S., and was supported by higher volumes in key APIs.
• Biocon has received approval for launching Liraglutide in India for diabetes, the same will be carried out shortly (during this quarter) through commercialization partners. Though this is a limited time opportunity before Semaglutide steps in.
• PBT for the quarter was impacted by higher interest and depreciation costs linked to recent capex
• R&D investments for 1Q were at 10% of revenue, and was primarily geared towards GLP-1 portfolio.
• 1Q Generics’ margins were subdued because of capacity expansions (peptide API plant, expanded fermentation capacity in Vizag, and Cranbury New Jersey facility in the U.S). These expansions had INR 600mn impact on operational cost side. Margins in generics will be under pressure due to new launches during 1HFY26, on a full year basis the margins will get back to growth and profitability front. 2Q onwards these capacities will start being utilized thus enabling growth and margin expansion. Generics was guided for double digit growths (with the largest driver being Liraglutide in EU).
• 1Q saw 3 new facilities being commercialised, the company will have a few more facilities that’ll get capitalized during the latter part of year. The impact of new launches and increase in gross margin would offset these additional costs that would have hit the P&L and more from 2H onwards.
• Going forward, the company will focus on launching new products – including the commercialization of Liraglutide across key strategic markets

Biologics 

• During 1Q, there was a 8% year-on-year revenue growth which was driven by robust demand across key markets
• Regional split: Emerging market 23%, Advanced Markets 77%. On a full year basis, mix will be 25%, 75%. Within the 75% of advanced markets , US will be 40+%.
• During 1Q, Company received U.S. FDA approval for Kirsty (bAspart) (first interchangeable rapid-acting insulin in the U.S.). Including regulatory approvals for bDenosumab products – Vevzuo and Efraxy – in Europe and the UK, Biocon Biologics now has 12 approved biosimilar molecules globally.
• The company has partnered with Civica Inc. to locally manufacture insulin Aspart in the U.S.
• Aspart will be launching immediately between now and end of the year, Denosumab will be launching in October in US.
• The company also secured EC and MHRA, UK approvals for bDenosumab, marking entry into a new therapeutic segment - bone health
• Focus in FY26 is going to be on Scaling commercialised products, Deepening presence in key markets, and Preparing for future launches to drive sustainable and profitable growth
• Hulio continued to be one of the leading biosimilars in Germany with a 18% MS
• Yesafili - successful outcome with NHS, secured 4 out of 7 regional tenders – marking a 100% success rate across national tender submissions in the U.K.
• Emerging markets – growth was led by strategic focus on 8 high-impact, self-led markets. The company secured large tenders, including a multiyear contract with Malaysia's Ministry of Health for RH Insulin and Insulin Glargine.
• Yesintek (bUstekinumab), emerged as a leader in early immunology uptake with strong formulary coverage across major payers – CVS, UnitedHealth, ExpressScripts and Blue Cross Blue Shield plans. The originator product gets knocked off from the formularies starting July and then progressively towards the end of the year
• Market share movements – US: Oncology portfolio has been leading the way. Got 2 products i.e. Fulfila and Ogivri. Fulfila has a market share of ~27%, a year ago it was trending at ~15%. Ogivri is at 25%, a year ago it was around 10%-11% range. Europe - Oncology portfolio, led by Abevmy (bBevacizumab) and Ogivri, has shown significant growth of 15% and 20%.

Syngene -

• Revenue/EBITDA grew +11%/+19% YoY in 1QFY26.
• Growth was primarily driven by continued momentum as pilot programs transition into long-term contracts.
• Operations have commenced at Unit III facility in Bengaluru, and preparations are advancing for the Bayview facility in the U.S. (commission scheduled for later this year).

Capacity expansion

• Oral solid dosage capacity expansion at Cranbury, New Jersey facility
• Civica alliance in the US to locally manufacture insulin
• Syngene’s Bayview Biologics facility’s capacity expansion to provide direct access to the U.S. Biologics CRDMO market

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