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Lower revenue in biologics leads to lower op. leverage

Result below our estimate

* BIOS’s 3QFY26 revenues grew 9.2% YoY to INR41.7b (est. INR45.4b).

* Revenue growth was led by: Biosimilars (58.5% of sales), up 9.4% YoY to INR25b. Research services (21.5% of sales), down 2.8% YoY to INR9.2b. Generics (20% of sales), up 24% YoY to INR8.5b.

* Gross margin (GM) expanded 350bp YoY to 65.5%.

* EBITDA margin contracted 60bp YoY to 20% (est: 19.7%) ; (employee expense/other expense up 55bp/280bp YoY as % of sales). R&D cost inched up (75bps YoY as % of sales) for the quarter.

* EBITDA grew 6.1% YoY to INR8.3b (est: INR8.9b).

* BIOS had an exceptional expense of INR3b related to (a) one time employee expense w.r.t. the change in the labor code (INR1.7b), (b) advisory and legal consultancy, premium on hedges, bridge financing cost (INR2.2b), (c) provision for liquidation of inventories (INR762m), (d) fair value change of investment (INR50m), (e ) gain w.r.t. the remeasurement of the derivative liability in relation to investment in BBL by Mylan Inc (INR1.8b)

* Adj. for the same, PAT came in at INR1.2b (est. INR1.6b) vs INR439m YoY.

* Its revenue/EBITDA/PAT missed BBG estimates (-8%/-11%/26% YoY)

* In 9MFY26, Revenue/EBITDA grew 14%/16% YoY, while PAT came in at INR2.5b from a loss of INR800m in 9MFY25.

Other highlights

* Biocon Biologics’ EBITDA was INR7b, with a margin at 27.9%. up 560bp YoY.

* Syngene’s (Research services) EBITDA margin was 24.4% for the quarter, down 750bp YoY.

* This implies a generics EBITDA margin of 3.1%, down 250bp YoY

* BIOS gained global market entry for biosimilar, Aflibercept, and biosimilar Denosumab through patent settlement agreements

* BIOS launched Liraglutide for diabetes (gVictoza) and obesity (gSaxenda) in the Netherlands as its first ‘direct-to-market’ GLP-1 in the EU.

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