Company Update
August 26, 2016
Rating matrix
Rating
Target
Target Period
Potential Upside
:
:
:
:
Biocon (Biocon)
Buy
| 1030
15-18 months
19%
EMA review acceptance a positive development…
What’s Changed?
Target
EPS FY17E
EPS FY18E
EPS FY19E
Rating
Changed from | 800 to | 1030
Unchanged
Changed from | 37.2 to | 38.4
Introducing at | 48.2
Changed from Hold to Buy
Key Financials
(| Crore)
Revenues
EBITDA
Adj. Net Profit
Adj. EPS (|)
FY16
3485.4
820.0
450.3
22.5
FY17E
4273.6
1065.5
666.4
33.3
FY18E
5059.2
1274.7
767.6
38.4
FY19E
5986.3
1555.5
963.8
48.2
FY16
19.1
45.7
11.1
9.1
11.2
4.3
FY17E
26.0
30.9
14.7
13.1
8.5
3.8
FY18E
22.6
26.8
15.0
14.8
6.9
3.4
FY19E
18.0
21.4
16.4
17.4
5.3
3.0
Valuation summary
PE(x)
Target PE (x)
EV to EBITDA (x)
Price to book (x)
RoNW (%)
RoCE (%)
Stock datawe
Amount
| 17312 crore
| 2457 crore
| 1921 crore
| 17848 crore
897/420
| 100 crore
|5
Particular
Market Capitalisation
Debt (FY16)
Cash (FY16)
EV
52 week H/L
Equity capital (|Crore)
Face value (|)
Price Chart
16000
1000
12000
800
600
8000
400
4000
200
0
0
Jul-16
Jan-16
Jul-15
Jan-15
Jul-14
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
CNX Pharma
| 866
Alembic Pharma
Research Analyst
Mylan-Biocon Announce Regulatory Submission for Trastuzumab
Biocon and Mylan have received European Medicines Agency’s (EMA)
acceptance to review Mylan’s marketing authorisation application (MAA)
for a proposed biosimilar Trastuzumab used to treat certain HER2-positive
breast and gastric cancers. This is the second biosimilar submission
developed by the partnership that has been accepted for review in
Europe. In July, Mylan’s MAA for the proposed biosimilar Pegfilgrastim
was accepted for review by EMA.
Trastuzumab filing includes analytical, functional and pre-clinical data, as
well as results from pharmacokinetics (PK) and confirmatory
efficacy/safety global clinical trials for Trastuzumab. The PK study had
demonstrated measured bioequivalence of Mylan’s and Biocon’s
proposed Trastuzumab biosimilar relative to that of the reference drug.
The second study, the ‘Heritage Study’, evaluated the efficacy, safety and
immunogenicity of the proposed biosimilar Trastuzumab in comparison
to branded Trastuzumab.
Biologics to grow at CAGR of ~40% in FY16-19E
The biosimilar segment accounts for ~12% of turnover. The company
has invested heavily in this space over the last two or three years,
especially the Malaysian facility. We expect biologics to grow at a CAGR
of ~40% to | 669 crore in FY16-19E.
Biosimilars progress getting momentum; upgrade to BUY
Encouraging developments on the biosimilars front over the last six
months have demonstrated the capability in the biosimilars space. What
has cemented Biocon’s position as perhaps the best placed candidate
among Indian companies is the series of positive outcomes from
developed markets, be they approval and launch of Glargine in Japan or
presentation of Trastuzumab data to ASCO or review acceptance from
EMA. The launches in emerging markets are also getting momentum.
This is likely to improve the share of biosimilars in total revenues from
10% in FY16 to 20% by FY19. With the Malaysian facility getting ready for
global filings, we believe the future bodes well for the company on the
biosimilars front. It will also provide an extra lever for growth besides
Syngene and branded formulations. Although the actual biosimilar
launches in EU (and US) are some distance away, we believe the
acknowledgement from developed market regulators is likely to improve
the valuation perspective. We have introduced FY19 estimates (both for
Biocon and Syngene) on account of better visibility and proven capability.
Our SOTP target price is now | 1030.
Exhibit 1: SOTP valuation
Particulers
Biocon (ex Syngene)
Syngene
Targeted Market Cap
Biocon's Holding
Holding Company Discount
Syngene valuation
Per share valuation
Siddhant Khandekar
siddhant.khandekar@icicisecurities.com
Mitesh Shah
mitesh.sha@icicisecurities.com
SOTP valuation
ICICI Securities Ltd | Retail Equity Research
FY19E EPS (| cr)
32.0
Multiple (x)
22.0
Per share (| )
703.4
11000
74.6%
20.0%
6560
328
1,030
Recent progress in biosimilar
Date
Aug-16
Event
European Medicines Agency has accepted Biocon-Mylan Proposed Biosimilar Trastuzumab (gHerceptin) for Review
Jul-16
European Medicines Agency has accepted Biocon-Mylan Proposed Biosimilar Pegfilgrastim (gNeulasta) for Review
Jul-16
Biocon's Insulin Glargine Launched in Japan
Jun-16
Biocon and Mylan to Present Phase 3 Trastuzumab Biosimilar Data at the American Society of Clinical Oncology (ASCO) Annual Meeting
Mar-16
Biocon's Insulin Glargine Receives Regulatory Approval in Japan
Mar-16
Biocon Inks Co-Development & Commercialization Agreement with Lab PiSA for rh- Insulin in USA
May-15
Biocon-Mylan's PEG-G-CSF and Adalimumab enter Phase 3 clinical trials; Patient recruitment for one Insulin Glargine Phase 3 study completed
Source: Company, ICICIdirect.com Research
Exhibit 2: Biosimilars: Insulins pipeline
Molecule
Rh Insulin
Glargine
Aspart
Lispro
Type
Recombinant Human Insulin
Long Acting Basal Insulin
Rapid Acting Insulin Analog
Rapid Acting Insulin Analog
Status
EU Phase III complete
Global Phase III
Preclinical/Scale Up
Preclinical/Scale Up
Total Market Size
Market Size (US$ billion)
3.1
7.1
4.7
2.8
18.0
Source: Company, ICICIdirect.com Research
Exhibit 3: Biosimilars: MAbs & biologics pipeline
Molecule
Adalimumab
Trastuzumab
Pegfilgrastim
Bevacizumab
Filgrastim
Etanercept
Indication
Chronic Plaque Psoriasis
mBreast Cancer
Chemo-induced Neutropenia
mColorectal Cancer
Chemo-induced Neutropenia
Auto-immune
Status
Market Size (US$ billion)
Global Phase III
14.0
Global Phase III
6.8
Global Phase III
4.7
EU Phase 1, RoW Phase III
6.9
Preclinical/Scale Up
1.0
Preclinical/Scale Up
8.7
Total Market Size
42.0
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 2
Financial summary
Profit and loss statement
(Year-end March) & (| crore)
Total Operating Income
Growth (%)
Raw Material Expenses
Employee Expenses
R&D Expenditure
Other Expenditures
Total Operating Expenditure
Operating Profit (EBITDA)
Growth (%)
Depreciation
Interest
Other Income
PBT before Exceptional Items
Less: Exceptional Items
Total Tax
PAT before MI
Minority Interest
Adjusted PAT
Growth (%)
EPS (Adjusted)
| Crore
FY16
3485.4
12.8
1330.1
636.3
275.3
423.7
2665.4
820.0
17.8
242.3
10.2
84.5
652.0
-575.4
256.9
970.5
74.4
FY17E
4273.6
22.6
1571.7
782.2
370.2
484.0
3208.1
1065.5
29.9
260.9
11.6
153.1
946.2
0.0
196.2
750.0
89.0
FY18E
5059.2
18.4
1821.3
925.8
430.2
607.1
3784.5
1274.7
19.6
342.4
6.2
173.5
1099.7
0.0
219.9
879.7
112.1
FY19E
5986.3
18.3
2107.2
1095.5
509.8
718.4
4430.8
1555.5
22.0
386.6
4.1
205.3
1370.1
0.0
274.0
1096.1
132.3
450.3
10.2
22.5
666.4
48.0
33.3
767.6
15.2
38.4
963.8
25.6
48.2
Source: Company, ICICIdirect.com Research
(Year-end March) & (| Crore)
Profit/(Loss) after taxation
Add: Depreciation & Amortization
Net Increase in Current Assets
Net Increase in Current Liabilities
Other Operating Activities
CF from operating activities
(Increase)/Decrease in Investmen
(Purchase)/Sale of Fixed Assets
Increase/ (Decrease) in Minority I
Other Investing Activities
CF from investing activities
Proceeds from issues of Equity Sh
Inc/(dec) in loan funds
(Payment) of Dividend and Divide
Interest Paid
Other Financing Activities
CF from financing activities
Net Cash flow
Opening Cash
Closing Cash
Free Cash Flow
| Crore
FY16
896.1
242.3
-204.5
-159.7
-247.9
526.4
-198.2
-957.7
139.0
62.9
-954.0
0.0
1432.7
-116.5
-10.2
105.4
1411.4
983.8
937.5
1921.3
-431.3
FY17E
666.4
260.9
-376.3
120.0
11.6
682.5
-200.0
-200.0
89.0
0.0
-311.0
0.0
-500.0
-190.9
-11.6
0.0
-702.5
-330.9
1921.3
1590.4
482.5
FY18E
767.6
342.4
-371.6
197.2
6.2
941.8
-500.0
-100.0
112.1
0.0
-487.9
0.0
-500.0
-191.9
-6.2
0.0
-698.1
-244.2
1590.4
1346.2
841.8
FY19E
963.8
386.6
-425.9
216.3
4.1
1144.9
-500.0
-100.0
132.3
0.0
-467.7
0.0
-500.0
-202.4
-4.1
0.0
-706.5
-29.3
1346.2
1316.9
1044.9
FY16
FY17E
FY18E
FY19E
45.3
202.8
5.9
96.1
33.3
226.6
9.5
79.5
38.4
255.3
9.6
67.3
48.2
293.4
10.1
65.8
61.8
23.5
16.6
12.9
53.6
86.2
57.3
0.5
64.2
63.2
24.9
18.8
15.6
51.9
88.3
49.2
0.6
64.1
64.0
25.2
18.4
15.2
51.9
88.3
49.2
0.7
73.9
64.8
26.0
19.5
16.1
51.9
88.3
49.2
0.8
73.6
11.1
9.1
18.5
14.7
13.1
22.5
15.0
14.8
18.4
16.4
17.4
19.4
19.1
11.2
2.6
2.5
4.3
26.0
8.5
2.1
2.0
3.8
22.6
6.9
1.7
1.7
3.4
18.0
5.3
1.4
1.4
3.0
3.0
0.6
1.7
1.2
1.8
0.4
1.8
1.3
1.1
0.3
1.8
1.3
0.6
0.2
1.8
1.3
Source: Company, ICICIdirect.com Research
Balance sheet
(Year-end March) & (| Crore)
Liabilities
Equity Capital
Reserve and Surplus
Total Shareholders funds
Total Debt
Deferred Tax Liability (Net)
Minority Interest
Other NCL & LT Provisions
Source of Funds
Assets
Gross Block
Accumulated Depreciation
Net Block
Capital WIP
Total Fixed Assets
Other Investments
Inventory
Debtors
Loans and Advances
Cash
Other Current Assets
Total Current Assets
Creditors
Provisions
Other Current Liabilities
Total Current Liabilities
Net Current Assets
Other Non Current assets
Application of Funds
Cash flow statement
| Crore
FY16
FY17E
FY18E
FY19E
100.0
3955.6
4055.6
2456.9
34.6
311.2
380.2
7238.5
100.0
4431.1
4531.1
1956.9
34.6
400.2
380.2
7303.0
100.0
5006.8
5106.8
1456.9
34.6
512.3
380.2
7490.8
100.0
5768.3
5868.3
956.9
34.6
644.6
380.2
7884.5
3489.1
1766.5
1722.6
2187.5
3910.1
428.5
511.4
822.9
597.6
1921.3
123.8
3977.0
547.1
87.7
608.3
1243.1
2733.9
166.0
7238.3
3739.1
2027.4
1711.7
2137.5
3849.2
628.5
607.2
1033.4
647.6
1590.4
143.8
4022.4
575.8
117.9
669.5
1363.1
2659.2
166.0
7302.8
4907.9
2369.7
2538.1
1068.8
3606.9
1128.5
718.8
1223.4
697.6
1346.2
163.8
4149.8
681.6
148.0
730.7
1560.3
2589.5
166.0
7490.8
5542.2
2756.4
2785.8
534.4
3320.2
1628.5
850.5
1447.6
747.6
1316.9
183.8
4546.4
806.5
178.2
791.8
1776.6
2769.8
166.0
7884.5
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March)
Per share data (|)
Reported EPS
BV per share
Dividend per share
Cash Per Share
Operating Ratios (%)
Gross Margin
EBITDA margin
EBIT Margin
PAT Margin
Inventory days
Debtor days
Creditor days
Asset Turnover
EBITDA Conversion Ration
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
P/E
EV / EBITDA
EV / Net Sales
Market Cap / Sales
Price to Book Value
Solvency Ratios
Debt / EBITDA
Debt / Equity
Current Ratio
Quick Ratio
Source: Company, ICICIdirect.com Research
.
ICICI Securities Ltd | Retail Equity Research
Page 3
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head – Research
pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
ICICI Securities Ltd | Retail Equity Research
Page 4
ANALYST CERTIFICATION
We /I, Siddhant Khandekar, CA INTER and Mitesh Shah, MS (finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report.
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