Strong sales growth in Q4 driven by Biologics and Research services led to a margin beat. Despite expecting strong growth momentum in sales to continue (led by Biologics), Biocon hopes to sustain core Ebitda margin (ex-R&D, licensing, forex) given increasing operating costs & R&D for future growth. Its capex plans (mAbs facility) and near-term pipeline (Bevacuzumab, Aspart, etc) remain on track.
While Peg-filgrastim is tracking well, we reduce our Trastuzumab market share assumptions (as we expect slower ramp-up) and factor in higher staff cost, R&D & depreciation, resulting in 11/9% cut in FY20/21e EPS and TP of Rs 680 (33x FY21e EPS) vs. Rs 750 earlier. We have Add given strong growth visibility led by Biosimilar pipeline (launch of Trastuzumab by end CY19 and Insulin glargine by Mar’20 in US).
Strong revenue growth of 31% y-o-y to Rs 15.3 bn (largely in line with our estimate) came on the back of growth in
(i) Biologics business (87% y-o-y);
(ii) Research services – Syngene (31% y-o-y); and
(iii) Small molecules segment (11% y-o-y).
Margin beat on higher gross margin and lower costs: Gross margin at 68.1% was up 13 percentage points y-o-y (236 q-o-q) on improved sales mix. Ebitda grew 73% y-o-y to Rs 4 bn (23% above our estimates) with margin of 26.4% (644 bps y-o-y). Core Ebitda grew 76% y-o-y to Rs 5 bn resulting in margin of 32.5% (842 bps y-o-y/133 bps q-o-q).