Biocon Ltd (BIOCON)

CMP: | 372 Target: | 410 (10%) Target Period: 12 months HOLD

September 17, 2021

Maiden foray into vaccines via Serum alliance…

About the stock: Biocon is a leading biopharma company operating in biologics, Particulars

Company Update
contract research (Syngene), small molecules and branded formulations Particular Amount
Market Capitalisation | 44634 crore
 Revenue breakup: Biosimilars (37%), generics (31%), CRAMS (29%)
Debt (FY21) | 4359 crore
 Biosimilar/Insulin US pipeline- (Launched - Pegfilgrastim, Trastuzumab, Cash (FY21) | 2015 crore
Glargine; Aspart (expected in FY22E) and Bevacizumab (delayed) EV | 46977 crore
52 week H/L 488/328
Equity capital (|Crore) | 600 crore
Event: Biocon Biologics and Serum Institute Life Sciences Strategic Alliance Face value (|) |5
 Biocon Biologics (BBL), a subsidiary of Biocon, has approved the merger of
Covidshield Technologies (CTPL), subsidiary of Serum Institute Life Shareholding pattern
Sciences (SILS) with BBL (in %) Sep-20 Dec-20 Mar-21 Jun-21
 BBL also entered into a strategic alliance with SILS with an offer of 15% Promoter 60.7 60.7 60.7 60.6
stake in BBL with post money valuation of BBL ~ US$4.9 billion. The alliance Others 39.3 39.3 39.3 39.4
gives BBL access to 100 million doses of vaccines/annum for 15 years with
commercialisation rights (including Covid-19 vaccines) for global markets Price Chart
 The strategic alliance will also develop antibodies along with a service level 600 16000
agreement (SLAs) for manufacturing and distribution of the vaccines and 500 14000
12000

ICICI Securities – Retail Equity Research

antibodies. Additionally, Biocon Biologics will establish, at its cost, a vaccine 400 10000
R&D division for developing both vaccines and biologics for communicable 300 8000
diseases. It will also make its cell culture, sterile fill and finish capacities 200 6000
4000
available for vaccine production under the strategic alliance 100 2000
0 0
Jan-19

Jan-20

Jan-21
Sep-18

May-19
Sep-19

May-20
Sep-20

May-21
Sep-21
What should investors do? Biocon’s share price has grown by ~2.3x over the past
five years (from ~| 152 in August 2016 to ~| 358 levels in August 2021). Biocon (L.H.S) NSE500 (R.H.S)
 The sheer size of the deal notwithstanding, the direction on the pricing front
and actual ramp-up would be the key determinants, as we still await further Recent Event & Key risks
clarifications in the due course. We maintain HOLD
 Marketing Authorization for
Target Price and Valuation: We value Biocon at | 410 on SOTP basis. bBevacizumab in Australia & UK

 Key Risk: (i) Better than expected

launch momentum, (ii) Disruption
Key triggers for future price performance:
due to another Covid wave
 Ramp-up of insulin glargine after interchangeability approval in the US
Research Analyst
 Approval of bevacizumab and insulin Aspart in the US
Siddhant Khandekar
 Ramp up of market shares in existing biosimilars, geographical expansion siddhant.khandekar@icicisecurities.com

 Syngene Mangalore customer validations and approvals

 Developments on the Vaccines front

Key Financial Summary

5 year CAGR 2 year CAGR
Key Financials (| crore) FY19 FY20 FY21 FY22E FY23E
(FY16-21) (FY21-23E)
Revenues (| crore) 5514.4 6367.2 7105.8 16.0 8262.0 10572.0 22.0
EBITDA (| crore) 1361.2 1603.1 1640.0 20.9 2014.3 3033.8 36.0
EBITDA margins (%) 24.7 25.2 23.1 24.4 28.7
Net Profit (| crore) 744.8 698.2 730.3 6.1 734.7 1505.4 43.6
EPS (|) 6.2 5.8 6.1 6.1 12.5
P/E (x) 49.3 59.7 60.3 60.7 29.6
RoCE (%) 10.9 10.2 7.6 8.7 12.5
RoE (x) 12.2 10.4 9.6 8.9 15.6

Source: Company, ICICI Direct Research

 Company Update | Biocon Ltd ICICI Direct Research

Conference Call Highlights

 Access to 100 million doses of vaccines per annum for 15 years from
SILS’s upcoming vaccine facility in Pune

 Alliance will develop antibodies targeting infectious diseases like

Dengue, HIV etc

 The management guided for post profit sharing EBITDA margins in mid
thirties

 Average Covid vaccine price ~ US$4

 Price range of other vaccines ~ US$3 – US$10

 Biocon is looking to foray into developing markets initially before

entering developed markets

Valuation
Exhibit 1: Valuation
Particulers FY23E EPS (| cr) Multiple (x) Per share (| )
Biocon (ex Syngene) 9.0 26.0 235.1
NPV (Vaccines) 31.5
Syngene
Targeted Market Cap 31200
Biocon's Holding 71.1%
Holding Company Discount 20.0%
Syngene valuation 17737
Per share valuation 148
SOTP valuation 410
Source: Company, ICICI Direct Research

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 Company Update | Biocon Ltd ICICI Direct Research

Financial Summary

Exhibit 2: Profit and loss statement | crore Exhibit 3: Cash flow statement | crore
Year-end March FY20 FY21 FY22E FY23E Year-end March FY20 FY21 FY22E FY23E
Total Operating Income 6367.2 7105.8 8262.0 10572.0 Profit/(Loss) after taxation 526.8 652.4 734.7 1505.4
Growth (%) 15.5 11.6 16.3 28.0 Add: Depreciation & Amortization 552.2 715.1 786.7 947.7
Raw Material Expenses 2052.2 2208.5 2627.5 3118.7 Net Increase in Current Assets -571.8 -734.0 -730.1 -1392.4
Employee Expenses 1458.8 1741.0 2046.0 2325.8 Net Increase in Current Liabilities 133.0 310.2 618.4 918.0
R&D Expenditure 439.0 553.0 620.6 825.0 Other Operating Activities 369.2 216.0 79.6 79.6
Other Expenditures 814.1 963.3 953.6 1268.6 CF from operating activities 1009.4 1159.7 1489.4 2058.3
Total Operating Expenditure 4764.1 5465.8 6247.7 7538.2 (Purchase)/Sale of Fixed Assets -1829.4 -1297.1 -2259.9 -1640.3
Operating Profit (EBITDA) 1603.1 1640.0 2014.3 3033.8 (Increase)/Decrease in Investments 174.4 -567.0 0.0 -500.0
Growth (%) 17.8 2.3 22.8 50.6 Increase/ (Decrease) in Minority Interest 0.0 0.0 88.1 96.9
Depreciation 552.2 715.1 786.7 947.7 Other Investing Activities -74.3 -842.8 69.6 47.8
Interest 64.9 57.7 79.6 79.6 CF from investing activities -1729.3 -2706.9 -2102.2 -1995.6
Other Income 161.4 267.1 221.5 211.4 Proceeds from issues of Equity Shares 538.8 797.7 0.0 0.0
PBT before Exceptional Items 1147.4 1134.3 1369.5 2217.9 Inc/(dec) in loan funds 292.3 1882.3 -100.0 0.0
Less: Exceptional Items -67.5 -12.6 0.0 0.0 (Payment) of Dividend and Dividend Tax -70.1 0.0 -73.5 -150.5
Total Tax 315.1 221.5 321.3 510.1 Interest Paid -91.2 -116.0 -79.6 -79.6
PAT before MI 899.8 925.4 1048.2 1707.8 Other Financing Activities -8.5 0.0 0.0 0.0
Minority Interest 122.7 105.7 141.6 188.0 CF from financing activities 661.3 2564.0 -253.1 -230.1
Net Cash flow -58.6 1016.8 -865.8 -167.4
Adjusted PAT 698.2 730.3 734.7 1505.4 Opening Cash 1057.2 998.6 2015.4 1149.6
Growth (%) -6.3 4.6 0.6 104.9 Closing Cash 998.6 2015.4 1149.6 982.2
EPS (Adjusted) 5.8 6.1 6.1 12.5 Free Cash Flow 1183.8 592.7 1489.4 1558.3
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

Exhibit 4: Balance Sheet | crore Exhibit 5: Key ratios

Year-end March FY20 FY21 FY22E FY23E Year-end March FY20 FY21 FY22E FY23E
Liabilities Per share data (|)
Equity Capital 600.0 600.0 600.0 600.0 Reported EPS 6.2 6.2 6.1 12.5
Reserve and Surplus 6105.8 7026.9 7688.2 9043.0 BV per share 55.9 63.6 69.1 80.4
Total Shareholders funds 6705.8 7626.9 8288.2 9643.0 Dividend per share 0.6 0.0 0.6 1.3
Total Debt 2715.3 4358.6 4258.6 4258.6 Cash Per Share 8.3 16.8 9.6 8.2
Minority Interest 677.3 880.7 968.8 1065.6 Operating Ratios (%)
Other NCL & LT Provisions 1747.4 2843.0 3125.7 3436.6 Gross Margin 67.8 68.9 68.2 70.5
Source of Funds 11845.8 15709.2 16641.2 18403.8 EBITDA margin 25.2 23.1 24.4 28.7
Assets EBIT Margin 16.5 13.0 14.9 19.7
Gross Block - Fixed Assets 9121.0 10194.5 13154.4 15794.7 PAT Margin 11.0 10.3 8.9 14.2
Accumulated Depreciation 3176.3 3857.0 4643.7 5591.4 Inventory days 82.3 95.9 68.3 68.3
Net Block 5944.7 6337.5 8510.7 10203.2 Debtor days 70.1 62.5 85.5 85.5
Capital WIP 2196.0 2800.2 2100.2 1100.2 Creditor days 76.0 77.8 79.3 79.3
Total Fixed Assets 8140.7 9137.7 10610.9 11303.4 Asset Turnover 0.5 0.5 0.5 0.6
Goodwill on Consolidation 26.4 26.4 26.4 26.4 EBITDA Conversion Ration 63.0 70.7 73.9 67.8
Investments 966.1 1951.9 1951.9 2451.9 Return Ratios (%)
Inventory 1435.9 1866.6 1545.6 1977.7 RoE 10.4 9.6 8.9 15.6
Debtors 1223.7 1217.6 1935.5 2476.6 RoCE 10.2 7.6 8.7 12.5
Cash 998.6 2015.4 1149.6 982.2 RoIC 14.2 9.9 10.4 14.7
Other Current Assets 809.2 1292.1 1625.3 2044.4 Valuation Ratios (x)
Total Current Assets 4467.4 6391.7 6255.9 7480.9 P/E 59.7 60.3 60.7 29.6
Creditors 1325.1 1513.9 1795.4 2297.3 EV / EBITDA 28.4 27.9 23.1 15.2
Provisions 103.0 109.4 139.6 169.7 EV / Net Sales 7.1 6.4 5.6 4.4
Other Current Liabilities 1169.9 1189.7 1496.5 1882.4 Market Cap / Sales 7.0 6.3 5.4 4.2
Total Current Liabilities 2598.0 2813.0 3431.4 4349.5 Price to Book Value 6.7 5.9 5.4 4.6
Net Current Assets 1869.4 3578.7 2824.5 3131.4 Solvency Ratios
Deferred Tax Assets 368.0 307.7 338.5 372.3 Debt / EBITDA 1.7 2.7 2.1 1.4
Other Non Current assets 475.2 706.8 889.1 1118.3 Debt / Equity 0.4 0.6 0.5 0.4
Application of Funds 11845.8 15709.2 16641.2 18403.8 Current Ratio 1.3 1.6 1.5 1.5
Source: Company, ICICI Direct Research Quick Ratio 0.8 0.9 1.0 1.0
Source: Company, ICICI Direct Research

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 Company Update | Biocon Ltd ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according -to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

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 Company Update | Biocon Ltd ICICI Direct Research

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