Q1 MISSES ESTIMATES ON BOTH REVENUES AND MARGINS

News: Revenues grew 21.5% YoY to Rs 2139.5 crore (I-direct estimate: Rs 2337.2 crore). Biosimilars grew 28.8% YoY to Rs 976.6 crore (I-direct estimates of Rs 1007.5 crore) driven by sales of Glargine in the US, and key biosimilars in emerging markets. Research Services segment grew 8.4% YoY at Rs 644.5 crore, below I-direct estimates of Rs 683.7 crore while Generic sales increased 19.2% YoY to Rs 579.7 crore (I-direct estimate: Rs 632.2 crore) amid traction for key new products launched in previous quarters, while base business continued to encounter pricing pressure. EBITDA margins came lower than our expectations amid a 344 bps YoY contraction to 18.7% (I-direct estimate: 24%) due to 1) higher employee cost (up 17.6% YoY) due to impact of annual increments, 2) R&D expenditure (up 65% YoY), largely due to pipeline progression and 3) other expense (up 61% YoY) amid increase in freight cost, being partly offset by higher gross margin (up 192 bps YoY) at 67.2%. Overall EBITDA improved 2.6% YoY to Rs 399.4 crore as against I-direct estimate of Rs 561.2 crore. Adjusted PAT grew 71.1% YoY to Rs 144.4 crore (I-direct estimate: Rs 97.9 crore). Delta vis-a vis EBITDA was on account of lower tax expense and higher other income.

Views: Biocon’s Q1FY23 revenues were below estimates amid lower than expected traction in generics and research services while margins were also a miss due to higher employee cost and other expenditure. In Generics, Biocon’s focus is on expediting product pipeline (launched Mycophenolic Acid Delayed-Release Tablets in US) and operationalizing new capacities (Vizag API facility in FY23). On Biosimilars front, two strategic transactions with Serum and Viatris are likely to contribute from H2FY22 while timely launches and ramp up of Biosimilars in the developed as well as emerging markets remain key to capture market share in the projected 3.3x increase in Biocon’s target addressable market from US$21 billion in FY22 to US$69 billion in FY26. Syngene’s ability to take advantage in CRAMS space with operating leverage will also be important factor for the company.

Impact: Negative.