Recommendation From Biotechnology Sectors

Kiran Dhavale

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

Biocon Ltd. 

BSE Code: 532523 
CMP: Rs 649.40 
FV: Rs 5 
BSE Volume: 331,362

HEALTHY REVENUE GROWTH MAKES BIOCON A GOOD BET 

HERE IS WHY
Robust product portfolio
Healthy revenue growth across segments
Growth prospects of biosimilars 

Biocon Ltd. manufactures biotechnological products and is the first Indian pharmaceutical company to receive approval for biosimilars or biologic medical products in the US. The benefits of this strategy have started to manifest as the revenues from this segment surged 136 per cent YoY and contributed 29 per cent of total revenues earned in Q3FY19. Biologics are among the most expensive drug treatments in the market; however, biosimilars are a lower-cost alternative. The launch of Trastuzumab and Pegfilgrastim post approvals in the US is witnessing strong traction. As a result, the company has shared revenue guidance of around US$ 200 million for biologics sales in FY19E. 

On the consolidated quarterly front, the company's total income from operations rose to Rs 1,540.80 crore in Q3FY19 from Rs 1,057.90 crore in Q3FY18, thereby rising 45.64 per cent. EBITDA reached Rs 380.70 crore in Q3FY19 as compared to Rs 221.70 crore in Q3FY18, posting a growth of 71.71 per cent. The net profit soared to Rs 217.20 crore in Q3FY19 from Rs 91.90 crore in Q3FY18, thereby improving 136.34 per cent. Basic EPS was reported at Rs 3.67 in Q3FY19 versus Rs 1.56 observed in Q3FY18. Q3FY19 is special as it witnessed the highest ever revenue and profit growth in absolute terms. 

On the consolidated annual front, the total income from operations surged 5.97 per cent to Rs 4,123.40 crore in FY18 from Rs 3,891.10 crore in FY17. EBITDA was reported at Rs 829.10 in FY18 in comparison to Rs 979.50 in FY17, posting a drop of 15.35 per cent. The net profit too spiralled downwards to Rs 372.40 in FY18 from Rs 612.10 in FY17, thereby plummeting 39.16 per cent. Basic EPS dropped substantially to Rs 6.31 in FY18 from Rs 31.18 in FY17. 

With regards to the small molecules business, the company posted revenue growth of 27 per cent at Rs 469 crore, backed by sturdy sales of core APIs and consistent growth in the US generic formulations business. The branded formulations business reported revenue growth of 36 per cent YoY at Rs 212 crore. Meanwhile, the research services business yielded revenue growth of 20 per cent at Rs 467 crore on the back of good growth in discovery services and improved traction in the biologics business. 

Biocon’s other business segments have made healthy contribution to revenue growth. The company’s growth was accelerated on the back of robust sales in active pharmaceutical ingredients (APIs) and the successful launch of generic drugs. 

The key growth driver is undoubtedly biosimilars as most products under the segment are gaining market share and generating noteworthy revenues. This growth momentum is expected to continue in the upcoming quarters and is sure to give a thrust to margins. Another positive for the company includes the product approvals in developing markets where competition from major pharma companies is relatively low. This will result in higher realisations for the company. By virtue of these factors, we recommend our reader-investors to BUY this stock.

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DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

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