Biocon Shares Fundamental Analysis and Future Outlook
Biocon Limited is an Indian biopharmaceutical company based out of Bangalore. The Company manufactures generic active pharmaceutical ingredients that are sold in over 120+ countries across the globe, including the developed markets in the United States and Europe. Biocon has expanded and commercialized a differentiated portfolio of novel biologics, biosimilars, and complex small molecule APIs in India.
- The business model of the company is such that it operates in 5 core verticals. The Biosimilars vertical is operated under the Biocon Biologics subsidiary and Novel Biologics vertical is under Bicara Therapeutics.
- The small molecules vertical is involved in manufacturing of differentiated API’s whereas Branded formulation vertical is involved in finished dosage business. The research services vertical is operated under the subsidiary Syngene.
- Biocon is one of the largest Insulin manufacturers in the world. The company also offers rh-insulin at less than 10 US cents/day for direct procurement by governments in low and middle-income countries.
- The revenue breakup is such that around 31% comes from Small molecules business, 32% comes from Biologics, 8% comes from Branded formulations and 29% comes from Research services.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Biocon Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The effect of Covid-19 outbreak and the subsequent lockdown will only be temporary revenue loss due to factory shutdowns and disrupted supply chains. The company can look out for a reduction in Cap-Ex and R&D spends to conserve cash for the coming years.
- Gross margin is likely to improve for the company in the coming years with the increased production of Pegfilgrastim and better traction in Trastuzumab drugs. Also, the management stands by the target of the mid-2022 launch of Insulin Glargine biosimilar which will further improve the top line.
- The Research Services growth was moderate in the last year, however, the outlook remains robust for the next 2–3 years. The benefit of business from the Trastuzumab biosimilar drug was offset in 2019 due to the one-time remediation measures at the Malaysia plant, with an increased R&D spend (+46% YoY) and deferred Pegfilgrastim biosimilar sales.
- Biocon incurred Cap-Ex of approximately INR 20 billion in FY 2020. Management guidance was of a similar Cap-Ex in FY 2021 but now a major portion of this may be deferred until the economic outlook is clear.
Overall the company has a well-diversified business model along with stable management. The only concern that remains is the disrupted supply chains from China. Biocon has licensed out 3 Generic Formulations products to China Medical System Holdings (CMS). The contract is such that Biocon will develop and manufacture while CMS will Commercialize. This may not happen or get delayed
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