3 December 2017
Update
| Sector:
Healthcare
BSE SENSEX
32,833
S&P CNX
10,122
Biocon
Neutral
CMP: INR447
TP: INR485(+9%)
Mylan/ Biocon received Trastuzumab approval in US
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
BIOS IN
600
449/294
25/33/22
267.9
4.1
1054
39.3
Financials Snapshot (INR b)
2017 2018E 2019E
Y/E Mar
40.8
42.7
52.2
Net Sales
11.4
9.3
12.8
EBITDA
6.1
3.7
6.1
PAT
10.2
6.1
10.1
EPS (INR)
31.8 -40.2
65.4
Gr. (%)
80.6
84.9
92.1
BV/Sh (INR)
12.3
7.2
11.0
RoE (%)
9.4
6.1
11.4
RoCE (%)
43.8
73.2
44.3
P/E (x)
5.5
5.3
4.9
P/BV (x)
Shareholding pattern (%)
As On
Sep-17 Jun-17 Sep-16
Promoter
60.7
60.7
60.7
DII
3.8
3.7
5.1
FII
17.1
16.9
17.8
Others
18.4
18.8
16.5
FII Includes depository receipts
Stock Performance (1-year)
Biocon
Sensex - Rebased
480
430
380
330
280
Mylan/ Biocon announced on Friday that US FDA approved Mylan’s Ogivr
(trastuzumab-dkst), a biosimilar to Herceptin (trastuzumab), co-developed with
Biocon. Ogivri™ is the first FDA-approved biosimilar to Herceptin and the first
biosimilar from Mylan and Biocon’s joint portfolio approved in the US. Notably,
Mylan is the only player which has settled for a launch date with innovator
Roche. Mylan anticipates to be the first player to launch biosimilar version of
Herceptin. Patent for Herceptin is expiring in mid-2019. Since Biocon has not
filed this product through interchangeable route, it will not receive exclusivity
period for this product. We expect Mylan/ Biocon to launch Ogivri at least 3-6
months before patent expiry.
Biosimilar- USD900m-1b opportunity in medium term:
Trastuzumab,
PegFilgrastim and Insulin Glargine could be USD1b opportunity for Mylan/
Bioocon in medium term (USD250m from each product in US/ EU and
USD250m from all three products in EMs). Biocon’s sales could be ~40% of the
joint portfolio with EBITDA margin of ~30%.
Trastuzumab opportunity:
Roche is generating sales of ~USD2-2.5b/USD2b and
~USD1.8b from US, EU and EMs, respectively. Pfizer, Amgen/ allergen and
Teva/ Celtrion have also filed BLA in 2H CY17 with US FDA. Hanwha, and
Samsung are other potential late stage filers. Biocon has re-filed Trastuzumab
and PegFilgrastim with EU regulator in 3Q FY18.
PegFilgrastim opportunity:
Pegfilgrastim is a USD4.5b opportunity with US
sales of ~USD3.7-3.8b. Because of multiple biosimilar players in EU region for
Filgrastim, market size of Pegfilgrastim has come down to ~USD500m. Apotex,
Coherus, Sandoz and Cinfa are other late stage filers for this product. Apotex
has partnered with Intas for manufacturing supply and Intas’ plant has received
483s in mid-2017. Coherus received CRL from US FDA in Jun-17 and is expected
to re-file the product in next 1-2 quarters. Sandoz will be re-filing the product
in 2019. Biocon is planning to re-file the product in next few months.
Glargine Opportunity:
Glargine insulin sales in US stood at ~USD4b and
~USD2.5b in other geographies. Eli Lilly has already got the approval and has
clocked sales of USD115m in US and ~USD30m in other geographies in latest
quarter. Merck has got US FDA approval but cannot launch the product till
Mar-18 due to 30 month stay. Similarly, Biocon also has also been sued by
Sanofi in Oct-17. Unless Merck or Biocon win case against Sanofi, they will have
to wait for 30-month period. EU launch for Biocon is expected in FY19E.
Biologics business to take off from 2019:
Biocon can generate sales of
~USD350m-400m from sales of these there biosimilars in medium term.
Trastuzumab approval by US FDA is an important milestone for the company.
We maintain our neutral rating with revised target price of INR485@ 26x
FY20E PER (v/s INR335 @ 24x 1H FY20E PER). We have increased our TP
multiple to capture upside of biologics business in developed market which will
commence from 2019 onwards. We have increased our FY20E EPS by 17% on
the back of higher visibility of Biosimilar sales.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Kumar Saurabh – Research Analyst
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
Ankeet Pandya – Research Analyst
(Ankeet.Pandya@MotilalOswal.com );

Biocon
Exhibit 1: Current status of other players in Biosimilar
Trastuzumab
Company
Amgen/Allergan
Samsung Bioepis
Celltrion / Teva
Apotex
Coherus
Cinaf
Sandoz
Eli Lilly
Merck
Current status
In July 2017 submitted application to the US FDA for approval and in September 2017 presented Phase 3 data
Received approval from EMA
July 2017 US FDA accepted application and in September 2017 presented Phase 3 data showing similarity in efficacy and
safety
Peg-filgrastim
Partnered with Intas for manufacturing supply. Intas plant in mid-2017 received 483s
Received complete response letter (CRL) from US FDA requested for a reanalysis of a subset of subject samples with a
revised immunogenicity assay, and requests for certain additional manufacturing related process information. FDA did
not request for a clinical study.
In October 2017 EMA approved company's application for Peg-filgrastim biosimilar
Received CRL in July 2016. To re-submit application in early 2018
Insulin Glargine
Received US FDA approval in late 2016
Received US FDA approval but cannot launch till March 2018 due to 30 month stay
Source: Company, MOSL
Exhibit 2: Opportunity in Biosimilars
Source: Company
3 December 2017
2

Biocon
Exhibit 3: Biosimilar Pipeline
Source: Company
Valuation and view
Approval of Trastuzumab by US FDA is a huge positive for Biocon. Post approval of
Trastuzumab, approval of Pegfilgristam will be the next key trigger. Company plans
to re-file the product in next few months and EU launch of Glargin is expected in
FY19E. Although this news will be a huge trigger for the stock, we expect earnings to
remain muted in the near term.
Biocon can generate sales of ~USD350m-400m from sales of these there biosimilars
in medium term. Trastuzumab approval by US FDA is an important milestone for the
company. We have increased our TP multiple to capture upside of biologics business
in developed market which will commence from 2019 onwards. We have increased
our FY20E EPS by 17% on the back of higher visibility of Biosimilar sales.
Our target price of INR485 is based on 26x FY20E PER (v/s INR335 @ 24x 1H FY20E
PER), at ~15% premium to sector average P/E multiple which is justified noting:
Upside from Biosimilars business in developed markets will come from FY20
onwards.
Current earnings are under pressure due to commencement of Malaysian
facility (capex of USD200m).
We believe that the following factors pose risks to our thesis:
Delay in approval of key product.
Slower off take of biologics business in EM.
3 December 2017
3

Biocon
Story in charts
Exhibit 4: Revenue growth to pick up in FY19 onwards
Sales (INR b)
17
-26
28
20
24
29
31
35
41
43
52
71
18
18
13
YoY growth (%)
18
22
5
36
Exhibit 5: Biopharma sales trend (In INR m)
7
Source: Company, MOSL
Source: Company, MOSL
Exhibit 6: EPS growth to pick up FY20 onwards
EPS
18.6
Exhibit 7: Return ratios trending lower with high capex
18.0
14.9
15.8
13.7 12.3
12.5
12.1
11.1 11.5
9.4
6.1
RoCE (%)
16.1
12.3
7.2
17.7
11.4
11.0
RoE (%)
17.9
10.2
6.1
5.6
5.5
6.9
6.7
7.7
6.1
10.1
16.4
10.7
Source: Company, MOSL
Source: Company, MOSL
Exhibit 8: R&D Expenses (annual trend)
R&D Expenses (INR m)
As a % of sales
Exhibit 9: EBITDA margin trend
EBITDA (INR m)
7.6%
4.3%
8.0%
6.8%
4.6%
6.5%
6.5%
27.9
EBITDA Margin (%)
7.2% 7.2% 7.2%
21.2
23.4
20.0
23.2 21.7 22.8
21.8
24.5
28.0
6
5
5
7
7
8
11
9
13
20
Source: Company, MOSL
Source: Company, MOSL
3 December 2017
4

Biocon
Financials and Valuations
Income Statement (Consolidated)
Y/E March
Net Sales
Contract Research
Net Income
Change (%)
Total Expenditure
EBITDA
Change (%)
Margin (%)
Depreciation
EBIT
Int. & Finance Charges
Other Income - Rec.
PBT
Tax
Tax Rate (%)
Minority Interest
Adjusted PAT
PAT
Change (%)
Margin (%)
2014
21,390
7,137
28,527
17.5
21,902
6,625
36.5
23.2
2,036
4,589
17
805
5,377
1,069
19.9
170
4,137
4,137
-18.7
14.5
2015
22,367
8,225
30,592
7.2
23,940
6,652
0.4
21.7
2,210
4,442
89
1,888
6,241
957
15.3
310
4,023
4,974
20.2
16.3
2016
23,908
10,599
34,507
12.8
26,654
7,853
18.1
22.8
2,423
5,430
102
6,946
12,274
2,569
20.9
744
4,646
8,961
80.2
26.0
2017
29,407
11,380
40,787
18.2
29,421
11,366
44.7
27.9
2,772
8,594
260
0
8,334
1,616
19.4
760
5,958
5,958
-33.5
14.6
2018E
27,744
14,975
42,719
4.7
33,398
9,321
-18.0
21.8
5,072
4,250
236
2,000
6,014
1,443
24.0
912
3,659
3,659
-38.6
8.6
2019E
34,295
17,934
52,230
22.3
39,443
12,786
37.2
24.5
5,342
7,445
241
2,200
9,404
2,257
24.0
1094
6,053
6,053
65.4
11.6
(INR m)
2020E
49,949
21,162
71,112
36.2
51,170
19,942
56.0
28.0
5,562
14,380
246
2,300
16,435
3,944
24.0
1313
11,177
11,177
84.7
15.7
Consolidated Balance Sheet
Y/E March
Equity Share Capital
Other Reserves
Net Worth
Loans
Minority Interest
Deferred liabilities
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Investments
Intangibles
Curr. Assets
Inventory
Account Receivables
Cash and Bank Balance
Loans & Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
2014
1,000
29,258
30,267
8,497
823
6558
46,145
27,218
11,711
15,507
10,831
7,649
1,442
22,077
3,766
5,998
8,044
4,269
11,361
9,595
1,766
10,716
46,145
2015
1,000
31,697
32,706
10,306
1,722
5934
50,667
29,750
13,943
15,807
14,939
2,303
2,320
28,384
4,527
7,705
9,375
6,777
13,087
11,355
1,732
15,297
50,667
2016
1,000
39,329
40,338
24,673
2,658
3489
71,158
33,113
16,302
16,811
20,597
9,015
2,470
34,973
5,424
7,145
15,386
7,018
12,708
12,334
374
22,265
71,158
2017
3,000
45,368
48,377
22,054
3,761
1964
76,156
53,269
17,740
35,529
5,327
12,538
3,787
34,786
6,353
8,832
10,443
9,158
15,811
15,343
468
18,975
76,156
2018E
3,000
47,957
50,966
23,054
4,673
624
79,317
61,269
22,812
38,457
5,327
10,533
4,166
36,282
6,437
9,363
11,704
8,778
15,449
12,874
2,575
20,833
79,317
2019E
3,000
52,239
55,248
24,054
5,767
-600
84,469
66,769
28,153
38,616
5,327
11,189
4,582
43,644
7,870
11,448
14,309
10,017
18,888
15,740
3,148
24,755
84,469
(INR m)
2020E
3,000
60,147
63,156
25,054
7,081
-1940
93,351
72,269
33,715
38,554
5,327
10,724
5,040
59,422
10,715
15,586
19,483
13,638
25,717
21,431
4,286
33,705
93,351
3 December 2017
5

Biocon
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Fixed Asset Turnover (x)
Debtor (Days)
Inventory (Days)
Working Capital (Days)
Leverage Ratio (x)
Current ratio
Debt/Equity
2014
6.9
10.3
50.4
1.7
28.3
64.8
43.4
8.9
7.3
31.3
0.4
13.7
10.7
18.5
1.9
77
48
34
1.9
0.3
2015
6.7
12.0
54.5
1.7
23.5
66.6
37.3
8.2
7.0
32.1
0.4
12.3
11.1
17.2
2.0
92
54
71
2.2
0.3
2016
7.7
19.0
67.2
1.7
13.4
57.7
23.5
6.6
6.2
27.4
0.4
11.5
16.1
17.1
2.1
76
57
73
2.8
0.6
2017
10.2
14.6
80.6
2.6
30.1
43.8
30.7
5.5
5.2
18.8
0.6
12.3
9.4
18.7
1.6
79
57
76
2.2
0.5
2018E
6.1
14.6
84.9
1.5
29.3
73.2
30.7
5.3
5.0
23.1
0.3
7.2
6.1
6.5
1.2
80
55
78
2.3
0.5
2019E
10.1
19.0
92.1
2.5
29.3
44.3
23.5
4.9
4.1
16.7
0.6
11.0
11.4
10.7
1.4
80
55
73
2.3
0.4
2020E
18.6
27.9
105.2
4.7
29.3
24.0
16.0
4.2
2.9
10.5
1.0
17.7
17.9
19.6
1.8
80
55
73
2.3
0.4
Consolidated Cash Flow Statement
Y/E March
Oper. Profit/(Loss) before Tax
Interest/Dividends Recd.
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Incr)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
CF from investments
Change in Net Worth
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2014
6,625
805
800
876
9,106
-11,031
-1,925
-1,935
-12,966
354
6,009
-17
-1,170
5,175
1,315
6,729
8,044
2015
6,652
937
-1,581
-3,251
2,758
-6,618
-3,861
4,468
-2,151
-414
2,397
-89
-1,170
724
1,331
8,044
9,375
2016
7,853
2,630
-5,014
-956
4,513
-9,085
-4,572
-6,862
-15,946
4,190
14,559
-102
-1,204
17,444
6,011
9,375
15,386
2017
11,366
0
-3,141
-1,653
6,572
-6,220
352
-4,840
-11,060
3,871
-2,276
-260
-1,790
-455
-4,943
15,386
10,443
2018E
9,321
2,000
-2,783
-597
7,941
-8,000
-59
1,626
-6,374
0
1,000
-236
-1,070
-306
1,261
10,443
11,704
2019E
12,786
2,200
-3,481
-1,317
10,188
-5,500
4,688
-1,072
-6,572
0
1,000
-241
-1,770
-1,011
2,605
11,704
14,309
(INR m)
2020E
19,942
2,300
-5,284
-3,776
13,181
-5,500
7,681
7
-5,493
0
1,000
-246
-3,269
-2,515
5,173
14,309
19,483
3 December 2017
6

Biocon
NOTES
3 December 2017
7

Disclosures:
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Biocon
Disclosure of Interest Statement
Analyst ownership of the stock
Biocon
No
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Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Hong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any
investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities,
products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research
Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is
not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States.
Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S.
persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional
investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and
interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S.
registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and
therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in
the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following
representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person
or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of
offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or
appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations
as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to
determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative
products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of
the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the
views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time
without any prior approval. MOSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities
mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities
functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already
available in publicly accessible media or developed through analysis of MOSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is
being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not
directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would
be contrary to law, regulation or which would subject MOSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to
certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or
representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The
person accessing this information specifically agrees to exempt MOSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSL or any of its affiliates or
employees responsible for any such misuse and further agrees to hold MOSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this
information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022-3980 4263; www.motilaloswal.com. Correspondence Address: Palm Spring
Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai- 400 064. Tel No: 022 3080 1000. Compliance Officer: Neeraj Agarwal, Email Id:
na@motilaloswal.com,
Contact No.:022-30801085.
Registration details of group entities.: MOSL: SEBI Registration: INZ000158836 (BSE/NSE/MSE); CDSL: IN-DP-16-2015; NSDL: IN-DP-NSDL-152-2000; Research Analyst: INH000000412. AMFI: ARN 17397. Investment Adviser:
INA000007100. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS
(Registration No.: INP000004409) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal
Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private
Equity products
3 December 2017
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