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Informist, Tuesday, Jul 30, 2024

By Apoorva Choubey 

MUMBAI – Stellar performance of Biocon Ltd's largest vertical of biologics will help the company post robust growth in earnings for the June quarter, even as the drugmaker's generic and research services divisions are seen as muted, analysts said. Biocon's consolidated net profit may surge over 68% from a year ago to 1.7 bln rupees for Apr-Jun, showed the average of estimates given by four brokerage houses. 

The profit after tax estimates for Biocon are in the wide range of 1.03 bln-2 bln rupees. The possible reason for this variance could be the difference in projections for revenue contribution for the company's biologics as well as the research services divisions, analysts said.  

Brokerage Nuvama Institutional Equities expects the company to have clocked a one-time gain of $150 mln during Apr-Jun as divestment income from a branded generics deal with Eris LifeSciences. In March, Biocon and Eris entered into an acquisition agreement for the former's branded insulin, critical care, and oncology portfolio in India. 

The Bengaluru-based company's consolidated net sales are expected to rise 14.6% on year to 39.21 bln rupees for the June quarter, the average estimates showed. The lowest topline estimate was 38.78 bln rupees, while the highest was 39.6 bln rupees.   

For the June quarter, the company's biologics arm, Biocon Biologics, is likely to report sales in the range of $279 mln-$290 mln, owing to market share gains across key products, such as trastuzumab and insulin glargine. The unit contributes nearly 60% to the company's total revenue. 

This strength in the biologics vertical will drive Biocon's profitability higher for the June quarter, according to brokerages. The company's core operating margin, defined on earnings before interest, taxes, depreciation and amortisation, may rise 140-400 basis points from 20.9% a year ago, they said. The expansion in margin would have been higher, if not for the weakness in generics and research services divisions as well as higher research and development expenses. 

The company's generic business is seen reporting single-digit growth in sales as a rise in volume of formulations will offset pricing pressures to an extent, said analysts. The generics division makes up 18% of the total sales pie. 

The third division, research services, which is housed under Syngene International Ltd, accounts for around 22% of the revenue. The unit has already reported a fall in earnings for the June quarter earlier this month. Syngene's consolidated net profit for Apr-Jun fell 19% on year to 757 mln rupees while consolidated revenue from operations declined 2.3% to 7.90 bln rupees. 

The steady growth in Syngene's biologics manufacturing and dedicated centres segments was not enough to offset the weakness in the company's overall discovery services vertical. A weak funding backdrop for US-based biotechnology companies has been hurting Syngene's discovery services segment for more than two years now, but the company has alluded to early signs of recovery in the subdued funding environment.

On a sequential basis, Biocon's sales for Apr-Jun are seen flat while net profit is likely to jump 25.9%. Shares of the company closed 0.7% lower today on the National Stock Exchange at 359.45 rupees.

When Biocon details its earnings on Aug 8, investors will monitor the company's comments on demand for various divisions, and its update on regulatory inspections and the commercialisation of products in China as well as launch of key biosimilars such as bevacizumab in the US. At the time of announcing Jan-Mar results, Biocon had said it expects overall revenue growth to pick up from Oct-Mar, led by the recovery in Syngene's business, new launches across portfolios and higher volume in biosimilars. The company believes 2024-25 will be a year of both consolidation and growth, with acceleration likely in the second half. 

The company's generics business is also seen faring better in Oct-Mar than Apr-Sep, with formulations likely to be a key growth driver during the year. The company has several new launches planned in various markets during the year. Some of the niche launches, such as glucagon-like peptides, are expected to fuel growth from 2025-26. 

Syngene has iterated recently that the company is on track to achieve its guidance range for the current financial year. Syngene had guided for revenue growth of high single digit to low double digits for 2024-25 (Apr-Mar), on hope of some recovery in demand from the US biotech industry in the second half of the year.

Following are the Apr-Jun earnings estimates for Biocon from four brokerage houses, in million rupees:

End

US$1 = 83.72 rupees

Edited by Deepshikha Bhardwaj

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