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Informist, Tuesday, Oct. 29, 2024

By Apoorva Choubey 

MUMBAI - Weakness in the research services unit and muted performance of the generics business are likely to weigh on the September quarter earnings of Biocon Ltd. However, the company's biologics arm, which houses the biosimilars portfolio, is expected to continue registering double-digit growth in sales, led by market share gains. 

The Bengaluru-based company's consolidated net profit may crash 60% on year to INR 499.8 million for Jul-Sept, the average of estimates from six brokerage houses showed. The lowest projection for the bottom line was brokerage Sharekhan's INR 250 million, while the highest was INR 1.2 billion, estimated by Nuvama Wealth Management. The wide range of estimates for Biocon's profit after tax is presumably a result of the difference in assumptions for the generics and research services businesses, which has led to varied outlooks for the company's profitability too. 
 

Biocon's consolidated net sales for the September quarter are expected to rise 6% on year to INR 36.6 billion, the estimates showed. The projections for the top-line ranged from INR 35.7 billion to INR 37.8 billion.  

During the quarter, the company's generic business is expected to have borne the brunt of erosion in drug prices in the US and other markets, as competition remains fierce, given recent patent expiries and subdued demand. Some analysts expect the generics division to clock single-digit sales growth in the quarter, while others forecast a similar single-digit fall in revenue. The generics division makes up 19% of the total sales pie. 

The research services division, 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 September quarter earlier this month, due to the lingering impact of subdued demand trends. 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. 

For Jul-Sept, Syngene's consolidated net profit fell 9% on year to INR 1.06 billion, while revenue fell 2% to INR 8.9 billion. The unit highlighted positive signs of recovery in discovery services segment, largely driven by collaborations on pilot projects with large and mid-sized biopharma clients looking for alternatives to China to rebalance their supply chains.

During the September quarter, Biocon's largest vertical, biologics, is seen supporting earnings. Several brokerages expect near 10% growth in biosimilars sales to $260 million, driven by market share gains across products, such as insulin glargine.

The unit contributes nearly 60% to the company's total revenue. Brokerage Motilal Oswal Financial Services expects biologics sales to grow 20% on year to INR 21.5 billion, led by new launches, market share gains of products, and expansion in newer regions.

Views on Biocon's operating margin for Jul-Sept are varied. Some, including Nuvama and Motilal Oswal, expect the operating margin to fall 30-160 basis points due to the weakness in the research services and generics division, coupled with a high base of last year.

Others, including Axis Securities and Kotak Institutional Equities, see Biocon improving EBITDA margin 24-80 bps on year due to the strength in the biologics vertical, which will lead to a better product mix. The company's core operating margin, defined on earnings before interest, taxes, depreciation and amortisation, was 21.4% a year ago.

On a quarter-on-quarter basis, the net profit is seen plunging over 92%, while net sales may rise around 7%. The company is scheduled to detail earnings after market hours on Wednesday. Tuesday, the drugmaker's shares ended 1% higher at INR 327 on the National Stock Exchange. 

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 Apr-Jun 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'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 Jul-Sept earnings estimates for Biocon from six brokerage houses: 

End

US$1 = INR 84.07

Edited by Vandana Hingorani

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