biocon ltd: initiating coverage
TRANSCRIPT
1
Edel Invest Research BUY
Biocon Ltd: Initiating Coverage
Riding a multi-year growth wave… CMP INR: 477 Target Price INR: 590
Biocon Ltd. is the largest biologics company in India and 4th largest insulin player in the world. The company has been able to develop and market some breakthrough products in the domestic as well as emerging markets. It is also one of the largest end-to-end research service providers in India having key relationships with various global players like Bristol Myers Squibb (BMS), Baxter and Abbott. The major growth driver for Biocon is expected to be its biosimilar product portfolio. It is working on eight biosimilar products under the exclusive arrangement with Mylan besides the rh-insulin, which the company is expecting to file in the US and EU once the Malaysian facility comes on stream. Apart from biosimilars, it is also working on its own set of novel products, which could open up out-licensing opportunities over a period of time, especially its ambitious Oral Insulin candidate - IN105. We believe that the impending opening up of the biosimilar market (especially in the US), around USD 71bn market of biologics going off-patent, and high entry barriers for new players places Biocon at the forefront to monetize the lucrative opportunity and support growth over the long run. Best placed to tap biosimilar opportunity The core biopharma business of the company includes all its businesses, except the research services business, where small molecules form more than 70% of the business. The growth in this business over the last 3 years has been on the back of traction in immunosuppresants/insulins and its branded formulation business in India. We expect the biosimilar business (insulin exports) to grow at a steady pace, before taking off by FY17E post regulatory approvals for the Malaysian facility. We believe that since growth in the statins business is likely to be muted owing to limited growth opportunity in a crowded market, growth in the core biopharma business would continue to be driven by branded formulations and immunosupprasants/insulins in the near term. Therefore, we expect the core biopharma business to grow at a CAGR of 13.3% over FY14-16E. Going forward, a strong pipeline of biosimilar product launches supported by the exclusive tie-up with Mylan coupled with the company’s initiatives to move up the value chain in the Small Molecules business by filing of ANDAs in the US gives us enough visibility on the company’s sustainable high growth in the future. Malaysian facility key to unlock insulin opportunity The Malaysian facility is an important strategic initiative for the company. Biocon is building it at the cost
of ~USD 200 mn in the first phase. The Malaysian facility is expected to be commissioned by the end of
FY15, but it will start contributing to the topline from FY17E onwards, as we believe that the regulatory
approvals from the relevant geographies would take at least 3-4 quarters to attain. Biocon has received a
good deal from the Malaysian Government with various tax breaks and incentives. The company plans to
file for all the insulin analogs with Mylan besides rh-insulin from this plant.
Research services a high value franchise
Biocon offers end-to-end contract research services to its strong base of ~150 clients spread across various
life science sectors through its subsidiaries - Syngene and Clinigene. The company has three multi-year
contracts, with dedicated R&D facilities and scientists exclusively assigned to them, giving us comfort on a
steady revenue flow going forward. We believe that research services would continue to remain a key
growth driver for the company, with eight products in late stage trials. Along with long-term contracts, the
contract research business provides enough visibility to sustain its historical growth rate of 20% plus.
Therefore, we expect research services business to grow at a CAGR of 20.9% over FY14-16E.
Valuations Biocon stock is currently trading at valuations of 16.2x its FY16E core earnings. We value Biocon at its
historical average of 20x one-year forward FY16E earnings of INR 29.5/share on account of expected
monetization of the biosimilar opportunity, strong balance sheet, steady cash flows and strong growth in
the domestic market. We would further like to highlight that major upside in earnings is expected to kick in
once the company gets regulatory clearances for the Malaysian facility by FY17E. We initiate coverage on
the stock with a “BUY” rating and a target price of INR 590/share.
Financials
Vrijesh Kasera +91-22-61412725 [email protected] Raksha Thadani +91-22-40883659 [email protected]
Bloomberg: BIOS:IN
52-week range (INR): 554 / 286
Share in issue (Crs): 20
M cap (INR crs): 10,465
Avg. Daily Vol. BSE/NSE :(‘000): 146
SHARE HOLDING PATTERN (%)
Date: 15th
July, 2014
Promoter60.97FII
13.54
DII6.04
Others19.45
80
100
120
140
160
180
200
Jan
-13
Feb
-13
Mar
-13
Ap
r-1
3M
ay-1
3Ju
n-1
3Ju
l-1
3A
ug-
13
Sep
-13
Oct
-13
No
v-1
3D
ec-
13
Jan
-14
Feb
-14
Mar
-14
Ap
r-1
4M
ay-1
4Ju
n-1
4
Biocon Sensex
2
Biocon Ltd.
Tapping the biosimilars opportunity Biosimilars, which are similar versions of biologic drugs, is a field of study which has seen a lot of interest from the innovators and generic players alike. According to IMS, ~USD71 bn worth of biologic drugs are expected to lose patent protection by 2020. Few biosimilars approvals in the regulated markets (Europe: 19 and US:none) and various countries’ focus on reducing healthcare costs makes biosimilars a virgin and very attractive space.
Chart 1: List of drugs going off–patent (Sales in USD bn)
Source: IMS, Edel Invest Research.
Biologics are complex structures produced from genetically engineered living cells. There is a high risk of losing the investments made, since even minor changes in the manufacturing process could adversely affect the desired results. Contrary to their chemical counterparts, these drugs have significant challenges for the developers:
Biosimilars require extensive non-clinical and clinical tests to prove similarities with the innovator product
Significant investment is required for the development of biosimilars; ~USD 40-300 mn versus ~USD 1-4 mn for generics
Time to develop a biosimilar product is around 8-10 years compared to 3-4 years for generics These factors create entry barriers for non-serious players and thus limit competition in this space.
Why Biocon stands to gain...
The biosimilar business of the company currently contributes a small portion of its overall revenues, with mainly rh-insulin being exported. Biocon plans to increase its geographical reach to further increase revenues from the biosimilar products. The company has a pipeline of nine biosimilar products under various stages of development, which has the potential to further increase revenue contribution from this segment.
EU Expiry date US Expiry date
2016 2016
Expired Expired
2015 2028 (extended)
2014 2014
2015 2015
2015 2018
2018 2016
2014 2019
2013 2016
2019 2017
Expiry date may vary country by country in the EU.
2015 2014
6.8
7.5
6.6
10.7
6.7
4.7
7.6
8.8
5.5
1.8
4.3
0.0 2.0 4.0 6.0 8.0 10.0 12.0
Avastin
Mabthera/Rituxan
Herceptin
Humira
Remicade
novorapid/novomix
Lantus
Enbrel
Avonex,Rebif
Lucentis
Neulasta
3
Biocon Ltd.
Table 1: Products under development
Product Patent Expiry
Opportunity Size:
2013 Sales in $mn Stage of development
Sr.No US EU
(a) Trastuzumab (Herceptin) 2019 2014 6.6 Phase III
(b) Bevacizumab (Avastin) 2017 2019 6.8 Pre-clinical
(c) Adalimumab (Humira) 2016 2018 10.7 Pre-clinical
(d) Pegfligrastim (Neulasta) 2014 2015 4.3 Pre-clinical
(e) Etanercept (Enbrel) 2028 2015 8.8 Pre-clinical
(f) Insulin glargine (Lantus) 2014 2014 7.6 Phase 1/II b
(g) Insulin Lispro (Humalog) Expired Expired 2.6 Pre-clinical
(h) Insulin Aspart (NovoRapid) 2015 2015 3.0 Pre-clinical
Source: Company, Edel Invest Research. How will Biocon get the reach…
Biocon has a strategic collaboration with Mylan to develop and manufacture eight biosimilars for various markets, with exclusive marketing rights for Mylan in developed markets and co-exclusive rights in other markets. These biosimilars are a mix of MABs (Monoclonal Antibodies)/recombinant proteins/GCSF and Insulin analogs, which together have a market opportunity of ~USD 50 bn globally. They are expected to go off-patent between 2014 and 2020.
Table 2: Snapshot of the deal with Mylan
Generic Insulin Analogs Biosimilar Mabs & other Biologics
Global Market Size ~US$ 13bn ~US$ 37bn
Portfolio Constituents Glargine, Lispro & Aspart Trastuzumab, Bevacizumab, Adalimumab, Ethernacept, Peg-filgrastim
Mylan's Exclusive Comemrcialization Regions
US, Canada, Europe, Australia & New Zealand
Developed markets
Upfront Received $20mn $18mn Source: Company, Edel Invest Research.
Biocon’s deal with Mylan is a win-win situation for both the players, as it gives the Indian company geographical reach and financial muscle to market its products in the developed markets besides sharing the development cost. As per Mylan, it plans to provide ~USD 50 mn or more annually to fund this collaboration. On the other hand, the deal gives Mylan the capability to make inroads into the lucrative biosimilars market.
4
Biocon Ltd.
Five of the eight products that are part of this deal are among the top ten selling drugs of 2013. These products include: a) Trastuzumab (Breast Cancer) Marketed as Herceptin by Roche globally, Trastuzumab is primarily used for two major indications, HER2 – Positive breast cancer and HER2 – Positive metastatic gastric cancer. The drug had annual sales of USD 6.6bn in 2013, and was among the top ten selling drugs globally. As per Decision Resources, HER2 positive disease cases account for <25% of the total breast cancer cases, yet it accounted for ~55% of the US$8.6 billion drug market for the disease in 2011, with majority of the sales dominated by Herceptin. The patent for this drug is expected to expire in the US in 2019 and the EU in 2014.
Source: Bloomberg, Edel Invest Research.
Biocon was the first company to get an approval for trastuzumab in India followed by Hospira/Celltrion in South Korea. It has already launched the drug in India by the brand name Canmab in a co-exclusive partnership with Mylan. Mylan has launched the same drug with the brand name Hertraz in the Indian market. The molecule is also in Phase III clinical trials for its global development program where it has already started recruitment. It is one of the most advanced MABs being worked upon under the Mylan deal. Globally, other than Biocon, there are at least five players who are in late stage of development of the biosimilar version of Herceptin.
Table 3: Competitive scenario
Biosimilars under development
Name Company Tie-up Stage of development
ABP 980 Amgen Watson(Actavis) & Synthon Phase III
CT-P6 Hospira Cellitrion Phase III
PF-05280014 Pfizer
Phase III
SB3 Samsung Bioepis Merck Phase III
BCD-022 Biocad
Phase III (Russia) Source: Edel Invest Research.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2005 2006 2007 2008 2009 2010 2011 2012 2013
Chart 2: Herceptin Sales
(USD
bn
)
5
Biocon Ltd.
b-e) Other MABs /Recombinant proteins/GCSF under Mylan tie-up Other than Trastuzumab, the company has a tie up with Mylan for four other molecules, the patent for which would be expiring in both US and EU before 2020. All these opportunities at Biocon are currently under pre-clinical stage of development and would take few years to develop. However, each of these molecules has the potential to generate substantial revenues due to limited competition, which would result in lower price erosion. All these drugs except Etanercept (a similar version of which is already available in China, Columbia and India) are still being tested by various biopharmaceutical companies across the globe.
Table 4: Competitive scenario
Biologic (Brand Name) Innovator Competitors (Stage of Development)
Bevacizumab (Avastin) Roche Pfizer (Phase I), Amgen/Actavis (Phase III), Boehringer Ingelheim (Phase I
completed), Hospira/Cellitrion (Process Development), Biocad (Phase III)
Adalimumab (Humira) Abbvie
Sandoz (Phase III), Pfizer (Phase I/II completed), Amgen/Actavis (Phase III),
Boehringer Ingelheim (Phase I completed), Samsung Bioepic/Merck (Phase I),
Hospira/Cellitrion (N/A)
Pegfligrastim (Neulasta) Amgen Sandoz (Phase III completed), Hospira/Novoquest (Phase I completed)
Etanercept Amgen
Sandoz (Phase III), Hospira/Cellitrion (N/A), Hanwha Chemical (Phase III
complete in South Korea), Coherus Biosciences/Daichii Sankyo (Phase III- yet to
begin recruitment), Samsung Bioepis (Phase III), LG Life Sciences ( Phase I
completed- South Korea), Daewoong Pharmaceuticals (N/A), Mycenax Biotech
(Phase III- South Korea),Bioxpress therapeutics (N/A)
Source: Edel Invest Research.
f) Glargine (Long Acting Insulin) Glargine, marketed as Lantus by Sanofi globally, is an Insulin analog marketed as a long acting insulin for patients with either Type I or Type II diabetes. This drug is considered to be much more effective than the basic human Insulin. The drug had annual sales of ~USD 8.0bn in 2013, and is among the top ten selling drugs globally. The patent for this drug is expected to expire in the US and EU in 2014.
Source: Bloomberg, Edel Invest Research.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Chart 3: Lantus Sales
(USD
bn
) Lantus44%
Others56%
Chart 4: Lantus 44% of ~USD 17bn Insulin Analogs
6
Biocon Ltd.
Besides Sanofi, Biocon and Wockhardt are the only players in India to market glargine. Biocon markets the drug under the brand name Basalog. The company already has approvals from 10 emerging markets for the marketing of the product. The company has already completed Phase I/II clinical trials for its global development program, and is expected to start recruitment for Phase III soon. Among the insulin analogs being worked upon under the Mylan deal, Glargine is in the most advanced stage of development. Globally, other than Biocon, there are at least two other players who are in the late stage development of the biosimilar version of Lantus.
Table 5: Competitive scenario
Name Company Tie-up Stage of development
LY2963016 Eli Lilly Boehringer Ingelheim NDA(US) & Received positive opinion from CHMP
MK-1293 Merck Samsung Bioepis Phase III Source: Edel Invest Research.
g-h) Other Analogs under the tie-up Other than Glargine, the company has two other analogs in tie-up with Mylan. The patent for these two drugs would be expiring in both US and EU before 2015. Both these opportunities are currently under pre-clinical stage of development at Biocon, and would take few years to develop. But each has the potential to generate substantial revenue contribution given the limited competition, thus resulting in lower price erosion. All these drugs are still being tested by various biopharmaceutical companies across the globe.
Table 6: Competitive Scenario
Biologic (Brand Name) Innovator Competitors (Stage of Development)
Insulin Lispro (Humalog) Eli Lilly Sanofi (Phase I)
Insulin Aspart (NovoRapid) NovoRapid Sanofi (Phase I)
Source: Edel Invest Research.
It doesn’t stop here...
Aside from the eight biosimilar products under the Mylan deal, the company has the recombinant human insulin (rh-insulin) in its portfolio. Biocon markets this product in the Indian market since 2004 by the brand name Insugen. The company has got this product registered for launch in 55 other countries. However, due to capacity constraints it is currently marketing the product only in ~20 countries. The company has been able to increase penetration substantially and has taken market share from other players mainly on the back of the high quality of the product at a very competitive price in the emerging markets (EM’s).
7
Biocon Ltd.
rh-Insulin Volume market Share (in select EM’s): Evolution
Source: Company, Edel Invest Research.
Though the consensus opinion is that the rh-insulin as a percentage of market is losing ground to the modern insulins, it is interesting to note that the size of the drug in absolute terms has remained stable and continues to be a sizable opportunity for Biocon.
Source: Edel Invest Research.
In the EU, Biocon has already completed phase III trials for the biosimilar rh-insulin, though the company has guided that it would has delayed the process of filing the drug with regulator until the Malaysian facility comes on stream.
Innovators, 86%
Biocon, 4%
Others, 9%
Chart 5: Mar-09
Innovators,84%
Biocon,11%
Others, 6%
Chart 6: Mar-13
2.8
3.0
3.2
3.4
3.6
3.8
2009 2010 2011 2012 2013
Chart 7: Size of Rh-insulin in the global insulin market
(USD
bn
)
8
Biocon Ltd.
Malaysia key to insulin opportunity
The Malaysian facility is an important strategic initiative that the company is building at the cost of ~USD 200 mn in the first phase; it is Asia’s largest integrated Insulin manufacturing facility. The facility is expected to be commissioned by the end of FY15, but it will start contributing to company’s topline from FY17E onwards, as the regulatory approvals from the relevant geographies would take at least 3-4 quarters to attain. The company plans to file for all the insulin analogs with Mylan besides the rh-insulin from this plant. Though the Malaysian facility would put pressure on Biocon’s profitability in the initial years on the back of increased overheads, the company has enough tax incentives from the Malaysian government to mitigate the hit on the bottomline.
10-year tax holiday
Grant for training Malaysian employees
Research & Development grants
All of these would help the company to improve its profitability going forward.
There are some uncertainties though...
Biosimilars regulations still evolving Considering the complexity and differentiation in the structure of a Biosimilar product, the pathway to getting regulatory approval for the same is also different. The regulations for biosimilars are still evolving across various markets. In the US, which is the largest market for biologics, the guidelines are still being framed, whereas in the EU and other global markets the final guidelines are in place but are still evolving. Lack of clarity on regulatory guidelines is the primary reason for low penetration (less than 2% or USD 2.48 bn) of biosimilars and non-original biologics (NOBs) in the total biopharmaceutical market. Once the guidelines are in place, especially in the US market, we may see higher penetration of 4% to 10% going forward.
Chart 8: Global penetration of biosimilars
$250bn
$11-25bn
$106bn
$0.58bn
$169bn
$2.48bn
2007 2012 2020
Total Biologic Market
Growth Evolution
% Share of Biologic spend
Biologic (all others)
NOBs/Biosimilars
NOBs 0.5%
Biosimilars 0.0%
1.0%
0.4%4-10%
Biologic (all others) +9% +4 to +5%
NOBs/Biosimilars +34% +21 to +34%
CAGR 2007-12 CAGR 2012-20
Source: IMS health, MIDAS, MAT Dec 2012. IMS analysis & estimates. NOBs are recombinant and synthesized only.
9
Biocon Ltd.
US key to higher biosimilar penetration
The US is the largest biologics market in the world with ~50% share of the USD 169 bn
market. Yet, it is far behind in terms of framing up regulations for approvals of biosimilars.
Things have started moving gradually though, with the signing of the Patient Protection &
Affordable Care Act (PPACA) by President Barack Obama in 2010 and amendment of section
351, which led to the inclusion of section 351(k) (which defines regulatory pathway for
biosimilar approvals). Since then, the USFDA has issued certain draft guidelines for
biosimilars, but these guidelines have been modeled on the European regulations. Some of
the major features are:
Comparability
The guidelines require following a “totality of evidence” approach to establish similarity in
quality, safety and efficacy for a biosimilar versus the reference product with the help of
analytical, non-clinical and clinical studies. The approach and scope of the studies required
to prove the same would however vary from case to case.
Extrapolation of indication
The USFDA has proposed that a biosimilar applicant may use clinical data of one condition
for support to obtain approvals in other conditions for which the reference product is
indicated; this is again in line with the guidelines of EMA.
Interchangeability
The USFDA has been vague regarding the safety and quality considerations for
interchangeability. Currently, no country allows for automatic substitution of biologics with
biosimilars.
Nomenclature
The USFDA has not yet specifically outlined whether the biosimilar needs to be sold by the
generic name or whether it would have to be branded separately. On the other hand, the
EMA requires a biosimilar to be marketed as a different brand.
The silver lining...
As far as insulins are concerned, biosimilar developers may not have to use the abbreviated
biosimilars pathway 351(k) to file for the approval of such products. The reference products
for all the products that Biocon has been working on were all approved by the USFDA as
NDA’s. Thus, the company could file for a 505(b)(2) to get approval for these products, as
was seen in the recent Eli Lilly filing for Glargine.
Product Classification as per draft Guidelines
Not SimilarNeed Modification in the
manufacturing process before
further development
SimilarAdditional data/studies required to determine if
differences are within acceptable range
Highly SimilarMeets statutory standard for
analytical similarity
Highly Similar with fingerprint like Similarity
Meets gold standard of similarities which results in a very high level of confidence
in the analytical similarity
10
Biocon Ltd.
We believe that since most of the Biocon products (except rh-insulin) are under pre-
clinical/clinical trials, it would take at least three years for the company to get few of its late-
stage products in the market. We thus believe that the major traction in the company’s
biosimilar business would come once the regulatory approvals for the Malaysian facility are in
place. We have factored in a CAGR of only 11.1% over FY14-16E in the biosimilar business
considering capacity constraints in the insulin facility at Bangalore. Going forward, the
commencement of production in the Malaysian facility would help Biocon improve its growth
visibility substantially.
Domestic business to continue strong growth momentum
Biocon made a foray into the Indian branded formulations segment in 2004 with Insugen. Over
the years, the company has expanded its product bouquet to 80 products - covering seven
therapeutic segments. Diabetology, Oncology and Nephrology are the key therapeutic segments,
contributing most of the growth. Biocon has been one of the fastest growing companies in the
domestic market, with some innovative biologic drugs giving it an extra edge. It is the only
branded formulations company to derive more than 50% of its revenues from biologics.
The company has always been focusing on affordable innovation, and has been able to deliver
some critical therapies at a discount of as high as 50% to the existing products.
Biocon has delivered many firsts in the Indian branded market, like Streptokinase which is the
only ‘methionine free’ brand in India, and Nufil & Erypro, which were launched as a safety device
in the form of pre-filled syringes for the first time in India. The company has been able to create
brands like Insugen & Basalog, which are India’s largest selling generic insulins and analogs. Its
flagship brands like BioMab EGFR (oncology), Evertor(oncology), Picon (auto-immune) and
Calpsor C (auto-immune) have a market share of 50%, 46%, 33% and 34%, respectively.
On the back of its sustained focus on diabetology and affordable innovation, Biocon has become
the fastest growing Insulin company in India; it boasts of a growth rate of 41% compared to 19%
for Sanofi and 20% for Novo Nordisk. Even though last year the company faced some industry-
related problems, it was still able to deliver a growth rate higher than the Industry.
Chart 9: Biocon branded formulations growth vs. IPM FY14
Source: Company, Edel Invest Research.
Of late, Biocon has started to focus on consolidating its therapeutic segments on the basis of
related therapeutic class. This would help reduce the fieldforce strength from the present ~1400
medical representatives, improve productivity and cut costs.
9
46 7 6
17
9
1512 13
0
5
10
15
20
Q1FY14 Q2FY14 Q3FY14 Q4FY14 Year ended FY14IPM Biocon
(%)
11
Biocon Ltd.
The company is expected to get back to its earlier high growth trajectory going forward on the
back of stability in the domestic pharma market, launch of new products like disposable pens,
low cost re-usable pens among others and the growing incidence of diabetes & cancer in India.
We thus factor in a CAGR of 25% over FY14-16E in the domestic branded business.
Moving into value added products
Small molecules is currently the largest segment for Biocon, accounting for ~50% of the
company’s revenues. It comprises mainly API’s for statins and immunosuppressants, besides
certain specialty API’s such as Fidaxomicn and Orlistat.
Reduced focus on statins
Statins had been a key growth driver for Biocon, as it benefited largely with the patent expiry of
fermentation-based statins such as Lovastatin, simvastatin and Pravastatin. However, with the
patent expiry of Atorvastatin, which is a chemically synthesized statin, Biocon sales growth from
this segment has reduced substantially. Therefore, the company has been gradually reducing its
focus on this segment. We haven’t factored in any growth from this segment going forward.
Immunosuppressant and specialty API’s to drive near term growth
Immunosuppressants have been like an annuity business for Biocon, as it is a niche therapy area
involving a complex manufacturing process and requiring dedicated facilities, thus limiting
competition. With a portfolio of seven products, including Mycophenolate Mofetil, Sirolimus and
Tacrolimus, the company has supply arrangements with manufacturers in the key markets of US
and EU, enabling them to grow at a steady pace and gain a good market share. Going forward,
we see increased traction coming in from immunosuppressants especially Sirolimus and
Everolimus, as Biocon’s clients gain approvals in the regulated markets for these products.
Forward integration by leveraging current API portfolio to unlock further value
Biocon is moving up the value chain and has identified a portfolio of 15-20 products, ANDA filing
for which are expected to begin in FY15. The company has indicated that the focus would be on
vertically integrated products that would complement its core therapeutic strength of Oncology,
Diabetology, Cardiology, Dermatology and auto-immune diseases.
With filings expected to begin only in FY15, revenue flows are not expected until FY17-18 due to
a 2-3 year USFDA approval timelines. However, this will be a key driver for long-term growth of
this segment.
12
Biocon Ltd.
Research services a high value franchise Biocon offers end-to-end research services through its subsidiaries Syngene and Clinigene to its strong base of ~150 clients spread across various lifescience segments. The company has made a conscious effort to evolve this business from a “fee for service” based model to providing integrated and value-added services, leading to improvement in its margins.
Integrated Discovery & Development Platforms – Syngene & Clinigene
Source: Company, Edel Invest Research.
Biocon caters to 16 of the top 20 pharmaceutical companies. The company has three multi-year contracts, with dedicated R&D facilities and scientists exclusively assigned to them, giving us comfort on a steady revenue flow going forward.
Bristol Myers Squibb has been in collaboration with Syngene since 2007. It has a dedicated research facility at Biocon Bristol-Myers Squibb Research Center (BBRC) in Bangalore. Till date, they have identified six drug candidates for further study. With a team of over 400 scientists working exclusively on this partnership, BMS is one of the biggest clients for Syngene. In June 2014, this contract was further extended for 5 years, indicating Biocon’s strength in custom research services.
Abbott set up a dedicated Nutrition R&D Centre in 2012. It is a 13000 sq ft facility with over 50 research scientists working on the development of nutrition products for maternal & child nutrition and diabetes care for the Indian consumers.
In February 2014, Baxter International entered into a partnership to set up The Baxter Global Research Centre (BGRC). The centre will focus on R&D activities centered on product and analytical development, besides pre-clinical evaluation in parenteral nutrition and renal therapy, with a team of over 100 Syngene scientists.
Integrated Discovery & Development Platforms – Syngene & Clinigene
Target Identification
Target Validation
LeadGeneration
LeadOptimization
LeadSelection
Preclinical Clinical
Animal Safety
Ph I PH II PH III
API & Drug Product Development
Drug Filling with US FDA and
other Global Regulatory Authorities
Product Launch
Manufacture
Marketing/Phase IV
Discovery Development Commercialization
13
Biocon Ltd.
In addition, Syngene currently has eight molecules under late stage development, five of which
are under Phase III, which can potentially lead to supply contracts from the innovator on
commercialization. Syngene has enough capacity to manufacture initial batches, but would
require capex in order to meet the future requirements. No such plans have been firmed up as
yet.
The strength and quality of Biocon’s research capabilities were validated when GE Capital
invested INR 125 cr for a 7.69% stake in Syngene, valuing the company at ~INR 1625 cr. The
company has guided for a listing of Syngene by the end of FY15, though we are yet to get clarity
on how these funds would be deployed.
We believe research services would continue to remain a key growth driver for the company,
with eight products in late stage trials. Also, with three important long-term contracts, the
business provides enough visibility to sustain its historical growth rate of 20% plus. We thus
expect research services business to grow at a CAGR of 20.9% over FY14-16E.
Novel pipeline provides for out-licensing option
Biocon is working on an exciting pipeline of ~5 novel molecules, which are currently under
various stage of development. The company has already launched Itolizumab in India, while its
ambitious product “oral insulin” is in an advanced stage of development. We expect this segment
to surprise in the long run in case Biocon is able to strike an out-licensing deal for any of these
products.
IN-105 IN-105 (Oral Insulin) is the one of the most talked about projects for Biocon. The company
started the project with a tie-up with Nobex, North Carolina, in 2004. Later, since Nobex went
bankrupt, Biocon bought out the IP for oral insulin from them.
The drug progressed well till the phase III trials in India, but failed to clear the primary endpoint,
where the change in Hb1Ac (Hemoglobin A1c test) was not statistically significant due to higher
than anticipated placebo effect. Hb1Ac is an important blood test used to determine how well
your diabetes is being controlled. However, the drug passed all the secondary endpoints, which
indicated that it works in terms of reduction of glucose levels. This then led Biocon to believe
that the failure was not on account of a faulty drug design but probably on account of some
other external factors (like inappropriate trial subjects).
The company found a partner in BMS (Bristol Myers Squibb), which entered into an option
agreement with Biocon, where BMS would provide financial and development assistance to
establish efficacy through a number of Phase I & II studies. On completion of the studies, BMS
would have an exclusive option to develop and commercialize the asset worldwide (excluding
India). Biocon will receive licensing fee in addition to potential regulatory and commercialization
milestones if BMS exercises its option. The company expects the read-outs for the first set
studies in the US to be available by the end of FY15.
14
Biocon Ltd.
Table 7: Competitive Scenario
Name Company Stage of Developement
Remarks
ORMD-0801 Oramed Phase II a completed
US FDA- Completed Phase II(a) in Nov 2013 for type 2 diabetes mellitus patients, expected to initiate Phase II(b) trials by Q4 FY14. Phase 2(a) for Type 1 diabetes mellitus patients has been initiated in March 2014. Has also completed Phase 1 and 2 trials in Isreal and South Africa for T1 & T2 patients.
Capsulin Diabetology Phase II a completed Diabetology signed a license agreement with USV to develop and commercialize oral insulin for the Indian Market.
OI338GT/NN1953
NovoNordisk/Merrion Phase 1 completed Oral basal insulin analogue intended as a tablet treatment. Phase II (a) to commence in H1 2015
Oshadi ICP Oshadi Pharmaceutials Phase 1 completed Phase I trials competed in Isreal (for T1).Currently recruiting for Phase 2.
TBL1002OI Transgene Biotek Pre-clinical Pre clinical results announed in 2012
Nodlin Nod pharmaeuticals Phase I Currently undegoing Phase I in China
Source: Edel Invest Research.
We would like to highlight that BMS’s entry into Biocon’s oral insulin program is a big positive.
But the company seems to be lagging in the race to launch the first oral insulin in the world on
account of the failure of its phase III studies. It may yet be the first to launch oral insulin
considering the uncertain nature of the novel pipeline results.
Alzumab (Itolizumab) It is the second novel biologic developed by Biocon after Nimotuzumab (Biomab EGFR). The drug
was launched in India for the treatment of Psoriasis. According to Biocon, nearly 2-3% of the
world population suffers from psoriasis.
Biocon partnered with The Center of Molecular Immunology (CIM), Havana in 2004 for the
development of Itolizumab.
Itolizumab is a MAB that selectively targets CD6, an antigen found to play a significant role in T-
cell stimulation, triggering an autoimmune response. This is the first anti-CD6 monoclonal
antibody in the world to be commercialised. Currently, the area of T-cell co-stimulation is a
hotbed of clinical research activity worldwide with applications ranging from melanoma, multiple
sclerosis (MS) and rheumatoid arthritis (RA).
Biocon is currently working on other indications for the product like rheumatoid arthritis and
multiple sclerosis. The company has already completed a Phase II trial in rheumatoid arthritis. It
is currently under active discussion to outlicense this drug to a global player, which could help
the company to monetize this asset effectively.
15
Biocon Ltd.
Biocon Ltd. is the largest biologics company in India, with major focus on insulins and MAbs.
Approximately 65% of its domestic branded formulations business comes from Diabetelogy,
Oncology & Nephrology. With the ever expanding cases of diabeties and cancer globally, the
company has huge potential to grow its business on a sustainable basis over a long period of
time.
The biosimilar space is currently a virgin space. It is estimated that ~USD 72 bn of biologic drugs
are scheduled to go off-patent by 2020, which opens up a big opportunity for biosimilar
producers like Biocon. The company’s tie-up with Mylan is a step in the right direction and would
help them to tap this opportunity effectively. With biosimilars expected to invite few competitors
it would result in a steady cash flow for Biocon at a high margin.
Biocon had reported earnings growth of 13.1% over FY07-14 in its core business, with steady
margins at ~25%. Going forward, we expect the company to grow at a CAGR of 14.3% over FY14-
16E due to the continued thrust on the research services, domestic market and improved
product mix with reduction in the Small Molecules segment. The expected commissioning of
Malaysian facility by the end of FY15 and regulatory approvals from emerging markets in the
next 9-12 months post commissioning and developed markets by FY17E could open up significant
opportunities in biosimilar insulins.
Biocon’s stock is currently trading at valuations of 16.2x its FY16E core earnings. We value the
company at it historical average of 20x one-year forward FY16E earnings of INR 29.5/share on
account of expected monetization of the biosimilar opportunity, steady cash flows and
respectable growth in the domestic market. . We would further like to highlight that major upside
in earnings is expected to kick in once the company gets regulatory clearances for the Malaysian
facility by FY17E. We initiate coverage on the stock with a “BUY” rating and a target price of INR
590/share.
Chart 10: 1 Yr. Forward PE Chart 11: 1 Yr. Forward EV/EBITDA
Source: Edel Invest Research.
10
15
20
25
3/4
/20
061
2/5
/200
61
9/0
6/2
006
24
/07
/20
063
0/0
8/2
006
6/1
0/2
006
14
/11
/20
062
0/1
2/2
006
31
/01
/20
079
/3/2
007
18
/04
/20
072
8/0
5/2
007
3/7
/20
078
/8/2
007
14
/09
/20
072
3/1
0/2
007
28
/11
/20
077
/1/2
008
12
/2/2
008
24
/03
/20
082
/5/2
008
10
/6/2
008
16
/07
/20
082
2/0
8/2
008
30
/09
/20
081
0/1
1/2
008
19
/12
/20
082
9/0
1/2
009
9/3
/20
092
2/0
4/2
009
1/6
/20
097
/7/2
009
12
/8/2
009
17
/09
/20
092
9/1
0/2
009
7/1
2/2
009
15
/01
/20
102
3/0
2/2
010
5/4
/20
101
2/5
/201
01
7/0
6/2
010
23
/07
/20
103
0/0
8/2
010
6/1
0/2
010
11
/11
/20
102
1/1
2/2
010
27
/01
/20
117
/3/2
011
13
/04
/20
112
3/0
5/2
011
28
/06
/20
113
/8/2
011
13
/09
/20
112
0/1
0/2
011
30
/11
/20
116
/1/2
012
13
/02
/20
122
1/0
3/2
012
28
/04
/20
125
/6/2
012
11
/7/2
012
17
/08
/20
122
5/0
9/2
012
2/1
1/2
012
12
/12
/20
121
8/0
1/2
013
25
/02
/20
134
/4/2
013
14
/05
/20
131
9/0
6/2
013
25
/07
/20
133
/9/2
013
11
/10
/20
132
0/1
1/2
013
27
/12
/20
133
/2/2
014
12
/3/2
014
22
/04
/20
143
0/0
5/2
014
0
100
200
300
400
500
600
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
-
100.00
200.00
300.00
400.00
500.00
600.00
700.00
4
8
12
16
20
06
0
100
200
300
400
500
600
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
-
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
Valuation
16
Biocon Ltd.
Delay in commissioning/regulatory clearance for Malaysian facility
Much of Biocon’s future growth is expected to be driven by the commericalization of the the
Malaysian facility and regulatory approvals for the same, as currently in the insulin business it is
facing capacity constraints. So, any delay in getting the facility on-stream would impact future
growth estimates.
Failure of clinical trials
Like in novel products, the biosimilars also need to go through clinical studies, and any failure on
that front would lead to change in estimates.
Increased competition
Insulins and MAbs that are currently under development as per the Mylan contract are also being
developed by many other players. Considering that biosimilars products are currently not
interchangeable, it is in the best interest of the players to be one of the first to tap the market.
Currency risk
Approximately 67% of revenues for the company are from the export markets, and this
contribution is expected to rise further. Any adverse movements in currency could impact our
earnings estimates.
Regulatory risks/delays
Given the various changes in the domestic pharma industry price regulations, any restriction on
prices for Biocon’s products would lead to a change in our estimates.
Immunosuppressants/Insulins are assumed to be biocon’s driver for growth in its small molecule
business driven by regulatory approvals of its products, any delay in approval would impact our
estimates.
Investment
Risk
17
Biocon Ltd.
Established in 1978 by Kiran Mazumdar Shaw, Biocon Ltd. started out as a manufacturer of
industrial enzymes using fermentation based technology. In 1995, the company made a foray
into biopharmaceuticals by leveraging its fermentation capabilities to produce statins and
immunosuppresants. Today, Biocon is a fully integrated biopharmaceutical company with in-
house research services through its two fully-owned subsidiaries, Syngene and Clinigene.
The company operates through five business verticals, covering everything from small molecules
API’s and biosimilars to novel biologics. Biocon is a leader in the insulins space, where it is the
fourth largest insulin manufacturer in the world and contributes ~10% to its total sales. In the
emerging markets, Biocon commands ~12% market share (in select EM’s) in the insulin segment,
led by recombinant human insulin. Small molecules account for 50% of the company’s revenues
and comprise API’s for statins, immunosuppressant as well as specialty API’s. The company is also
present in the domestic branded formulations market, where it is the largest domestic branded
biologics company. The future growth driver would be its biosimilars division, which includes the
portfolio of insulins that the company is currently exporting to emerging markets and also future
revenues from exports of MAbs & insulins as part of the tie-up with Mylan.
The company has always focused on providing affordable innovation. It has launched various
novel molecules over the years at competitive prices, including Canmab, the world’s most
affordable trastuzumab for treatment of breast cancer and Alzumab, the world’s first anti CD6
Mab commercialized for psoriasis.
Biocon provides end-to-end research services through its subsidiaries Syngene and Clinigene. The
company has a distinction of working with 16 of the top 20 global pharmaceutical companies as
their clients.
Biocon operates through two manufacturing sites in Bangalore which have approvals from
various regulatory authorities, including USFDA and EDQM. Additionally, the company is in the
process of setting up an insulin manufacturing facility in Malaysia, which is expected to be Asia’s
largest integrated insulins plant.
Business Model
Biocon
Core Biopharma75%
Small Molecules55%
Branded Formulations
14%
Biosimilars5%
Licensing Income
1%
Research Services25%
Company
Overview
18
Biocon Ltd.
Table 8: Management Profile
Name Designation Description
Mrs Kiran Mazumdar
Shaw Chairperson & Managing
Director
First generation entrepreneur with more than 38 years’ experience in
biotechnology and industrial enzymes. She is a Master Brewer from
Ballarat University, Australia and has been awarded the Padma
Bhushan for her pioneering efforts in Biotechnology in 2005.
Dr. Arun Chandavarkar Chief Executive Officer and
Joint Managing Director
Dr Chandavarkar is a core member of Biocon’s leadership team as CEO
and Joint MD. He has played a pivotal role in the evolution of Biocon
over the last 24 years. His qualifications include B.Tech from IIT
Bombay and PhD from MIT, Cambridge, USA.
Mr Murali Krishnan President, Group Finance
He completed his Bachelor’s degree in Commerce from Bangalore
University with a top rank in 1975. He began his career with Biocon in
1981 and has over 22 years of experience in planning, finance, cost
accounting, MIS and tax related issues.
19
Biocon Ltd.
Growth to be driven by Research Services
Biocon revenues have grown at a CAGR of 16.5% over FY07-FY14 mainly on account of steady
growth in the Research Services buiness (up at a CAGR of 23.5% over the same period). We
expect that going forward the Research Services business would grow at CAGR of 20.9% over
FY14-16E. The growth in the Biosimilars business is expected to be more back-ended, as it is
majorly contingent upon getting the Malaysian facility on stream and securing the regulatory
clearances, which we believe would not happen before FY17E.
Chart 13: Revenue Mix
Source: Edel Invest Research.
Malaysian facility to put pressure on margins in short term
Biocon EBITDA margins post the divestment of Axicorp have remained stable at ~25%, but we
believe that in FY15 it would be sustained at the same level. Going forward, with the Malaysian
facility coming on-stream there would be an increase in overheads as the company would not be
generating any revenues until all the regulatory approvals are in place. Though over a longer
run, the margins are expected to move up considering the fact that the contribution of high-
margin biosimilars is expected to rise.
Chart 14: EBITDA & EBITDA Margin
Source: Company, Edel Invest Research.
57% 54% 54% 52% 50%
6% 1% 1% 0% 0%
20%22% 25% 26% 27%
9% 12% 14% 17% 21%
5% 5% 5% 5% 5%
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015E 2016E
Small Molecules Licensing Income Research Services
Branded Formulations Biosimilars
20.0
21.0
22.0
23.0
24.0
25.0
26.0
27.0
0
200
400
600
800
1000
1200
2012 2013 2014 2015E 2016E
EBITDA EBITDA Margins
Financial
Analysis
20
Biocon Ltd.
Expect steady growth in profit
Biocon grew its profits by 13% over FY07-FY14, lower than the revenue growth, mainly on the
back of higher investments made on R&D. With R&D expenses expected to remain in the range
of 8-10% as a percentage of sales we believe that growth in the bottomline would also be steady
for the initial 2-3 years before expanding substantially post FY17E.
Chart 15: Adj. PAT & PAT margins
Source: Company, Edel Invest Research.
Continue to remain FCF positive
Over the last five years, Biocon has invested ~INR 2200 cr in creating capacities for research
besides investments in the Malaysian facility. The company has been able to fund much of this
expediture from its internal accruals, as it generated operating cash flow of ~INR 2850 cr over the
same period. Going forward, we believe that Biocon would generate enough cash flows to fund
its capex requirement since much of its R&D is funded by the Mylan deal and retained income
from the Pfizer deal.
Chart 16: Operating cash flows & Capex Chart 17: Debt to Equity
Source: Company, Edel Invest Research.
10.0
12.0
14.0
16.0
18.0
100
200
300
400
500
600
700
2012 2013 2014 2015E 2016E
PAT PAT Margins
-
200
400
600
800
1,000
1,200
20
12
20
13
20
14
20
15
E
20
16
E
-
0.1
0.1
0.2
0.2
0.3
0.3
20
12
20
13
20
14
20
15
E
20
16
E
Financial
Analysis
21
Biocon Ltd.
Return ratios expected to sustain
We expect Biocon’s RoCE to remain at the current range of 16-17%. The monetization of the
biosimilar opportunities and utilization of its investment in Malaysia would help the company to
improve its return ratios to much above 20%.
Chart 18: RoCE & RoE
Source: Company, Edel Invest Research.
10.0
14.0
18.0
22.0
2012 2013 2014 2015E 2016E
ROCE ROE
22
Biocon Ltd.
Income Statement (INR Cr)Year to March FY12 FY13 FY14 FY15E FY16E
Net revenue 2,087 2,485 2,877 3,304 3,816
Materials costs 852 1,045 1,186 1,348 1,542
Gross profit 1,235 1,441 1,691 1,955 2,274
Employee costs 279 353 421 462 534
R & D Expenses 146 171 131 248 286
SG & A Expenses 293 347 414 413 501
EBITDA 517 570 725 832 953
Depreciation & Amortization 174 179 204 208 263
EBIT 343 391 521 625 690
Other income 47 53 56 61 69
EBIT incl. other income 389 443 577 686 759
Interest expenses 12 8 2 24 21
Exceptional Items (15) 27 38 - -
Profit before tax 377 435 576 661 738
Provision for tax 54 98 107 132 148
Net profit 323 338 469 529 590
Adj. Net Profit 323 334 452 529 590
Basic shares outstanding (crs) 20.00 20.00 20.00 20.00 20.00
EPS (Rs.) 16.2 16.9 23.4 26.5 29.5
Dividend per share (Rs.) 5.8 8.8 5.9 5.9 5.9
Dividend payout (%) 36.0% 51.9% 25.0% 22.1% 19.8%
Common Size
Year to March FY12 FY13 FY14 FY15E FY16E
Materials costs 40.8% 42.0% 41.2% 40.8% 40.4%
Employee expenses 13.4% 14.2% 14.6% 14.0% 14.0%
Manufacturing & Other Expenses 14.0% 13.9% 14.4% 12.5% 13.1%
Research & Development Expenses 7.0% 6.9% 4.6% 7.5% 7.5%
Depreciation 8.4% 7.2% 7.1% 6.3% 6.9%
EBITDA margins 24.8% 22.9% 25.2% 25.2% 25.0%
EBIT margins 16.4% 15.7% 18.1% 18.9% 18.1%
Net profit margins 15.5% 13.6% 16.3% 16.0% 15.5%
Growth Ratios
Year to March FY12 FY13 FY14 FY15E FY16E
Revenues -24.7% 19.1% 15.8% 14.8% 15.5%
EBITDA -8.5% 10.2% 27.2% 14.8% 14.5%
PBT -15.6% 15.4% 32.2% 14.9% 11.6%
Net profit -13.9% 4.6% 38.7% 12.9% 11.6%
Financial
Analysis
23
Biocon Ltd.
Balance Sheet
As on 31st March FY12 FY13 FY14 FY15E FY16E
Equity capital 100 100 100 100 100
Reserves & surplus 2,177 2,660 3,009 3,521 4,094
Borrowings 271 267 864 764 664
Deferred Tax Liabilities (Net) (8) 41 45 45 45
Sources of funds 2,540 3,068 4,018 4,430 4,903
Net Fixed Assets 1,660 1,823 2,731 2,953 2,940
Investments 556 587 765 765 965
Inventories 378 398 377 443 512
Sundry debtors 492 510 600 634 732
Cash & Bank Balances 524 673 804 840 977
Loans and advances 328 426 474 516 596
Total current assets 1,722 2,007 2,255 2,433 2,817
Sundry creditors and others 1,187 1,097 1,549 1,537 1,636
Provisions 212 251 184 184 184
Total current liabilities & provisions 1,398 1,348 1,733 1,721 1,819
Net current assets 324 659 522 712 998
Uses of funds 2,540 3,068 4,018 4,430 4,903
Book value per share (Rs.) 114 135 151 177 206
Free cash flow
Year to March FY12 FY13 FY14 FY15E FY16E
Net profit 338 311 431 529 590
Add : Depreciation 174 179 204 208 263
Others (111) 168 (342) (37) (48)
Gross cash flow 402 658 292 700 805
Less: Changes in WC 162 (187) 269 (154) (149)
Operating cash flow 564 471 561 546 657
Less: Capex 218 348 1,116 430 250
Free cash flow 347 123 (555) 116 407
CasH Flow Statement
Year to March FY12 FY13 FY14 FY15E FY16E
Cash flow from operations 564 471 561 546 657
Cash Flow from investing activities (359) (376) (938) (369) (381)
Cash Flow from financing activities (265) (122) 53 509 (141)
Capex (218) (348) (1,116) (430) (250)
Dividends (16) (26) (17) (17) (17)
Financial
Analysis
24
Biocon Ltd.
Profitability & Efficiency Ratios
Year to March FY12 FY13 FY14 FY15E FY16E
ROAE (%) 15.6% 20.2% 14.1% 15.7% 15.1%
ROACE (%) 15.6% 16.0% 16.7% 16.4% 16.4%
ROIC (%) 15.6% 15.8% 16.3% 16.2% 16.3%
Inventory day 69 57 49 49 49
Debtors days 88 74 70 70 70
Payable days 68 69 70 70 70
Cash conversion cycle (days) 89 62 49 49 49
Current ratio 1.2 1.5 1.3 1.4 1.5
Debt/Equity 0.1 0.1 0.3 0.2 0.2
Turnover Ratios
Year to March FY12 FY13 FY14 FY15E FY16E
Total asset turnover 0.6 0.6 0.6 0.6 0.6
Fixed asset turnover 1.3 1.4 1.3 1.2 1.3
Equity turnover 1.0 1.0 1.0 1.0 1.0
Du Pont Analysis
Year to March FY12 FY13 FY14 FY15E FY16E
NP margin (%) 16.2% 20.5% 14.4% 16.0% 15.5%
Total assets turnover 0.6 0.6 0.6 0.6 0.6
Leverage multiplier 1.7 1.7 1.7 1.8 1.6
ROAE (%) 15.6% 20.2% 14.1% 15.7% 15.1%
Valuation Parameters
Year to March FY12 FY13 FY14 FY15E FY16E
Diluted EPS (Rs.) 16.2 16.9 23.4 26.5 29.5
Y‐o‐Y growth (%) -13.9% 4.6% 38.7% 12.9% 11.6%
Diluted PE (x) 29.5 28.6 21.1 18.0 16.2
Price/BV (x) 4.2 3.5 3.2 2.7 2.3
EV/Sales (x) 5.8 4.7 4.4 3.8 3.3
EV/EBITDA (x) 18.0 16.0 13.2 11.4 9.7
Dividend yield (%) 1.2% 1.8% 1.2% 1.2% 1.2%
Financial
Analysis
25
Disclaimer
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina,
Mumbai – 400 098. Board: (91-22) 40094606,
Nitin Jain Head – Business
Capital Markets (Individual Clients Group) [email protected] +91 (22) 4063 5447
Vinay Khattar Head – Research
Capital Markets (Individual Clients Group) [email protected] +91 (22) 4063 5447
This document has been prepared by Edelweiss Securities Limited (Edelweiss). Edelweiss, its holding company and associate companies are a full service, integrated investment banking, portfolio management and
brokerage group. Our research analysts and sales persons provide important input into our investment banking activities. This document does not constitute an offer or solicitation for the purchase or sale of any
financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is
accurate or complete and it should not be relied on as such. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any
inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The user
assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation 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 his own advisors to determine the merits and risks of such investment. The investment discussed
or views expressed may not be suitable for all investors. We and our affiliates, group companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the
securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as advisor or lender/borrower to such
company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for
your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form 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 Edelweiss and affiliates/ group companies to any registration or licensing requirements within such jurisdiction. The distribution of
this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in
this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice.
Edelweiss reserves the right to make modifications and alterations to this statement as may be required from time to time. However, Edelweiss is under no obligation to update or keep the information current.
Nevertheless, Edelweiss is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither
Edelweiss nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost
profits that may arise from or in connection with the use of the information. Past performance is not necessarily a guide to future performance. The disclosures of interest statements incorporated in this
document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. Edelweiss Securities Limited generally prohibits its analysts, persons
reporting to analysts and their dependents from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information provided in these reports remains, unless
otherwise stated, the copyright of Edelweiss. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright Edelweiss and may not be used in any form or for
any purpose whatsoever by any party without the express written permission of the copyright holders. Edelweiss might be engaged or may seek to do business with companies covered in its research reports. As a
result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should take informed decision and use this document for assistance only and
must not alone be taken as the basis for their investment decision.
Analyst Certification:
The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or
her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
Analyst holding in the stock: No.
Edelweiss shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in the system, break down of the
system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the Edelweiss to present the data. In no event shall the Edelweiss be liable for any
damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with the data presented by the Edelweiss through this report.
Additional Disclaimer for U.S. Persons
This research report is a product of Edelweiss Securities Limited, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are
resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not
required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public
appearances and trading securities held by a research analyst account.
This report is intended for distribution by Edelweiss Securities Limited only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and
interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act
upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Edelweiss
Securities Limited has entered into an agreement with a U.S. registered broker-dealer, Enclave Capital, LLC ("Enclave").
Transactions in securities discussed in this research report should be effected through Enclave Capital, LLC.
Additional Disclaimer for U.K. Persons
The contents of this research report have not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 ("FSMA").
In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional experience in matters relating to investments falling within Article 19(5) of the
FSMA (Financial Promotion) Order 2005 (the “Order”); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated associations); and (c) any other persons
to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”).
This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this research report relates is available only to relevant persons and
will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this research report nor any of its contents. This research report must not be distributed, published,
reproduced or disclosed (in whole or in part) by recipients to any other person.
Disclaimer for Canadian Persons:
EBL is not a registered adviser or dealer under applicable Canadian securities laws nor has it obtained an exemption from the adviser and/or dealer registration requirements under such law. Accordingly, any
brokerage and investment services provided by EBL, including the products and services described herein, are not available to or intended for Canadian persons.