| Biocon Biologics India Limited | ||||
| 'CRISIL AA+/Stable' assigned to bank debt | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to annexure for Details of Instruments & Bank Facilities | ||||
| Detailed Rationale |
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CRISIL has assigned its 'CRISIL AA+/Stable' rating to the long-term bank facilities of Biocon Biologics India Ltd (BBIL). |
| Analytical Approach |
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For arriving at the ratings, CRISIL has factored in the strong operational, financial, and managerial support from Biocon. Further, the business and financial risk profiles of BBIL and its subsidiaries and step-down subsidiaries, Biocon Biologics UK, Biocon Healthcare SDN BHD Malaysia, Biocon SDN BHD Malaysia, Biocon Biologics Inc USA have been consolidated to arrive at the ratings. |
| Key Rating Drivers & Detailed Description |
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Strengths: * Strong business risk profile supported by healthy operating performance and strong product pipeline in niche biosimilar segment BBIL is leader in biosimilars with several product launches in both regulated and semi-regulated markets. As on March 31, 2020, the company's three biosimilar products were commercialised in partnership with Mylan in the US and Europe. FulphilaÃ'® (biosimilar pegfilgrastin) was launched in the US, SemgleeÃ'® (biosimilar insulin glargine) and OgivriÃ'® (biosimilar trastuzumab) along with the in-licenced biosimilar Adalimumab were launched in Europe. Revenue grew 29% in fiscal 2020 in the biosimilar segment (excluding domestic formulation), driven by growth from key biosimilars such as Trastuzumab, Pegfilgrastim from both developed and emerging economies. Biosimilars and domestic formulations account for approximately 80% and 20%, respectively, of BBIL's revenues. The domestic formulations segment witnessed revenue decline by 18% in fiscal 2020 over fiscal 2019, mainly due to intense competition and pricing pressure. Despite subdued performance in the branded formulations segment, the company's operating margin was healthy at 28.6% in fiscal 2020 supported by comfortable growth in the biosimilar segment. BBIL has strong R&D capabilities and several biosimilars under development across diabetes, oncology, and autoimmune therapeutic segments. The company benefits from partnership with global players such as Mylan and Sandoz for development as well as marketing and distribution of products in regulated markets. The partnership agreements are on cost and profit sharing basis, and provides wide geographic reach to biosimilar products. Further steady launches from healthy product pipeline will support growth momentum and lead to improvement in operating margins over the medium term. The scaling up of revenue from the key biosimilar assets and improvement in operating margins will be the key monitorables. * Strong parentage BBIL is a 96.07% subsidiary of Biocon, and hence, is likely to receive operational and need-based financial support from the parent. Further, BBIL has strong operational linkages with Biocon; its biosimilar and domestic branded formulations business complements with 'Biocon's small molecule business. BBIL will continue to contribute 40% of consolidated revenue and profit of Biocon, backed by healthy growth in revenue and higher operating profitability. Further, Biocon has demonstrated financial support in the form of investments through preference shares of Rs 1786 crore and loans and advances of Rs 100 crore during the growth phase of BBIL. Biocon has also provided letter of comfort and corporate guarantee for bank facilities availed by BBIL. * Healthy financial risk profile, despite working capital-intensive operations CRISIL expects that BBIL will maintain healthy financial risk profile while it expand its scale of operations. Ramp-up in biosimilar segment necessitate capital expenditure (capex) of about Rs 750 cr per annum over next two years. The company plans to fund the capex through a prudent mix of debt and internal accruals which will help to sustain its financial risk profile at comfortable levels in near to medium term. The company's liquidity is healthy underpinned by steady cash accruals and moderate utilisation of working capital limits. Financial risk profile is healthy with adjusted gearing at 0.68 time as on March 31, 2020, and interest coverage ratio of 9.29 times in fiscal 2020. The company's R&D spend continues to be high at 12-13% sales, on account of continued investment in building healthy product pipeline. The company's working capital requirement is expected to increase with ramp-up in sales and new product launches in various regulated and semi-regulated markets. However, capital structure is expected to remain comfortable with gearing below 0.75x and gradually improving over the medium term. Financial risk profile is expected to improve over the medium term, with healthy operating profitability and accretion to reserves. Weaknesses: * Uncertainty in payoffs from a high R&D driven model in biosimilars The company will continue to spend extensively on R&D for developing biosimilars, particularly for the US and Europe markets. It remains exposed to uncertainty of timing and the extent of returns on investments on biosimilars given the inherent nature of the drug discovery model. R&D expenditure was high at about 12-13% of sales in fiscal 2020, driven by expenses on clinical trials and other R&D activities. The R&D expenses are expected to remain high in the near term, as the company develops healthy product pipeline. The uncertainty in revenue visibility and predictability over the return on the R&D exposes the company to investment risk. However, the company has achieved critical milestones with approvals for trastuzumab from the US Food and Drug Administration (FDA) and insulin glargine from FDA, European Commission and Therapeutic Goods Administration, Australia. The extent of ramp up in operating profits and cash flows on commercial launch, will be a monitorable. * Exposure to regulatory risks The regulatory risks are manifested by increasing scrutiny and inspections by the regulatory authorities including the US FDA, European Medical Agency and others in Asian and Latin American markets. The biosimilars require market specific approvals for product launches. Any delay in approval can lead to loss of potential opportunity through delayed launches. In the branded formulation segment, additions to lists under Drug Price Control Order also impacts product pricing and hence the profitability of the India branded formulations business. |
| Liquidity Strong |
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Cash accrual, expected at more than Rs 900 crore in fiscal 2021 should comfortably cover debt repayment of Rs 300 crore and capex of Rs 750 crore. Cash and equivalents were Rs 272 crore as on March 31, 2020. Bank limits on a standalone basis (excluding Malaysian entity facilities) have been moderately utilised at 56% over the past 10 months through May 2020. |
| Outlook: Stable |
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CRISIL believes BBIL's business risk profile is likely to benefit from its strong product pipeline and key partnership with large players for launches in various markets. |
| About the Company |
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BBIL was formed as a wholly-owned subsidiary of Biocon in fiscal 2020. Biocon transferred its biologics and domestic branded formulation business to BBIL. BBIL derives its revenue from manufacturing and commercialisation of biosimilars and domestic formulations with presence in both domestic as well as global markets. BBIL undertakes in house development of Biosimilars and also has partnership with Mylan for developing and commercialisation of 11 biosimilars and another partnership with Sandoz for several undisclosed products in biosimilar segment. |
| Key Financial Indicators | ||||||||||||||||||
* adjusted for amortisation of intangible assets | ||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments and are included (where applicable) in the Annexure -- Details of Instrument in this Rating Rationale. For more details on the CRISIL complexity levels, please visit www.crisil.com/complexity-levels. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||
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| Annexure - List of entities consolidated | ||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||
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