Biocon Ltd (BOM:532523) (Q1 2027) Earnings Call Highlights: Biosimilars Surge 16% as Net Profit ...

Negative Points

• Service revenues (Syngene) declined 16% year-on-year due to lower offtake from a key biologics client and a forex hedge loss.

• Syngene's performance is expected to be a transition year, with single-digit revenue de-growth and EBITDA margins returning to mid-20s only by FY28.

• Net debt increased sequentially by around INR1,100 crore due to higher working capital, primarily inventory buildup for second-half scale-up.

• The generics business EBITDA margin remains low at 7%, with R&D spend reduced, indicating potential underinvestment in future growth.

• The company faces competitive intensity and price erosion in the biosimilars market, which could pressure margins.

• The biosimilars business EBITDA margin of 25% is lower than the normalized 27% of last year, indicating potential margin pressure.

• The company's growth is heavily dependent on new launches, which may take time to ramp up, with meaningful acceleration only expected in the second half.

• The U.S. tariff announcement, though currently not applicable, poses a potential risk to the business, requiring monitoring.

• The company's investment in new manufacturing units is still in scaling-up phase, with cost drag expected to continue.

• The company's focus on profitable growth may limit aggressive market share gains, potentially slowing revenue growth in the near term.

Q & A Highlights

Q: On the biosimilars business, could you share any updates on formulary listings for insulin in the U.S., and what products are driving North America growth? A: Shreehas Tambe (CEO & MD) stated that insulin glargine market shares have been steadily growing over the last few quarters. The company is having active conversations about its biosimilar insulin aspart (branded Kirsty) as it moves from a closed-door network to more commercial payers. Key growth drivers include the recent U.S. launch of Yesafili (biosimilar aflibercept), which provides a unique first-mover advantage in the ophthalmology space before much of the competition enters.

Q: With the focus on profitable growth, should we assume margins for the biosimilar business will improve versus last year, and what does "meaningful improvement" in the second half mean? A: Kiran Mazumdar-Shaw (Executive Chairperson) clarified that the company is veering away from focusing solely on market share to avoid margin erosion. Shreehas Tambe added that new product launches will carry higher profitability margins, offsetting market price erosion. Kedar Upadhye (CFO) advised normalizing last year's 27% margin to 24-25% (due to a one-time product allocation in Q3), noting the company is driving toward margin expansion from that base.

Q: Given the existing biosimilar has closed a very high market share, what's the thought process for aflibercept? Would it be a slow ramp-up? A: Shreehas Tambe noted that the myth about biosimilars not being accepted in ophthalmology has been busted. Biocon enters the market with a clear path for the next few months, having secured active contracts. While every ramp has a start before reaching peak, the company expects a good start "straight out of the gates," building toward the second half of the year.

Q: Given Syngene's challenges, should we see a moderated profitable performance for Biocon as a whole for FY27? A: Kiran Mazumdar-Shaw directed attention to the revenue mix, noting that 83-87% of business comes from biopharmaceuticals, with research services at only about 17%. She emphasized that a temporary decline in Syngene's profitability will not impact Biocon's overall performance, as the main growth engine is biosimilars, with generics also beginning to deliver better profitable growth.

Q: Could you give some color on the growth in the generics base business ex-liraglutide, and is competitive intensity playing out? A: Kedar Upadhye stated there is nothing particularly different from a competitive intensity standpoint. Liraglutide contribution is currently in single digits and picking up. The profitability improvement stems from three levers: premium API product pricing, R&D portfolio optimization, and OpEx reductions from the business integration. He emphasized the work on OpEx and productivity remains very strong.

Q: How should we think about the growth trajectory on the generics business if R&D projects are prioritized, and are there meaningful launch expenditures that could see operating leverage? A: Kedar Upadhye clarified the company is "cutting the fat, not the muscle." Integration offers synergies in operations, commercials, and enabling functions. Kiran Mazumdar-Shaw added that R&D investments are being made strategically rather than opportunistically, focusing on high-growth opportunities without compromising future growth.

Q: Net debt increased sequentially by around INR1,100 crore with higher working capital. Could you explain the reasons and expected trend? A: Kedar Upadhye explained the increase is largely in inventory, as the company prepares for second-half scale-up in both biosimilars and generics. Net debt increase is linked to working capital, not new term loans. DIO has been normalized from over 400 days to about 280-290 days, with opportunities to improve further. Finance costs declined 22% year-on-year to INR213 crore despite rupee depreciation, and every dollar from free cash flow will first go toward debt reduction.

Q: What would be the impact of tariffs announced by Trump, and are we well-positioned regarding manufacturing capacity in the USA? A: Matthew Erick (Chief Commercial Officer - Advanced Markets) noted the announcement was "just a tweet," and current U.S. law exempts generics and biosimilars from tariffs. Legislation would need to be passed to change this, and there is bipartisan support for maintaining access and affordability. Kiran Mazumdar-Shaw added that Biocon is looking at local manufacturing footprints through partnerships where needed, but does not plan to increase CapEx for new U.S. facilities.

Q: What is the current state of Bicara Therapeutics, and any plan to monetize it? A: Kiran Mazumdar-Shaw stated Bicara Therapeutics is no longer a significant investment for Biocon. The company holds a small stake and is not currently contemplating monetization, but will decide when the right time comes. She expressed satisfaction with the value created by establishing Bicara.

Q: Between now and FY28-29, should we assume no more products will be added beyond the recent launches? A: Shreehas Tambe responded that the company would be "happy to surprise you in a nice way." While not disclosing everything, the focus has been on launching a new product in the U.S. or Europe every year through the end of the decade, and the company will continue striving toward that goal.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .