 "Kiran Mazumdar-Shaw")
Biocon Limited announced a strategic move to fully integrate Biocon Biologics Limited (BBL) as a wholly-owned subsidiary in a transaction valuing the biosimilars business at $5.5 billion. This marks a decisive shift away from a proposed initial public offering (IPO) and aimed at unlocking shareholder value.
In a video interview with Sohini Das, Biocon executive chairperson Kiran Mazumdar-Shaw says earnings before interest, taxes, depreciation and amortisation (Ebitda) will grow from business growth and that biosimilars are also northward bound. Edited excerpts:
Investors have been concerned about leverage. What does the post-merger debt position look like?
If you look at our net debt-to-Ebitda at the time of the Viatris acquisition, it was 4.3x, which was really a concern the market had. Today, for the combined entity, this has reduced to 2.5x and it will go even lower. The leverage metrics will improve further over the next few quarters. By the end of this year, it should dip slightly below 2.5x, and in FY27, when the full impact of the combined business is reflected, we expect it to be closer to 2x or even below. The improvement is not only on leverage ratios but also on debt quality and maturity. Biocon Biologics has effectively refinanced its acquisition debt into longer-tenure instruments, significantly pushing out near-term repayments.
We have already said earlier that we will see a direct benefit of about ₹300 crore on interest costs because we have retired structured equity and debt instruments, including Kotak, Edelweiss and Goldman Sachs.
The interest savings are structural, not temporary. Gross debt reduced from $2.01 billion (FY23) to $1.54 billion (H1FY26), while structured debt reduced sharply following redemption of Goldman Sachs OCDs. This has reduced interest burden materially, translating into ₹300 crore annualised savings, which will be fully visible from FY27.
How exactly has the debt profile changed after refinancing?
You will see a much larger and stronger balance sheet. There will be operational synergies due to this integration. In September 2024, acquisition debt dominated repayments between FY26 and FY28, creating refinancing overhang.
Will capital allocation for research and development (R&D) for generics and biosimilars change post the deal?
When it comes to our portfolio, the most exciting is the insulin and Glucagon-Like Peptide-1 (GLP-1) portfolio, which really gives us a unique value proposition. Biocon is going to be very strong and have leadership in this space because nobody else has that combination.
Will there be any branding change post the merger?
Biocon Biologics is just the name of an entity from a regulatory point of view. We do not want to disrupt that because approvals are a complex thing. But the brand is Biocon. If Biocon Biologics had gone public, we would have had to do different branding.
What do you have to say about BBL’s $5.5 billion valuation? And, why not an IPO?
EY has done the valuation. They have looked at the holding company discount and those aspects and arrived at this particular valuation. You can see that the intrinsic value was suppressed. We were worried that if we had gone for an IPO, this overhang of debt and suppressed valuation would not have got us the right valuation. Even today, we feel BBL is undervalued. If you remove the holding company discount, which is generally between 20 and 50 per cent, you will see what the suppression is all about. We believe we will unlock a lot of value, going forward.
Will the combined entity have more flexibility on sourcing and pricing? What will be the patient impact in terms of affordability and access?
I don't think it's going to change very much because both Biocon and Biocon Biologics have the same affordable access purpose. Biocon wasn't pricing its own proprietary products high. The whole effort was to provide affordable access to essential and life-saving medicines.
That ethos and sense of purpose has pervaded throughout the Biocon Group. Whatever we've done — whether in R&D, manufacturing at scale, or economies of scale — we've always focused on that. That's only going to continue.
Once you integrate it, there will be synergies that will go to the benefit of the business. Obviously, the patient has benefited and will continue to benefit.
Will there be any manpower rationalisation post merger, especially in the ‘diabesity’ business?
No. Since your question is so specific to ‘diabesity’ manpower, I think the good thing is that all these businesses are very complementary. Insulin manufacturing is very different from GLP-1 manufacturing. The fact that we have now got both within the combined entity makes it a very synergistic, complementary fit. The commercialisation requirements of biosimilars are very different from generics. Generics require a very small team, while biologics require a very different kind of support, especially for insulins.
But we will actually benefit from that because GLP-1s are delivered in a very similar way to insulins in terms of devices, patient training and patient advocacy.
