Biocon Ltd

Biocon Limited (Biocon) reported strong Q3FY2023 performance. The company’s revenue grew at a strong pace of 35% on account of broad-based growth across key verticals, while higher cost continued to pressurise the profitability, somewhat. Overall revenue grew by 35% y-o-y to Rs. 2,941 crore with 54% growth in biosimilars, 23% in research services, and 18% growth in the generic business. Consolidation of Viatris’ biosimilar business to its Biocon biologics’ segment will add to growth of the biosimilars business in Q4FY2023; and going forward, it will immensely help in overall revenue growth and expansion in profitability.

Key positives
* Strong growth across segments such as biosimilars, generics, and Syngene.

Key negatives
* Margins contracted by 54 bps, 130 bps, and 80 bps y-o-y across EBITDA, EBIT, and NPM levels in Q3FY2023, respectively, due to increased operating and finance costs.

Our Call
Valuation: Maintain Buy with a revised PT of Rs. 266: Consolidation of Viatris’ biosimilar business will add to the growth of Biocon Biosimilars in Q4FY2023. Going forward, it will immensely help in revenue growth and expansion in profitability margins. We have arrived at a revised price target (PT) of Rs. 266 (earlier Rs. 340). At the CMP, the stock is trading at a reasonably attractive valuation level of 29.7x/16.9x its FY2024E/FY2025E earnings. We maintain our Buy rating with a revised PT of Rs. 266.

Key Risks
Any delay in product approvals or the negative outcome of facility inspection by the USFDA can affect future earnings prospects.

Investment theme
Biocon has one of the largest global biosimilars portfolios, spanning from recombinant human insulin (rh-insulin), insulin analogs, monoclonal antibodies, and other biologics for diabetes, oncology, and immunology. Thus, Biocon has the early-mover advantage as global markets have begun to accept biosimilars and the role they are expected to play in increasing access to high-quality and yet affordable drugs and improve the quality of life for patients around the world. The company is expected to benefit substantially from the opportunities in the lucrative biosimilars space, as some key global brands would lose patent exclusivity in the medium to long term. Scientific expertise in developing and manufacturing complex biosimilars together with commercialisation strength of partner companies would further strengthen Biocon’s presence globally in biosimilars. Moreover, with the possible listing of Biocon Biologics, there exists a significant value-unlocking opportunity going ahead.

Refer: BIOCON for more details.