Biocon Q4 Results Review - Biosimilar Off-Take, Lower R&D Spending Drive Earnings: Motilal Oswal

Motilal Oswal Report

Biocon Ltd. delivered better-than-expected adjusted earnings in Q4 FY24, led by improved biosimilar sales and lower research and development spending. While Ebitda maintained its uptrend in FY24 and grew to Rs 29.4 billion, adjusted profit after tax hit a 10-year low of Rs 2.6 billion, largely due to increased financial leverage and higher depreciation.

We cut our earnings estimates by 19%/12% for FY25/FY26 to factor in-

1. a delay in inspection and subsequent approval for potential biosimilars,

2. persistent challenges in API business,

3. moderation in outlook for research services business, and

4. higher leverage.

We value Biocon on SOTP basis (17 times enterprise value/Ebitda for 70% stake in Biocon Biologics, 54% stake in Syngene and 10x EV/Ebitda for generics business) to arrive at a target price of Rs 280.

Biocon is making efforts to improve the outlook for the generics and biosimilars segments by enhancing its product pipeline and improving its market share in existing products.

A successful U.S. Food and Drug Administration inspection is vital for new approvals and subsequent improvement in financial performance. Maintain Neutral on the stock as the current valuation factors in the upside in earnings.

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