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Motilal Oswal Report
Biocon Ltd. has delivered 22%/25% revenue/Ebitda compound annual growth rate over FY18-23, led by robust traction in biosimilars and research services. However, earnings compound annual growth rate have been lower at 15% over FY18-23 due to increased financial leverage and depreciation.
While Biocon continues to work on enhancing its biosimilar (49% of FY23 sales) pipeline and expand the reach of commercialised products, regulatory issues at its sites may prolong the approval process for potential filed products. Also, the competitive scenario seems intense for products under development
Syngene International Ltd. (28% of FY23 sales) is not only broadening its research services on biologics, but also adding capacities in active pharmaceutical ingredient/biological manufacturing. We expect operating leverage to gradually pick up over the medium term.
In addition to the base portfolio of immupo suppressants/statins in the generics segment (23% of FY23 sales), Biocon is building capabilities as well as capacities toward formulation/API in areas of peptides, high potent APIs and synthetic APIs
We cut our earnings estimate by 23%/9% for FY24/FY25, factoring in
delay in biosimilar approvals,
reduced guidance in Syngene, and
elevated finance costs.
We value Biocon on a sum of the parts basis (15 times enterprise value/Ebitda for 70% stake in Biocon Biologics Ltd., 54% stake in Syngene, and 10 times enterprise value/Ebitda for generics business) to arrive at a price target of Rs 220.
We reiterate our 'Neutral' stance on the stock, given limited upside from its current levels.
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