Brokeragess on Biocon’s Stock Post Q2 Results – Should You Buy?

Following the release of Biocon’s Q2FY24 results, domestic brokerage firms offer mixed opinions on the stock, with varying recommendations based on the company’s financial performance.

In Q2FY24, Biocon reported a revenue of ₹3,462 crore, reflecting a substantial 49% increase compared to the Q2FY23 revenue of ₹2,320 crore. However, the quarterly performance remained flat on a quarter-on-quarter (QoQ) basis. The robust growth was primarily driven by the biosimilars segment, which experienced a notable 97% year-on-year (YoY) increase, reaching ₹1,969 crore in Q2 FY24, although falling short of analysts’ expectations.

The generics business demonstrated a modest 4% YoY growth, achieving ₹676 crore in revenue. Notably, the company’s net profit exhibited a significant improvement, rising by 111% YoY to ₹173 crore.

Brokerage Recommendations:

1. Motilal Oswal: ‘Neutral’
   • Motilal Oswal has maintained a ‘Neutral’ rating on the stock with a target price of ₹220 apiece. The valuation is based on a sum-of-the-parts (SOTP) approach, considering 15x EV/EBITDA for a 70% stake in Biocon Biologics (BBL), a 54% stake in Syngene, and 10x EV/EBITDA for the generics business.
   • The brokerage cites concerns over the implementation of remediation measures at biosimilar sites, slow capacity utilization ramp-up for Syngene plants, and the gestation period associated with investments in the generics segment as factors limiting the outlook for the next 12–24 months.
2. Kotak Institutional Equities: ‘Reduce’
   • Kotak Institutional Equities maintains a cautious view on the execution of core biosimilars business (BIOS) by Biocon. Elevated net debt, excluding structured investments, at US $1.2 billion remains a concern.
   • The brokerage lowers its FY2024–26E EBITDA by 4–10% to account for lower sales in biosimilars, particularly Aspart and Adalimumab, and generics. The target price is derived through a SoTP-based approach and is adjusted to ₹235 (from ₹240 earlier), maintaining a ‘Reduce’ rating.
3. JM Financial: ‘Buy’
   • JM Financial takes a positive stance, maintaining a ‘Buy’ rating on the stock with a target price of ₹340 apiece. The brokerage anticipates healthy growth in existing biosimilars over the next 2-3 quarters, driven by formulary additions and a potential recovery in generics.
   • Despite adjusting earnings to reflect lower guidance for Syngene and the generics business, JM Financial believes that key levers playing out over the next 2–3 years could lead to a significant re-rating of the stock.

In summary, brokerages are divided on Biocon’s stock post-Q2 results, with some expressing caution due to specific operational challenges and debt concerns, while others remain optimistic about the company’s growth potential in the medium to long term.