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:
- 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.
- 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.
- 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.
