Biocon Q2 Results Review - Delay In New Approvals Drags Biosimilar Prospects: Motilal Oswal

Motilal Oswal Report

Biocon Ltd.'s Q2 FY24 financial performance missed our estimates. While the traction in the biologics business has been improving from commercialised products, the increased pricing pressure in generics and higher operating cost led gradual improvement in profitability. Research services exhibited healthy high-teen YoY growth in revenue for the quarter.

We reduce our earnings estimate by 7%/2% to factor in-

1. the challenges in the active pharma ingredient segment of generics business,

2. slower off-take of b-adalimumab.

We continue to value Biocon on an SoTP basis (15 times 12 months forward enterprise value/Ebitda for 70% stake in biosimilar business, 54% stake in Syngene and 10 times EV/Ebitda for generics business) to arrive at a price target of Rs 220.

The biosimilar outlook is getting dulled due to the time required to resolve regulatory issues at Malaysia/Bengaluru site. Also, as highlighted in our note, the competition is building up faster in products under development (b-Denosumab/b-Ustekinumab).

While there is healthy traction in the formulation segment, API is facing challenges in the generics segment. Syngene International Ltd. also reduced its outlook for H2 FY24. Considering these factors and valuation adequately capturing the earnings upside, we reiterate our 'Neutral' rating on the stock.

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