Biocon Q3 Results Review - Regulatory Issues Delay Niche Approvals: Motilal Oswal

Motilal Oswal Report

Biocon Ltd.’s Q3 FY24 earnings came in below our estimates, due to increased operational costs. A moderation in active pharma ingredient (generics) and discovery services (Syngene) and the transition to full integration in the biosimilar segment affected the Q3 performance.

We cut our earnings estimates for FY24/FY25/FY26 by 70%/35%/19% to factor in-

1. the delay in niche approvals (Insulin Aspart and bBevacizumab) due to the delay in U.S. Food and Drug Administration inspection,

2. reduced prospects of Rh-Insulin, and

3. increased pricing pressure in API generics.

We value Biocon on the SOTP basis (15 times enterprise value/Ebitda for biosimilars, 54% stake in Syngene and 10 times EV/Ebitda for generics) to arrive at a target price of Rs 240.

Biocon is implementing its performance-improvement measures in key segments (biosimilars/contract domestic manufacturing organisation/generics), but regulatory issues at its manufacturing sites, a moderation in demand for CDMO services, and continued investments in its generics segment may affect the nearterm outlook. Maintain 'Neutral'.

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