Hold Biocon; target of Rs 266: Sharekhan

Sharekhan's research report on Biocon

Revenues grew strongly by ~56.7% y-o-y to Rs. 3,773.9 crore aided by full benefit of Viatris deal that led to more than doubling of biosimilars business. As finance costs have surged ~2,270% y-o-y to Rs. 248.8 crore driven by debt taken for the inorganic initiatives. Consequently, net profit declined by ~25.9% y-o-y to Rs. 207.2 crore (vs. our estimate of Rs. 175 crore and consensus estimate of Rs. 177 crore). Reported PAT stood at Rs. 313.2 crore, boosted by a one-time forex gains of Rs 109 crore. Although prospects are strong for the company due to traction in its base business and the acquisition of Viatris biosimilar business, the company’s cash generation is expected to be affected due to high interest costs and increased borrowings.

Outlook

We are downgrading our FY2024/2025 estimates to factor in the higher interest outgo. The stock is currently trading at ~21.8x/15.2x its FY2024E/25E revised earnings estimates. We downgrade it to Hold from Buy and maintain the PT at Rs 266.

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