Neutral Biocon; target of Rs 385 : Motilal Oswal

Motilal Oswal's research report on Biocon

BIOS recently announced that its subsidiary, Biocon Biologics (BBL), has entered into a definitive agreement with Viatris to acquire its Biosimilar business for USD3.3b. The deal enhances BBL’s commercial/regulatory capabilities in developed markets and gives it the option to acquire b-Aflibercept (a potential Biosimilar asset). The valuation, based on estimates shared by the management, stands at 3.8x/3x CY22/CY23 sales and 16.5x/13.2x CY22/CY23 EBITDA. While the deal forward integrates BBL in the Biologics value chain, the valuation paid for acquiring the Viatris’ commercial infrastructure in developed markets is expensive.

Outlook

We raise our FY23E/FY24E EPS estimate by 3.4%/15% to factor in Viatris’ business. We value BIOS on a SoTP basis (valuing BBL at 30x EV/EBITDA for its 65% stake post-completion of the deal, valuing its 70.4% stake in Syngene at current market capitalization, value the Small Molecules business at 10x EV/EBITDA, and deducting a net debt of USD1.5b) to arrive at our TP of INR385/share. We remain Neutral given the limited upside from current levels.

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