Biocon shares: Why brokerages divided on this pharma counter after Q4 results

Shares of Biocon Ltd inched up higher on Friday despite the company reporting a mixed set of numbers in the quarter ended on March 31, 2024. However, brokerage firms remain divided on the counter, with some suggesting to buy the counter over increased optimism, while others suggest to avoid it amid muted financials.
 

Biocon reported a 57 per cent fall on a year-on-year in its consolidated net profit at Rs 135 crore in the fourth quarter of FY24. Its revenue from operations increased 16 per cent YoY to Rs 2,947 crore in the January-March 2024 period. Ebitda for the quarter stood at Rs 916 crore, while margins came in at 23.4 per cent.
 

Biocon's board recommended a final dividend at 10 per cent to Rs 0.50 per equity share for FY24. Biocon has fixed Friday, July 5, 2024 as the record date for determining the entitlement of members to final dividend for the year ended March 31, 2024. The Board also approved the re-appointment of Kiran Mazumdar Shaw as an Executive Director for 5 years starting April 2025.
 

Biocon’s Q4FY24 revenue missed estimates by 4 per cent, while Ebitda is 3 per cent ahead. Biosimilar Ebitda margin reverted to 24 per cent despite high transition costs as R&D expenses fell off, said Nuvama Institutional Equities. "Generics struggled due to lower API prices. it reduced debt by $250 million. However, higher integration expenses and pricing pressures impacted profitability."
 

"We reckon revenue and ebitda CAGR to be 19 per cent  and 24 per cent over FY24–26E as its biosimilars and GLP-1 pipeline holds promise. Any delay in R&D monetisation and regulatory hurdles, besides high debt and subdued RoCEs (8% in FY26E), pose challenges," it added with a 'reduce' rating with a revised target price of Rs 260.
 

Biocon delivered an operating beat on estimates in 4QFY24 with the 10 per cent sequential jump in core biosimilars sales led by market share gains being the key highlight, said Kotak Institutional Equities. While the biosimilars performance is encouraging, the company is guiding for overall revenue growth to pick up only in 2HFY25 due to sluggishness across the three segments, it said.
 

"We continue to factor in a material recovery in BIOS’ biosimilars sales trajectory hereon, led by higher market shares across products and build 24 per cent Ebitda CAGR over FY2025-27E. Amid execution risks, we believe there is limited scope for positive surprises," it added, retaining a 'reduce' rating on the stock with a revised fair value of Rs 275.
 

Biocon, founded in 1978, is one of India’s leading biopharma company. It is fully integrated and delivers biopharma solutions, ranging from discovery to development and commercialisation. It has diversified revenue streams covering biosimilars (including branded formulations), contract research, and small molecules and APIs.
 

On the other hand, brokerage firms like JM Financial and Axis Securities are positive on the stock and suggest to buy it after Q4FY24 results. Even technical analysts from Anand Rathi Shares and Stock Brokers continue to see decent upside in the counter in the next one to three-month period.
 

The management is upbeat on formulations growth and new launches, particularly Liraglutide, which will gradually build momentum from 2H. Syngene’s performance was disappointing but not a surprise. The management guided for a high single to early double digit revenue growth with similar margins in FY25 for Syngene, said JM Financial.
 

"The management is ready for US FDA inspection at Bangalore and Malaysia facilities – this could lead to bBeva and bAspart approvals but nothing meaningful in FY25. We have not built any new launches in the US in FY25. bStelara is settled but approval is pending. We continue to await clarity on Eylea launch," it added with a 'buy' rating and a target price of Rs 350.
 

Following the Q4 results announcement, shares of Biocon rose 1.78 per cent to Rs 311.35 on Friday, commanding a total market capitalization of Rs 37,200 crore. The scrip had settled at Rs 305.90 in the previous trading session Thursday.
 

Gross margins at 65.8 per cent decreased by 162 bps YoY. The company got Rs106 Cr one-time expenses on account of the integration of the Biocon Biologics business across the globe, said Axis Securities which sees blended EV/Ebitda of 9.2 times for FY26E earnings.
 

Biosimilars are continuously gaining market share across geographies and the launch of products like gLiraglutide in Generics along with a strong pipeline of upcoming Biosimilars like Stellara and YESFILI show a strong outlook for business in the upcoming quarters, it added with a buy rating and a target price of Rs 340.
 

Reading the technical charts, Anand Rathi Shares and Stock Brokers said that Biocon is one of the most under performing stock from the pharma space. Recently the stock has been consolidating in a range and in today’s session finally it has confirmed a breakout from the range.
 

"The price action resembles a bullish inverse Head and Shoulder pattern coupled with a bullish flag pattern. Thus, we advise traders to accumulate the stock in the range of Rs 320 – 316 with a stop loss of Rs 292 (daily closing basis) for an upside target of Rs 370," it said.
 

 

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