Buy Biocon, target price Rs 395: JM Financial

JM Financial has buy call on Biocon with a target price of Rs 395. The current market price of Biocon is Rs 288.45. Time period given by analyst is one year when its price can reach defined target.

Biocon, incorporated in the year 1978, is a large cap company (having a market cap of Rs 34649.32 Crore) operating in Pharmaceuticals sector.

Its key products/revenue segments include Bio pharmaceuticals, other operating revenue, waste and sale of services for the year ended March 31, 2022.

Financials
For the quarter ended June 30, 2022, the company has reported a consolidated total income of Rs 2217.40 crore, down 10.45 per cent from last quarter total income of Rs 2476.10 crore and up 22.66 per cent from last year same quarter Total Income of Rs 1807.80 crore. Company has reported net profit after tax of Rs 210.40 crore in latest quarter.

The company’s top management includes Mr.Siddharth Mittal, Ms.Kiran Mazumdar Shaw, Mr.John Shaw, Prof.Ravi Mazumdar, Dr.Vijay Kuchroo, Mr.M Damodaran, Mr.Bobby Kanubhai Parikh. Company has B S R & Co. LLP as its auditors. As on June 30, 2022, the company has a total of 120 crore shares outstanding.

Investment Rationale
The brokerage expects Revenue/ EBITDA/ PAT CAGR of 34%/37%/38% over FY22-25. The recent pre-approval inspection will potentially clear the pathway for key approvals, expected by 3Q/4Q. For the Viatris acquisition, most of the required funds have been secured and the process is expected to conclude by CY22-end.

The key concerns weighing on the stock are subdued market share trends, increasing competition and earnings disappointment. While the most crucial factor in re-building investor confidence remains consistent improvement in earnings, the brokerage believes this will be achieved by Semglee market share gains, vaccine contribution, acquisition synergies, and new approvals, taking the total regulated market product basket to 9-10 (from 3-5 today).

Given the multiple upcoming triggers, favourable valuation, marquee investor backing and an enviable R&D pipeline, BIOS is well poised to turn the tide in its favour.

The brokerage initiates coverage on BIOS with a Sep’23 SOTP TP of INR 395 valuing Generics business at 12x EV/EBITDA, Biocon Biologics at 21x EV/EBITDA (c.63% stake) and Syngene at 23x EV/EBITDA (65% stake) adjusted for holding company discount (20%). It recommend BUY.

Promoter/FII Holdings
Promoters held 60.64 per cent stake in the company as of June 30, 2022, while FIIs owned 16.73 per cent, DIIs 7.3 per cent.