Recommendation from Pharmaceuticals / Biotechnology Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

BIOCON LIMITED : AIMING AT HEALTHY GLOBAL GROWTH 

HERE IS WHY
✓ Focus on enhancing affordable access to therapies
✓ Expertise in biosimilars driving revenue growth S
✓ Strong performance in the U.S. 

Within the global pharmaceutical space, the Indian pharmaceutical industry commands a prominent position. According to a recent EY FICCI report, there has been a growing consensus over providing new innovative therapies to patients and this bodes well for the Indian pharmaceutical industry. The market size of India’s pharmaceuticals sector is expected to reach USD 130 billion by 2030 and USD 450 billion market by 2047. 

Considering the sector’s growth prospects, we recommend Biocon Limited, which is an innovation-led global biopharmaceutical company that manufactures biotechnology products and provides research services. It focuses on enhancing affordable access to therapies for chronic conditions like diabetes, cancer and autoimmune diseases. The company has commercialised novel biologics, biosimilars, small molecule APIs, and generic formulations globally, with a pipeline of promising assets in immunotherapy under development. The company has a global presence with operations in over 120 countries. In Q2FY25, on a consolidated basis, its net revenue rose by 4.49 per cent YoY to ₹3,545 crore compared to ₹3,392.60 crore from the previous year’s same quarter. 

On a sequential basis, its revenue increased by 5 per cent from ₹3,376.10 crore. For Q2FY25, the PBIDT excluding other income decreased by 7.58 per cent and stands at ₹685.40 crore from ₹741.60 crore in the previous year’s same quarter. The profit after tax (PAT) decreased by 86.24 per cent and stands at ₹27.10 crore from ₹196.90 crore in the previous year’s same quarter. On a sequential basis, its net profit decreased by 96.86 per cent from ₹861.80 crore. During Q2FY25, biosimilars were the largest revenue driver for the company, contributing 59 per cent of the total revenue. Research services followed, contributing 24 per cent, while generics accounted for the remaining 17 per cent. The company’s biosimilars business for Q2FY25 stands strong on account of its performance in the U.S., with market share gains for key products. Biocon is now looking at expanding in Europe with emerging market penetration and a robust pipeline of upcoming launches. These include Aspart, Bevacizumab, Stelara, Denosumab and Aflibercept. 

For the generics business, the upcoming launch of Liraglutide in the UK, new injectables in the U.S., and continued investment in the peptide portfolio are expected to drive growth in the future. Biocon Biologics, a subsidiary of Biocon, has refinanced USD 1.1 billion of debt through bonds and term loans. The refinancing will be used to repay the debt used to acquire Viatris’s biosimilars portfolio. Biocon Biologics is now planning to focus on debt reduction. Successful debt refinancing will strengthen the financial position, while vertical integration and global expansion will enhance efficiency and market reach. The shares of the company are currently trading at a PE of 32.8 times, similar to the industry PE of 32.6 times and lower than the three-year median PE of 42.8 times. Its three-year sales growth stands at 27.4 per cent while its three-year profit growth stands at 10.5 per cent. The company’s Piotroski score stands at 7. Considering the company’s business and the potential its products hold in the Indian and global markets, we recommend BUY.