Biocon shares near Sept 2024 high as HSBC upgrades stock to buy; here's target price

Shares of Biocon Ltd climbed 7 per cent in Tuesday's trade, with the nearing its September 2024 high of Rs 395.65, after HSBC upgraded the stock to 'Buy' from 'Reduce' earlier. The foreign brokerage believes Biocon is well-positioned for operational turnaround on an impressive line-up of high-value biosimilar launches, improved execution in in-market biosimilars, new launches-led recovery in the generics segment and improved utilisation at its manufacturing plants.

The stock rose 7.29 per cent to hit a high of Rs 391.40. HSBC raised its FY26 and FY27 EPS estimates by 21.3 per cent and 34.8 per cent, respectively, on better market share gains for biosimilar launches ahead in the US and recovery in revenue growth for the generics segment led by high value launches, mainly GLP-1 in global markets.

"Due to improved visibility we apply 18 times EV/Ebitda (was 13 times) for the biosimilars segment (60 per cent of total revenue) and 13 times for generics (was 11 times). Our SOTP target price is Rs 430 (was Rs 290), implying 19.1 per cent upside, and we upgrade to Buy (from Reduce) due to the improving outlook. The implied valuation in our bull case scenario is Rs 546, and Rs 250 in our bear case scenario," it said.

HSBC's base case target suggests 10 per cent upside over the prevailing stock price. Its bull case target suggests 40 per cent surge while the bear case target hints at 36 per cent downside ahead.

"Compared with previous execution of biosimilars, we believe Biocon is improving its execution, which is reflected in its market share gain for launched products. The FDA clearance for its Malaysia insulin plant on 12 January 2025 culminated its remediation efforts over the past 5-6 years," HSBC said.

The brokerage views this as a key step towards operational turnaround as it paves the way for the launch of insulin aspart in the US -- Biocon is the only known biosimilar filer. It should result in improved utilisation of the plant, HSBC said.

Biocon's Bengaluru plant received FDA clearance in November 2024 and the FDA approval for bevacizumab is awaited from the plant.

HSBC said there are no other known biosimilar filers for aspart, which could benefit Biocon as the exclusive biosimilar producer with a total addressable market of $550 million.

"We also assume sizeable sales increase from ustekinumab and aflibercept in the US. Overall, we estimate biosimilar sales of USD1.8bn in FY27 (FY24-27 CAGR of 21.7%). In our bull case scenario, we assume biosimilar sales of $2.3 billion in FY27 (30 per cent upside to our base case sales estimate). In our bear case, we assume biosimilar sales of $1.3b billion in FY27 (26 per cent lower than our base case)," it said.