Biocon Limited Share Price Target at Rs 435: Axis Securities
Axis Securities has reiterated its BUY recommendation on Biocon Ltd, setting a revised target price of Rs 435, even as the company reported a mixed Q3FY26 performance marked by revenue and margin misses. While biosimilars growth moderated sequentially and CRDMO faced client-specific headwinds, generics delivered robust traction, particularly in Europe and the U.S. Gross margins expanded to a nine-quarter high, but elevated R&D investments and one-off charges weighed on profitability. With capex intensity declining, structured debt largely retired, and biosimilars positioned for structural expansion, Axis sees improving free cash flow visibility and deleveraging ahead—supporting a 15% upside from the current market price of Rs 378.
A Quarter of Contrasts: Revenue Miss, Structural Momentum Intact
Biocon’s Q3FY26 revenue came in at Rs 4,173 Cr, up 9% year-on-year but below Axis Securities’ estimate of Rs 4,438 Cr. Sequentially, sales declined 2.9%, reflecting a pause in biosimilars momentum and weakness in CRDMO.
The Generics segment surged 24% YoY to Rs 851 Cr, buoyed by continued traction of Liraglutide in Europe and steady U.S. formulations demand. Meanwhile, Biosimilars grew 9% YoY to Rs 2,497 Cr, supported by market share gains in North America and contributions from Yesintek and Yesafili. However, growth moderated sequentially.
The CRDMO business declined 3% YoY due to transient, customer-specific issues—tempering the overall top-line trajectory.
Margins Expand at Gross Level, But PAT Impacted by One-Offs
Biocon reported a sharp 350 basis point expansion in gross margin to 67.9%, marking a nine-quarter high. This was driven by a favorable biosimilars mix, especially higher North America contribution.
However, EBITDA margin expansion was limited. Elevated R&D expenses (+25% YoY) and higher other operating costs (+21% YoY) offset gross margin gains. EBITDA stood at Rs 834 Cr, up 11% YoY, with margin at 20%—a modest 30 bps expansion.
At the bottom line, one-off exceptional items totaling Rs 293 Cr distorted comparability, resulting in a reported net loss of Rs 52 Cr versus expectations of profit. Adjusted profitability trends remain intact, but headline PAT reflects accounting volatility.
Segmental Performance Snapshot
| Segment | Q3FY26 Revenue (Rs Cr) | YoY Growth | QoQ Growth |
|---|---|---|---|
| Generics | 851 | 24.0% | 10.0% |
| Biosimilars | 2,497 | 9.1% | -8.2% |
| Research Services (CRDMO) | 917 | -2.8% | 0.7% |
The generics portfolio is benefiting from GLP-1 expansion, while biosimilars remain the structural growth engine, albeit with near-term normalization in margins.
Deleveraging in Motion: Balance Sheet Turning Conservative
Biocon is transitioning from a capex-heavy expansion phase to disciplined capital allocation. Over the past quarters, $550–600 million of structured debt has been retired, bringing net debt-to-EBITDA below 2.5x.
Annual capex has declined from approximately $275 million to below $225 million and is expected to taper further post completion of the Malaysia expansion project. The doubling of insulin drug product capacity in Malaysia is targeted for FY27 commercialization, followed by drug substance expansion thereafter.
Importantly, interest costs are projected to decline by approximately Rs 3 billion annually from FY27, materially supporting earnings recovery.
Forward Earnings Trajectory: Reset Estimates, Preserved Growth
Axis Securities has revised FY26E and FY27E estimates downward:
| Metric | FY26E (New) | FY27E (New) | Change vs Earlier |
|---|---|---|---|
| Revenue (Rs Cr) | 18,099 | 20,774 | -4.4% / -5.2% |
| EBITDA (Rs Cr) | 3,674 | 4,404 | -4.4% / -5.2% |
| PAT (Rs Cr) | 938 | 1,742 | -12.0% / -6.8% |
Despite estimate trims, FY27 earnings recovery remains compelling, with PAT expected to nearly double from FY26E levels.
Biosimilars: The Strategic Core
Four biosimilar molecules now generate over $200 million in annualized revenues. Q3 margins for Biocon Biologics reached 28%, though management guided for normalization toward mid-20% levels.
Yesintek has achieved roughly 70% U.S. market coverage. GLP-1 generics remain a critical lever, with U.S. and Latin American Liraglutide launches expected soon. Semaglutide filings across multiple geographies further enhance optionality.
The insulin franchise remains steady, with Aspart receiving interchangeable approval in the U.S., enhancing substitution prospects.
Valuation Framework: SOTP-Based Target of Rs 435
Axis values Biocon on a Sum-of-the-Parts (SOTP) basis using H1FY28E earnings.
| Business | EBITDA H1FY28E (Rs Cr) | EV/EBITDA (x) | Valuation (Rs Cr) |
|---|---|---|---|
| Generics | 254 | 10x | 2,539 |
| Biosimilars | 3,599 | 19x | 69,460 |
| Syngene | 892 | 17x | 8,436 |
| Enterprise Value | 80,435 | ||
| Net Debt | 10,445 | ||
| Equity Value | 69,991 | ||
| Implied Share Price | Rs 435 | ||
At the current market price of Rs 378, the target implies an upside potential of approximately 15%.
Risks Investors Must Monitor
Regulatory Risk: USFDA observations or warning letters could disrupt revenue flows.
Competitive Intensity: Increased biosimilar competition may pressure pricing.
Launch Delays: Any postponement in GLP-1 or insulin launches could defer earnings inflection.
Investment View: Structural Pharma Play With Improving Cash Dynamics
Biocon’s Q3 performance reflects operational volatility rather than structural deterioration. Generics are accelerating, biosimilars maintain strategic momentum, and capital intensity is declining. With debt reducing, interest costs falling, and margin normalization ahead, free cash flow conversion should improve meaningfully over FY27–FY28.
Axis Securities maintains a BUY rating with a target of Rs 435. For long-term investors willing to tolerate near-term earnings noise, Biocon represents a leveraged play on global biosimilar penetration, GLP-1 expansion, and disciplined balance sheet repair.
