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BIOS’ implied hold co discount is now >40% - this makes the risk-reward extremely favourable. As key triggers play out over the next few quarters, BIOS’ stock price can significantly re-rate, in our view. Near-term drivers for the stock are: (1) bAspart and bBeva approval/ launch; (2) Formulary access for Hulio; and (3) A positive outcome for bAflibercept. The delay in approvals and a highly leveraged acquisition have admittedly spooked the street, but BIOS is relatively well-placed to play the growing biosimilars industry. We also believe that BIOS is near the end of its capex cycle and, therefore, FCFF visibility alleviates debt repayment concerns. BIOS is firing on all cylinders – all business segments are poised for double-digit growth and margin can expand ~380bps over FY23-26. BUY with a Sep’24 Price Target of INR 370.

* Key triggers to drive re-rating: Biocon Biologics (‘BBL’) has the following near-term triggers: (1) bAspart and bBeva approval and launch; (2) bHumira formulary access; and (3) Positive litigation outcome for bAflibercept. BBL’s existing molecules, particularly Fulphila and Semglee, have been performing well (click here). Notably, a large payor has signed up for Semglee as the exclusive Insulin Glargine for its formulary w.e.f. Jan’24, which can further improve its market share. Vizag commercialisation and 5-6 new generic launches annually can drive growth in the Generics business; meanwhile, Syngene is on track to deliver high-teens growth. 

* Capex cycle likely nearing completion, debt concerns overstated: We believe BIOS is likely near the end of its capex cycle. The company is at process validation stage for its Vizag facility and is setting up a new injectable and peptides facility in Bengaluru. BBL plans to expand its insulins capacity to prepare for the next phase of growth (Aspart, rH-insulin, Toujeo). FY24 capex outlay for Generics and BBL is USD 250mn. The capex is likely to get completed over the next 2-3 years, and post payment of deferred consideration to Viatris we believe there is healthy FCFF visibility. The payment for BBL’s USD 1.2bn loan is expected to commence in FY26 which can be paid from internal accruals, in our view.

* BIOS well-placed vs. peers: BIOS has an attractive pipeline – bAflibercept (FTF and interchangeability), bUstekinumab (CY23-filing), bDenosumab (CY24 filing), rH-insulin, Hulio (interchangeable), bPertuzumab, Insulin Glargine IU 300, etc. BIOS is best-placed vs. Indian peers to play the large US biosimilars opportunity. Dr Reddy’s and Lupin have made somewhat early progress. DRRD’s US pipeline includes Pegfilgrastim and Rituximab (partnered with Fresenius), Tocilizumab and Abatacept (WIP). LPC has Pegfilgrastim and bLucentis so far; Alkem, Aurobindo and Sun are also working on developing biosimilars for the US market. We believe Indian players will commercialise biosimilars with a partner (like Biocon-Mylan earlier; DRRD-Fresenius for two biosimilars).

* Hold co. discount expands; risk-reward extremely attractive: Biocon’s implied hold co discount is now >40%, which makes the risk-reward extremely attractive. We believe that this can shrink as key triggers play out. Our SOTP-based Sep’24 TP is INR 370. BUY. 

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