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Strong 2Q; launches rev-up the biosimilars engine

Biocon reported a strong 2QFY26 with revenue/EBITDA growing 20%/20% YoY, in-line with expectations, and PAT turnaround from losses. EBITDA Margins remained flat YoY at 19%. Growth was led by the Biosimilars and Generics segments. Biosimilars grew a stellar 25% YoY, driven by market share gains and successful launches including bUstekinumab, bAspart, bBevacizumab and bAflibercept, with bDenosumab launch imminent following FDA approval and Amgen agreement. The Generics business reported strong 24% YoY growth, led by new launches such as Liraglutide, Dasatinib and Sacubitril+Valsartan, with margin recovery aided by capacity ramp-up and improved product mix. The CRDMO revenue grew a moderate 2% YoY with strength in research services offset by temporary biologics inventory correction; the segment added its first global Phase-III clinical trial win and is progressing on ADC suite and Bayview biologics facility. Structured debt settlements with Goldman Sachs, Kotak and Edelweiss are already reflecting in reduced finance costs and INR 3bn annual interest cost savings are guided for FY27. We have revised our FY26/27/28 estimates on account of biosimilar ramp-up, the muted EBITDA trajectory and higher than anticipated minority payments. We remain confident on the company’s future prospects owing to the biosimilar scale-up, new launches, improving leverage and balance sheet strengthening. Thus, we maintain BUY, valuing the company using SOTP methodology to arrive at a TP of INR 476.

* Biosimilars (61% of sales | 25% EBITDA margin): The segment reported INR 27.2bn (+25% YoY) in sales, driven by market share gains and successful new product launches. The company has delivered on its guidance of 5 product launches with bUstekinumab, bAspart, bBevacizumab, and bAflibercept; bDenosumab being the 5th with launch expected in imminent future. Yesintek continues strong commercial traction with market leading position in North America. The drug has now listing with over 70% of the commercial formularies. Ogivri and Abvemy are gaining market share in EU on the back tender wins. Yesafili is seeing traction in Canada and has secured public funding on the drug benefit formulary for Ontario, the country's most populous province. Keytruda approval is now expected without phase-III clinical study. The Company received total of 13 new approvals and launched 19 product across key markets in 2Q. Expanding biosimilar portfolio, focusing on high-value & high-growth therapy areas, along with traction in launches remain key growth drivers. R&D guidance for FY26 at 7-9% of sales.

* Generics (18% of sales): The segment reported INR 7.7bn (+24% YoY) in sales, driven by traction in recently launched products (eg: Liraglutide, Dasatinib, and Sacubitril + Valsartan) in the U.S. and EU. This was further supported by growth in the base formulation and API business. Margins, which were earlier subdued due to 3 new facilities capitalized earlier, is seeing uptick as these capacities ramp-up and the new launches come-in. 2Q margin uptick is largely due to gliraglutide launch in EU. The GM for business was in mid-40s during 1H, with further improvement expected in 2H. A key highlight during 2Q was inauguration of Biocon’s first OSD manufacturing facility (capacity of 2bn tablets) in the U.S., set up with ~USD 30mn investment. The facility underwent FDA inspection which was concluded with one minor observation, Biocon has submitted response to the same. Biocon also commenced gSemaglutide filings, including in Canada and Brazil. The company is backwards integrated and capacity won't be an issue on either formulation/device via both in-house and 3rd party tie-ups. R&D stood at 9% of sales, with full year guidance being at 8-10%. New product launches and expanding reach to further strengthen 2H.

* CRDMO (21% of sales | 23% EBITDA margin): The segment reported INR 9.1bn (+2% YoY) in sales, performance being in-line with company’s expectations and management maintaining FY26 guidance. Growth driven by strong growth in research services, partially offset by the expected inventory correction in biologics manufacturing. During the quarter, Syngene expanded its clinical trials footprint to Australia, New Zealand, UK, Sri Lanka, and Eastern Europe. A key highlight of 2Q is the company winning its first global phase-III clinical trial from a U.S.-based biotech company, which will recruit patients across India and the U.S. On the expansion front, Syngene is building GMP bioconjugation suite at Bengaluru biologics facility, enabling end-toend manufacturing of ADCs, making Biocon one of the select CRDMOs offering comprehensive ADC services. The on-shore Bayview biologics manufacturing facility too remains on track, with operationalization expected in the second half of the year. Diversified service offerings and integrated value chain are the key growth drivers.

* Other highlights: The Board approved settlement of the structured debt obligations with Goldman Sachs (exit - 30th june) and Kotak (exit - 1st Octorber) via QIP, and execution of an agreement with Edelweiss (exit before 31st January). Margin improvement being seen, interest cost will further come down in coming quarters, FY27 has INR 3bn interest cost saving guidance. Q2 already started reflecting the Goldman Sachs impact on margins, Q3 will reflect impact of Kotak and Q4 should reflect the Edelweiss agreement. The company also entered into a partnership with the State of California through Civica Inc. to supply affordable Insulin Glargine, with potential to extend to other states.

* Valuation: Owing to the biosimilar ramp-up, muted EBITDA trajectory and higher than anticipated minority payments, we have revised our FY26/27/28 estimates. We value the company using SOTP methodology to arrive at a TP of INR 476. Maintain BUY.

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