After a $3.3 bn acquisition, is it finally time to look at Biocon?

Indian Express

24-06-2025

For years, Biocon has been the stock market equivalent of watching paint dry. While the Nifty 500 surged in 2022, Biocon's shares have been trading in a range since 2018.
But things could be changing.
This isn't the same Biocon of a few years ago. It's bigger, more complex, and carries more debt. But it also has more firepower. So, let's peel back the layers and see if the numbers are finally starting to catch up with the story.
Biocon's financial trajectory: Growth, margin stability, and profit rebound
Over FY16-25, Biocon's revenues grew more than 4.5x (18.36% CAGR), from Rs 3,347 crore to Rs 15,262 crore, driven by scale-up in biosimilars, acquisitions, and consistent expansion in its contract research arm, Syngene International Ltd.
However, despite this topline surge, operating margins remained range-bound at 21-25%, reflecting rising R&D costs, pricing pressure in generics, and integration expenses.
During the same period, earnings per share (EPS) barely grew from Rs 4.5 per share to Rs 8.5 per share (7.3% CAGR). This is owing to a 2% EBITDA margin contraction, equity dilution, and an increasing interest cost on account of the Viatris acquisition (Rs 68 crore to Rs 897 crore in the last three years).
An evaluation of a more recent period offers a better outlook on the business.
A closer look: The last 4 years
FY22 was an inflection point. It marked the acquisition of Viatris Biologics by Biocon Ltd. That's the reason why, after consolidating its 90% shareholding (70.4% fully diluted basis), Biocon's consolidated revenue jumped from Rs 8,185 crore to Rs 15,262 crore.
Incidentally, the market did not look at the $3.3 billion acquisition of Viatris Biologics favourably, punishing the stock in its wake.
Since FY22, Biocon Ltd's EBITDA jumped by 1.8x, PAT by 2x, yet, EPS grew by just 1.56x owing to equity dilution.
Over the last 10 years, Biocon Ltd earned Rs 15,314 crore in cash flow from operations; meanwhile, the estimated spend on capex, growth, acquisition, etc, totalled around Rs 44,044 crore.
From the management's perspective, it's an attempt to position the company as a unique biopharma company across the entire value chain, from R&D and drug discovery to manufacturing to commercialising, marketing, and sales of the final product.
Whether this strategy of having control over the entire value chain will yield benefits in the form of higher margins and/or profitability remains to be seen.
Whatever the underlying rationale, this extra spending of about Rs 29,000 crore was undertaken by loading up more debt, selling off non-core assets (and shareholding in core assets), and equity dilution. This could partially explain why the stock price has remained stagnant in the last 7-8 years.
Biocon Ltd has decided to further dilute its shareholding by raising Rs 4,500 crore through a Qualified Institutional Placement (QIP) to bring down its gross debt of Rs 17,756 crore ($2.1 billion).
But what are these underlying businesses that Biocon felt compelled to spend aggressively on?
Three engines, one Biotech story: Inside Biocon's business model
Biocon's business today runs on three distinct engines: Biosimilars, contract research, and generics. As of FY2025, these contributed 58%, 23%, and 19%, respectively, to total revenues.
Each plays a different role in the group's evolution, from steady cash flow to long-term growth bets.
Let's break them down.
1. Generics: Quiet but Gritty (19.8% of FY25 revenue)
Biocon's generics business has had a relatively quiet FY2025. Price pressures and subdued demand, particularly in active pharmaceutical ingredients (APIs), kept this segment soft. But the fourth quarter offered some bounce, with new product launches like Lenalidomide, Dasatinib, and Liraglutide in the UK markets, triggering a rebound.
GLP-1 drugs such as Liraglutide offer immense growth opportunities for the company. GLP-1 drugs are a class of medications used to manage diabetes to lower blood sugar levels.
With the approval of Liraglutide in the UK, Biocon is one of the first generic companies to obtain approval for a generic GLP-1 medicine in a major regulated market.
A bigger trigger lies ahead. The much-awaited Liraglutide launch in the EU and US is expected in FY26, subject to regulatory approvals, and could materially shift the trajectory of this segment.
2. Biosimilars: The flagship growth engine (59% of FY25 revenue)
If generics are Biocon's foundation, biosimilars (through its subsidiary Biocon Biologics Ltd) are its marquee. Biocon Ltd owns 90.2% (71.4% on a fully diluted basis) in Biocon Biologics Ltd (BBL).
According to the QIP letter of offer document dated 16 June 2025, Biocon Ltd has four new products planned to be launched in their biosimilars business over the next 12 to 18 months.
After acquiring Viatris' global biosimilar business, BBL can now commercialise products independently, capturing full economic upside rather than splitting margins.
3. Research services: Syngene keeps the base warm
Completing the trio is Syngene, Biocon's listed contract research and manufacturing arm. Biocon owns 52% in Syngene International Ltd (a market cap of Rs 26,000 crore). It offers integrated discovery-to-development services for global pharma clients, and its contribution of ~24% to overall revenue adds useful diversification.
Syngene enjoys a strong brand recall in global R&D circles, and its revenue growth and EBITDA margins have been steady, underpinned by capex-backed capacity additions and long-term contracts. As commercialisation of its new facilities gathers pace, this segment should continue delivering operating leverage.
This brings us to the ultimate question : Is Biocon Ltd undervalued?
The most appropriate way to assign a value to Biocon's 3 major business segments would be to follow a sum of the parts (SOTP) valuation approach.
Please note that our estimates are back-of-the-envelope in nature.
1. What's BBL worth?
Private Transaction Benchmarks can offer some clues. Several equity raises in the past have provided clear market signals:
January 2021: Abu Dhabi's ADQ invested $75 million for a 1.8% stake, implying a post-money valuation of ~$4.1 billion for BBL.
November 2020: Goldman Sachs subscribed to $150 million of convertible debentures, placing BBL's valuation at approximately $3.94 billion
July 2020: Tata Capital invested $30 million for a 0.85% stake, suggesting a valuation of around $3.5 billion.
Essentially, BBL was being valued at $3.5-4 billion in 2020-2021. This was before Viatris' biosimilar business had been acquired for $3.3 billion.
On a fully diluted basis, Biocon Ltd owns 71.4 % in BBL (Biocon Biologics Ltd), which is equivalent to 71.4% of Rs 60,500 crore.
2. What's Syngene International worth?
Given Syngene international is a listed company, this value should be much easier to estimate. At a current market capitalisation of Rs 25,900 crore, Biocon Ltd's share is Rs 13,660 crore.
3. What's Biocon's generics business worth?
With revenues of Rs 3,017 crore in FY25 and EBITDA margins of 15% (Rs 450 crore), a 7-8x multiple (lower end of peer valuations) implies a valuation of around Rs 3,150 crore to 3,600 crore.
Finally, we must add the net debt of Rs 13,000 crore ($1.518 billion x 86.32) to arrive at the Enterprise valuation or the valuation a private buyer would pay for the entire company (Equity + Debt).
SOTP valuation estimate
Compared to the current enterprise value of Rs 54,100 crore and an estimated SOTP-derived Enterprise value of Rs 73,175 crore, Biocon Ltd offers a 26% discount.
However, if we consider Biocon Ltd a holding company, a Holdco discount also applies, It's possible that the difference in EV implied by current market cap and SOTP calculation is on account of this discount.
If that's the case, there might not be an undervaluation at all.
As the overall balance sheet deleverages, the process for which is already underway with the QIP raise of Rs 4500 crore, Biocon Ltd equity value should logically inch by an equivalent amount.
Another 'trigger' for value unlocking/enhancing could be the IPO of BBL or the merger of BBL into Biocon Ltd. A committee has already been formed which is evaluating the best course of action.
As per the management, the company is at an 'inflection point'. An investor should keenly watch as Biocon's balance sheet deleverages, and the benefits of the acquisitions begin showing up in the numbers.
Note: We have relied on data from http://www.Screener.in and http://www.tijorifinance.com throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
Rahul Rao has helped conduct financial literacy programmes for over 1,50,000 investors. He also worked at an AIF, focusing on small and mid-cap opportunities.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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