Choice Broking initiates coverage on Concord Biotech with ‘Outperform’ rating; sees 16% upside

Concord Biotech share price has been on a strong upmove since the past three months, gaining over 14% in one month and rallying more than 37% in the last three months.

Choice Broking has initiated coverage on Concord Biotech with an ‘Outperform’ rating and values the stock at 36x FY26E EPS to arrive at a target price of ₹1,715 per share, implying an upside of 16% from Monday’s closing price.

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The brokerage firm is optimistic on Concord Biotech on the back of fermentation APIs gaining market share with expansion of API portfolio in the low-volume high value segment and formulations segment picking-up due to new launches and the addition of injectables portfolio.

Moreover, the brokerage is also positive on the stock due to ready capacities and low utilization levels providing opportunities for operating leverage and margin expansion. 

The brokerage estimates the company to deliver FY23-26 revenue, EBITDA and PAT CAGR of 21.4%, 26% and 27.5%, respectively.

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Concord Biotech has one of the widest range of small molecule fermentation-based immunosuppressant APIs and is also one of the leading global developers and manufacturers of immunosuppressants and oncology APIs. The company’s strength lies in its focused niche fermentation API’s which is backwardly integrated to KSM. 

It commands a market share of over 20% (by volume) across key identified fermentation‐based API products. 

“Future growth of the fermentation based API segment will be led by market share gains due to increasing the wallet share from existing API customers and new client addition; and expansion of API portfolio in the low-volume high value segment. We estimate the API segment to register a robust CAGR of 14.8% between FY23-26E,” Choice Broking said in a note.

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Concord Biotech has over the years built a portfolio of 23 fermentation APIs, scaled manufacturing capabilities and backwardly integrated its API to KSM creating a competitive edge in the industry.

Between FY20-23, the company incurred an aggregate capex of ₹660 crore towards capacity expansion. The brokerage expects the company to reap benefits of the huge capacity and improve its utilisation going forward. It estimates the company to generate FCFF (free cash flow to the firm) of ₹850 crore between FY24E-26E and improve its ROIC (return on invested capital) by 600-700 bps.

At 2:15 pm, Concord Biotech shares were trading 1.22% higher at ₹1,496.25 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.