Concord Biotech share price surges 20%; Kotak upgrades the stock to an add; here’s what the brokerage firm says

Concord Biotech share price: After suffering losses in the last four consecutive sessions, Concord Biotech shares vaulted 20 per cent to open at ₹1,670 on Wednesday, May 29, on BSE, defying weak market sentiment. The stock, however, pared gains and traded 7.14 per cent higher at ₹1,491 apiece around 9:45 am. Equity benchmark Sensex was 0.33 per cent down at 74,920 at that time.

On Tuesday, May 28, the company held an earnings call for the fourth quarter and year ended March 31, 2024, with analysts. Following this, brokerage firm Kotak Institutional Equities upgraded the stock to an 'add' from a 'reduce', revising the fair value to ₹1,550, implying an 11 per cent upside potential.

Concord Biotech reported a nearly 4 per cent year-on-year (YoY) rise in its Q4FY24 consolidated profit to ₹95.02 crore on Thursday, May 23, compared to a profit of ₹91.50 crore in the same quarter of the previous financial year.

Revenue from operations for the quarter under review rose 17 per cent YoY to ₹318.97 crore from ₹272.59 in Q4FY23.

Reacting to the company's Q4 results, the stock fell by about half a per cent in the next trading session on May 24. In the subsequent two sessions on May 27 and 28, the stock fell nearly 1 per cent and over 3 per cent, respectively.

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Concord Biotech share price trend

Concord Biotech share price has surged as much as 88 per cent in about nine months. The stock debuted on exchanges on August 18, 2023. On May 28, 2024, it closed at ₹1,391.80 on the BSE, which is 87.8 per cent up from its issue price of ₹741 per share.

The stock has been under pressure in May so far. As of the close of the previous session, it was down 16 per cent this month.

The stock hit its 52-week high of ₹1,711.95 on the BSE on April 30 this year.

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Kotak upgrades the stock

Kotak Institutional Equities (Kotak Securities) upgraded the stock to an 'add' with a revised target price of ₹1,550. It cited Concord’s Q4FY24 sales, which were led by 14 per cent and 37 per cent YoY growth in API (active pharmaceutical ingredient) and formulations, respectively, which were in line with its estimates.

Kotak raised its FY25/26E EBITDA margins, driving a 0-3 per cent EPS (earnings per share) change over FY25/26E.

“After the recent stock price correction, there is incremental valuation comfort. Roll forward to June 2026E to derive a DCF-based fair value of ₹1,550 from ₹1,450 earlier. Accordingly, we upgrade the stock to an 'add' from a ‘reduce’,” Kotak said.  

"Key risks to our add ratings are a high product concentration, any significant impact of capacity expansion by competitors such as Biocon and the inability to meaningfully scale up its presence beyond its existing 30 APIs," said Kotak.

Kotak pointed out that Concord’s management reiterated its guidance of achieving a 25 per cent sales CAGR over the next five years.

"Led by continued market share ramp-up in its key molecules, the addition of new clients and commercialisation of new APIs across anti-infectives and oncology, we expect Concord to report a 21 per cent API sales CAGR over FY2024-27E," said Kotak.

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Kotak finds Concord in a sweet spot due to its proficiency in the high entry barrier fermentation API segment, strong client connections and robust execution track record.

The brokerage firm underscored that Concord focuses on niche, high-value molecules in immunosuppressants, anti-infectives, and oncology, where complex fermentation processes and difficulties in scaling up are key entry barriers.

Concord has been witnessing healthy traction in OSD (oral solid dosage) formulations also.

"We expect operating leverage from higher Limbasi sales to largely offset the impact of the higher contribution of the low-margin formulations segment and build in 24 per cent EBITDA CAGR over FY24-27E. While there is a possibility of an entry into adjacencies such as steroids, peptides, enzymes and biosimilars, Concord will be very selective and look at these opportunities only at the appropriate time," said Kotak.

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