Down 15% from debut, JPMorgan neutral on Indegene as it awaits better entry point

After making a strong debut in May this year with a listing price of ₹659.70—representing a 47 per cent premium over its IPO price—Indegene has experienced a decline of nearly 15 per cent. Currently trading at ₹562.25, the stock, however, remains over 24 per cent higher than its IPO price of ₹452, reflecting a degree of resilience despite recent challenges.

In early June, the stock touched its 52-week low of ₹468.90, but it has since rebounded by 10 per cent. However, the stock has yet to surpass its debut high, which remains its record peak. August has proven challenging for Indegene, with the stock shedding almost 8 per cent. This decline comes after a 9.7 per cent rally in July and a 6.8 per cent gain in June, indicating a period of volatility as the market continues to assess the company’s performance and future prospects.

On the back of its volatile performance and muted earning growth, global brokerage house JPMorgan has initiated coverage on the stock with a 'neutral' call and a target price of ₹570 for September 2025. This implies an upside potential of around 1.5 per cent from its current market price (CMP).

"INDGN is a high-quality ops vendor that deserves a premium to diversified BPM players and several mid-sized services firms given higher productivity, profitability and secular growth potential. However, we find current valuations at 21 per cent/12 per cent premium to BPM /mid-sized peers already bake in the recovery and would wait for a better entry point," said the brokerage.

Indegene (INDGN) is a leading niche tech operations (TechOps) vendor focused on the global life sciences (LS) industry that has scaled rapidly during COVID. Overall growth slowed down after the pandemic, due to client-specific factors and weakening macro indicators from the lightening drug launch cycle of its Big Pharma clients.

The brokerage expects growth to bounce back to the early teens from FY26 and sees INDGN enjoying low-teens secular growth, thanks to low tech penetration in the life sciences ops industry, strong track record and differentiated service offerings.

INDGN trades at a premium to most TechOps firms and at the upper end of Indian midcap tech services peers. With full valuations, and clouded current visibility on new drug launches for its clients, JPMorgan finds INDGN fairly priced.

Investment Rationale

The brokerage initiated coverage on Indegene with a neutral rating as it believes the growth recovery expectations from FY26 are baked into the current stock price.

"The stock bakes in all positives and we don’t see a clear positive catalyst that can drive the stock further up from here on, in our view. We like the structural growth story of Indegene given its exposure to the under-penetrated life sciences outsourcing market, however, in the near term, it faces client-specific issues that we believe will keep FY25 growth limited to high-single-digit level. The key risk we see is high client concentration and single vertical exposure that can significantly impact Indegene if any of its top clients come under duress," the brokerage noted.

Attractive secular growth potential from under-penetrated outsourcing: As per the brokerage, INDGN is well-positioned for attractive secular growth, particularly in the under-penetrated outsourcing market. The company’s TechOps services have significant long-term potential, with only about 20 per cent of life sciences operations spending (estimated at USD 156 billion in 2022) currently being outsourced. This low penetration is largely due to the increasing need for digitisation, a shortage of digital talent, and the rising costs associated with R&D and SG&A in pharmaceutical companies, it noted.

Strong process expertise and track record in scaling top clients: Indegene’s strength lies in its process expertise and its proven ability to scale top-tier clients. With a long history in the industry, a workforce where 22 per cent have a pharma background, and proprietary tools, Indegene has developed best-in-class capabilities for managing efficient operations. The company enjoys robust relationships with 19 of the world’s 20 largest biopharma firms, which has enabled it to scale revenues from its top four clients to over $25 million and its top 10 clients to an average of $16 million, it stated.

Sector-leading numbers show differentiated service offerings: Moreover, Indegene’s sector-leading per capita revenue and profits underscore its differentiated service offerings, pointed out JPMorgan. The company outperforms other mid-sized IT services and BPO firms in these metrics, reflecting its high-value addition and effective use of technology, despite having a heavily offshore operation, it added.

Growth to accelerate in FY26 as client-specific issues abate: According to JPMorgan, Indegene's growth is expected to accelerate in FY26 as it moves past client-specific challenges. After experiencing rapid growth post-COVID, with a revenue CAGR of around 40 per cent from FY20-23, the company faced a slowdown to 3-4 per cent organic growth in FY24. This deceleration was due to issues with its top two clients, the expiry of COVID vaccine products, patent cliffs, a slowdown in new drug launches, and difficulties faced by emerging biotech companies. However, as these issues are resolved and incorporated into the company’s base, growth is expected to return to the mid-teens by FY26,the brokerage observed.

Investors may be closely monitoring Indegene's trajectory as the stock navigates through market fluctuations, balancing its initial strong performance with the pressures of maintaining growth in a competitive environment. However, JPMorgan believes all the positives are baked in and advised investors to wait for a better entry point.

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.