Accumulate Biocon; target Rs 260: Dolat Capital
Dolat Capital is bullish on Biocon and has recommended accumulate rating on the stock with a target price of Rs 260 in its July 27, 2012 research report.
July 28, 2012 / 14:20 IST
Dolat Capital is bullish on Biocon and has recommended accumulate rating on the stock with a target price of Rs 260 in its July 27, 2012 research report.
"Biocon, results were a mixed bag. Better-than-expected topline growth was offset by higher-than-expected R&D and other expenses, restricting bottomline Revenues for the quarter grew 30% YoY to Rs 5.77bn, driven by higher revenues from both Biopharma and CRO segment. There was 16% benefit in total sales on account of rupee depreciation. Biopharma revenues (ex licensing income) grew 29% YoY to Rs 4.4bn, driven by branded formulations (up 48% YoY) along with increased traction in insulin and other biopharma products. Ramp-up in Fidaxomicin bulk API supplies (launched by Optimer in select Eastern European countries) added to the momentum. Licensing development fees and income was ahead of estimates at Rs 140mn (Q1FY12: Rs 144mn). Contract research revenue grew 41% to Rs 1.23bn. Growth from Rupee depreciation was 15% YoY.Operating margins declined by 400bps to 21.3% (25.2% in Q1FY12) mainly due to 440bps YoY increase in other expenses (20.9% of sales). The negative impact was due to higher R&D and forex loss. R&D expense of Rs 360mn for the quarter is after netting Rs 132mn of deferred revenues from Pfizer deal being written off. The company has recorded a net forex loss of Rs 50mn during the quarter (gain of Rs 100mn in Q1FY12). Tax rate during the quarter stood at 14.8% (14.6% in Q1FY12). Consequently, PAT grew 12.5% to Rs 788mn. We have lowered our EPS estimates by 2.9%/4.6% for FY13E/14E to reflect increase in R&D costs as several programs advance in clinics. Out-licensing of Oral insulin and Itolizumab (Anti-CD6 concluded Ph-III trials) is a latent trigger.Revenue scale-up in domestic branded business, insulin penetration in emerging markets and fidaxomicin bulk supplies shall aid near-term revenue growth. The company aims to match ongoing R&D costs (excl. Biosimilar Insulin costs which are adequately funded) with potential licensing income. Uncertainty over monetization of biosimilar insulin’s post-Pfizer split has weighed down valuations. The company shall now continue to actively capitalise on existing alliances and progress on to building new regional partnerships for its biosimilar insulin’s. At CMP, the stock trades at 13.6x FY13E and 11.9x FY14E earnings. We recommend Accumulate with a revised target price of Rs 260 (13x FY14E EPS). The price target does not include any upside potential from out-licensing of lead candidates - the oral insulin molecule and Anti-CD6,” says Dolat Capital research report.Public holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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