Buy Biocon; target Rs 325: Sushil Finance

“Biocon has reported subdued set of numbers for the quarter ended Dec mainly due to (a) lower than expected licensing income and (b) some of the company’s capacities being occupied for developmental production batches on a commercial scale during the quarter. The company’s top line increased by a mere 1.5% YoY whereas PAT witnessed a degrowth of 13.8% on a YoY basis to Rs. 848 mn due to lower licensing income realization in the bottom line.”

“Revenues grew by a mere 1.5% YoY from Rs. 5097 mn in Q3FY11 to Rs. 5172 mn in Q3FY12. Biocon’s Biopharma business (excluding licensing income) registered a growth of 6.2% with revenues of Rs. 3760 mn in Q3FY12. The prime reason for this sluggish growth was some of the company’s capacities being occupied for developmental production batches that it had to take up on a commercial basis for getting regulatory approval. However, Immuno-suppressants grew over 40% in Q3FY12 vs Q3FY11 on the back of strong Tacrolimus and MMF sales & domestic branded formulations posted strong growth of 49% from Rs. 471 mn in Q3FY11 to Rs. 701 mn in Q3FY12 driven by all therapy segments and the successful launch of reusable insulin delivery device INSUPen and insulin (Glarvia & Univia) launch in India by Pfizer.”

“Biocon reported a 62% decline in its licensing income registering Rs. 292 mn in Q3FY12 as against Rs. 768 mn in Q3FY11. However, we believe the licensing income in Q3FY11 was a one off as it showed a spike due to its deal with Pfizer. In addition to this, Biocon licensing income realization at the PAT level was Rs. 30 mn in Q3FY12 as against Rs. 580 mn in Q3FY11 whereas for the 9MFY12 period, the company’s licensing income realization at the PAT level was Rs. 140 mn as against Rs. 700 mn realized in 9MFY11. On the research services front, we believe that the gradual restructuring in Syngene has already started paying rich dividends with a 42% YoY growth to Rs. 1120 mn in Q3FY12. The management has provided an approximate time frame of 12-18 months for the listing of Syngene subject to market conditions.”

“Operating profit reported a de-growth of 21.6% YoY from Rs. 1625 mn in Q3FY11 to Rs. 1274 mn in Q3FY12 on account of lower licensing income realization on the operating front, higher employee cost & one time promotional expenses for INSUPen. The EBIDTA margin came in at 24.6% vs 31.9% in Q3FY11. Reported Net Profit de-grew by 13.8% YoY from Rs. 984 mn to Rs. 848 mn in Q3FY12 whereas margins were at 16.4% as licensing income at the PAT level only contributed Rs. 30 mn & Rs. 140 mn in Q3FY12 & 9MFY12 respectively.”

“Licensing income was sharply down from the exceptional levels recorded last fiscal which resulted in flat earnings overall. However, we believe the key growth drivers for Biocon are still very much in place with the domestic formulations business registering strong growth (recently launched Insulin through Pfizer & INSUpen in the domestic market has seen good uptake) coupled with incremental contribution from Fidaxomicin supplies to optimer for the EU launch and a ramp-up in the contract research business. The company is optimistic of finding a partner for Oral Insulin IN-105 by end of March 2012 and has plans to out-license Itolizumab (for psoriasis) as well. We expect Biopharma sales to pick up pace once Pfizer starts launching Biocon’s insulins in key Emerging markets. We thereby recommend a BUY rating on the stock with the target price of Rs 325 (based on 18x its FY13E EPS of Rs. 18),” says Sushil Finance research report.

FIIs holding more than 30% 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.