Buy Biocon; target of Rs 421: Dolat Capital

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Buy Biocon; target of Rs 421: Dolat Capital

Dolat Capital is bullish on Biocon and has recommended buy rating on the stock with a target of Rs 421 in its December 1, 2011 research report.

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Dolat Capital is bullish on Biocon and has recommended buy rating on the stock with a target of Rs 421 in its December 1, 2011 research report.

"Biocon has shifted its focus from statins to branded biotech formulations and contract research services. We estimate Biopharma division to grow at 17% CAGR over FY11-13E with increasing contribution from domestic branded formulations and ramp up in bulk supplies for products going off patent. The company is gearing up its product pipeline to leverage on the Biosimilar opportunity in key regulated markets (products going off-patent in 2014-2018E). We estimate 18% revenue growth in its CRO segment over FY11-13E with increased focus on integrated drug development services. Favourable data on Oral insulin IN105 (Phase I trials ongoing in US) shall be a key valuation driver, given the potential size of the opportunity and the status as a novel product."

"The management guides for a stable outlook in its statins business as Atorvastatin goes off patent while dependency on the statins business is anyways expected to decline over the years. It has signed up with four partners in EU and shall have two clients (currently one) in the US for Atorvastatin supplies. The company commenced Fidaxomicin bulk supplies in June 2011 to Optimer and this will aid topline growth in subsequent quarters. Optimer has revised its revenue forecast on 'DIFICID' upwards to USD 2bn- to be attained over three years. This augurs well for Biocon. The management has guided the branded formulations business to grow 35% YoY during FY12E (FY11: Rs 1.8bn) and reach a revenue mark of Rs  5bn over the next three years. Its diabetic portfolio currently generates half of the total domestic branded business revenues. Biocon launched 'Insupen' (reusable insulin pen device) in Q2, competitively priced at Rs 675. Rivals' products are priced in the Rs 450- 1,350 range. Insupen is unique in being able to deliver both Basalog (glargine) and Insugen (insulin), thus maximising patient convenience. We expect it to aid growth."

"Fidaxomicin bulk and Atorvastatin supplies coupled with incremental revenues from the Pfizer deal ensure near-term revenue visibility. We expect the growth trajectory to sustain with gradual scale up in domestic formulations and ramp up in bulk supplies for products going off-patent. We anticipate higher R&D costs (as the product pipeline advances) to restrict margin expansion. Higher contribution from contract research and certainty over milestone payments further add to the growth momentum. At CMP of Rs 319, the stock trades at 17.7x FY12E and 14.5x FY13E earnings. We maintain Buy recommendation with target price of Rs 421 (16x FY13E EPS and inclusive of NPV of Rs 69 per share from Pfizer deal). This price target does not include any upside potential from the oral insulin molecule," says Dolat Capital research report. 

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