Hold Biocon; target of Rs 312: Sushil Finance

Sushil Finance has recommended hold rating on Biocon with a target of Rs 312, in its January 29, 2013 research report.
 
“Biocon Ltd. (Biocon) has reported better than expected topline growth however higher than expected tax outgo resulted in the bottom line growth getting restricted. The company’s top line increased by 23.6% YoY whereas PAT witnessed a growth of 8.1% on a YoY basis to Rs. 917.6 mn.”
 
“Revenues grew by a strong 23.6% YoY from Rs. 5199.9 mn in Q3FY12 to Rs. 6429.1 mn in Q3FY13. Biocon’s Biopharma business (excluding licensing income) registered a growth of 29.3% with revenues of Rs. 4857 mn in Q3FY13 driven by branded formulations which registered a growth of 18.8% YoY (aided by growth in chronic therapies majorly oncology, diabetology and comprehensive care) coupled with increased traction in insulin and Immunosuppressants. Volume growth, price increases as well as better export realization on account of favourable currency also help the business gain the momentum. Operating profit reported a growth of 19.0% YoY from Rs. 1262.9 mn in Q3FY12 to Rs. 1502.8 mn in Q3FY13 with EBITDA margin (excluding licensing income) coming in flat at 23.4% in spite of increase in other expenses primarily linked with high R&D expenses. The reported EBIDTA margin came in at 23.4% vs 24.6% in Q3FY12. Biocon failed to report equivalent growth numbers at the bottom line on the back of higher tax outgo due to some of its units coming out of the scope of tax benefits under the SEZ and EOU schemes. Reported Net Profit grew by 8.1% YoY from Rs. 848.5 mn to Rs. 917.6 mn in Q3FY13 whereas margins were at 14.3% vs 16.3% in Q3FY12.”
 
“Q3FY13 witnessed major advancements in Biocon’s novel molecules program with significant progress across all lead programs. With higher contribution from Biosimilars (driven by insulin launch in more markets & traction in immunosupressants and Fidoxamicin API supply to continue), Research Services (new client additions) and Branded Formulations to the overall revenue going forward coupled with elimination of irregularity in R&D spends post its deal with BMS, we believe the company’s base business growth momentum is safeguarded. Potential news flow on out-licensing of Itolizumab and partnering out of Rh insulin / analogues in EU and other markets would act as a trigger to the stock, since current valuations do not build in any long-term potential upside from its biosimilars pipeline. We thereby recommend a HOLD on the stock with a revised target price of Rs. 312 assigning a P/E of 16x to its FY14E EPS of Rs. 19.5,” says Sushil Finance research report.

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