Accumulate Biocon; target Rs 287: Dolat Capital

Dolat Capital is bullish on Biocon and has recommended accumulate rating on the stock with a target price of Rs 287 in its November 1, 2012 research report.

"Biocon, net sales for the quarter grew 17.2% YoY to Rs 5.92bn, driven by higher revenues from both Biopharma & CRO segment. Biopharma revenues (ex licensing income) grew 24% YoY to Rs 4.63bn primarily driven by immuno-suppressants, branded formulations along with increased traction in insulin. Ramp-up in Fidaxomicin bulk API supplies has meaningfully added to the momentum this quarter. Domestic branded formulations grew 42% YoY to Rs 913mn driven by growth in chronic therapies. Licensing development fees & income was nil for the quarter (Q2FY12: Rs 365mn). Contract research revenue grew 39% YoY to Rs 1.29bn. About 50% of the growth was on account of favorable currency movement. GE Capital has acquired 7.69% stake in Syngene for a consideration of Rs 1.25bn. This values the subsidiary at around Rs 16.25bn. Proceed for the stake sale will be utilized towards capacity expansion in the division. Operating margins stood flat YoY (down mere 10bps YoY) to 24.3%. Raw material and employee cost declined by 110bps and 10bps YoY, respectively. However, other expenses increased by 130bps YoY restricting margin expansion. This was mainly on account of higher R&D expenses at Rs 429mn (up 40% YoY). Tax rate during the quarter stood higher at 25.3% on account of one-off dossier income (included in other operating income). Consequently, PAT (after minority interest) grew 4.9% to Rs 897mn. Outlicensing of the oral insulin (IN-105) and Itulizumab (Anti-CD6) are latent triggers. Valuation: Revenue scale-up in domestic branded business, fidaxomicin bulk and insulin sales, 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. The company continues 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 15.5x FY13E and 13.2x FY14E earnings. We recommend Accumulate with revised target price of Rs 287 (14x 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. Non-Institutions 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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