Buy Biocon; target Rs 338: SKP Securities

SKP Securities is bullish on Biocon and has recommended buy rating on the stock with a target price of Rs 338 in its October 08, 2012 research report.

"Biocon India Ltd. (incorporated in 1978) was the first Indian manufacturer and exporter of ENZYMES to U.S. & Europe, subsequently developing in Fermentation process. Biocon subsequently entered in to biopharmaceutical, statins and then moved to insulin. Biocon is the first company worldwide to develop human insulin on a Pichia expression system and is one of the Asia’s largest insulin producers, having 12% of market share, through its 7 subsidiaries globally.

Biocon’s branded formulations business has grown rapidly over the period of time, offering a large basket of products for chronic disease. Biocon recently launched its first reusable insulin delivery device which has been showing sustainable value in the company’s basket of insulin therapies in the market.

Commitment to deliver affordable, quality Insulin: push the demand: Biocon has a good talent base, low cost infrastructure and a lowcost scientific talent pool that makes it to manufacture affordable drugs. We do expect affordability of drugs is going to be the crux for the company’s growth strategies.

Upcoming Facility in Malaysian to expand Biocon’s wings: Biocon has commenced work on its Greenfield Malaysian biopharma manufacturing facility. We expect it to commence operation by 2014. The plant is expected to be one of the largest investments in the Malaysia healthcare biotech sector and expected to cater to the global requirements for Biocon’s range of biosimilar insulin and insulin analogs for diabetes treatment.

Insulin demand is expected to increase on the broader: Biocon has strong presence in anti-diabetic segment. We expect Biocon to launch Rh insulin in FY14 in the regulated market as they have completed phase III trials in EU. Insulin & Immunosuppressant is capturing 12-18% of domestic market.

Research & Development to be backbone of future growth: Biocon spends around 8% of its revenue on its R&D which is one of the highest in the industry.

Outlook & Recommendation: We expect Biocon to report healthy growth in the top line on the back of increasing expenditure on R&D segment and increasing demand of affordable drugs in the market. At current market price of Rs 273, Stock is trading at an EV/EBIDTA of 10.2x & 9.5x for FY13E and FY14E respectively. We recommend BUY rating on the stock with a target of Rs. 338 (23%UPSIDE) at the EV/EBIDTA of 9.5x on FY13E earning over the period of 18month," says SKP Securities research report.

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