Buy Biocon; target of Rs 410: Axis Direct

Axis Direct's research report on Biocon

Q2 PAT declined 53% YoY and was 29% lower than our estimate. This was led by (1) lower revenue (small molecules & biologics) and increase in costs (higher staff costs, other expenses on commissioning of Malaysia facility and remediation activities). While company expects modest growth across business segments in H2, it expects robust recovery from FY19 with regulatory approvals and tender outcomes for biosimilars in key emerging markets. US filing of Insulin Glargine in Q2 was positive, while its MAb* pipeline is awaiting regulatory clearance. Regulatory clearance and progress on TAD of Trastuzumab are key catalysts.

Outlook
On weak Q2 and regulatory headwinds, we cut our FY18E/19E estimate by 21%/17%. We believe earnings will see inflection from FY20 with monetization of its biosimilar pipeline in the US/EU -- expected to be ~1.5x by FY20 over FY17 base. Maintain BUY with revised TP of Rs 410 (32x Sep’19E EPS) vs.Rs 380 earlier (32x FY19E). For all recommendations report, click here

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