Buy Biocon; target of Rs 450: Axis Direct

Axis Direct's research report on Biocon

Q1FY18 PAT was 10% below our estimates. Higher costs led by commissioning of Malaysia facility were expected, but lower revenue growth led by 17% YoY decline in small molecule and branded formulations was a negative surprise. Biocon remains confident of FY19 revenue guidance of USD 200mn for bio similar sales – implying 57% CAGR over FY17-19E – mostly from EMs and small portion from EU. Progress on TAD’s of Trastuzumab & Peg-filgrastim, regulatory clearance on its mab & insulin facility and filing of Glargine in US – key catalysts.

Outlook

We believe earnings will see inflection point from FY20 with monetization of its bio similar pipeline in the US/EU -- expected to be ~2x by FY20 over FY17 base. Maintain BUY with TP of Rs 450 (38x FY19E EPS) with improving regulatory pathway unlocking value of biosimilar players – Celltrion (trading at 30x CY18 EPS), Samsung Biologics (138x CY18 EPS) as per BBG estimates.