Buy Biocon; target of Rs 490: ICICI Direct

ICICI Direct's research report on Biocon

Q1FY21 revenues grew 14% YoY to Rs 1671 crore (I-direct estimate: Rs 1651 crore) mainly due to 18.9% YoY growth in biosimilars to Rs 692 crore. The Generics segment grew 16.1% YoY to Rs 599 crore. Research services segment remained flat YoY at Rs 422 crore. EBITDA margins contracted 512 bps YoY to 24.7% (I-direct estimate: 22.2%) mainly due to lower gross margins and higher R&D costs. EBITDA declined 5.5% YoY to Rs 413 crore against I-direct estimate of Rs 366 crore. Adjusted PAT declined 27.6% YoY to Rs 149 crore (I-direct estimate: Rs 127 crore). Delta vis-à-vis EBITDA was due to higher depreciation and lower other income.

Outlook

The company remains committed on accelerated spending towards capex and R&D that is likely to push related expenses higher in the near term. Timely launches and ramp up of biosimilars in developed as well as EMs and Syngene’s performances remain key levers for the company. We arrive at our revised target price of Rs 490 on an SoTP basis. Despite recent run up the stock remains a compelling bet based on improved scalability and visibility.

Biocon 25072020-icici