Buy Biocon; target of Rs 1120: ICICI Direct

The small molecules segment accounts for 42% of turnover and comprises APIs like statins, immunosuppressants, specialty APIs and also includes generic formulations business. This vertical is seeing pricing pressure in some products. The company is exploring fewer opportunities but with higher profitability in this segment like moving into formulations and filing own ANDAs, 505 (b) (2) filings, etc. It has already filed seven or eight ANDAs cumulatively. These include complex generics and injectables. We expect small molecules segment to grow at 11% CAGR to Rs 1897 crore in FY16-19E.

OutlookIt will also provide an extra lever for growth besides Syngene and branded formulations. Apart from this, increase in biosimilar licensing deal in emerging markets would further improve the overall performance. As for developed markets foray, the current institutional acceptance of various biologics assets may set the launch pad two years hence. We have ascribed a target price of Rs 1120 (SOTP basis).