Hold Biocon; target of Rs 1000: Axis Direct

Axis Direct's research report on Biocon

EBITDA (down 20% YoY) was 35% below consensus and our estimates due to weak sales across segments and higher other expenses (led by forex loss). While Biocon maintained FY19 sales guidance at USD 1 bn, it was cautiously optimistic for FY18 as commercialization of Malaysia facility would impact margins in P&L (costs capitalized earlier) whereas upside of Biosimilar sales in EM is likely to pick up in H2FY18. It expects the tax rate to increase to 24-25% (vs. 22% in past).

Outlook

We cut FY18/19E EPS estimates by 8%, as we expect weak H1FY18, higher operating expense, depreciation and tax. However, Biocon remains in a sweet spot given its strong biosimilar pipeline. Filing of Insulin Glargine and Adalimumab in the US are the next key triggers. We maintain HOLD with a revised SOTP TP of Rs 1,000 (22x FY19E EPS + R&D value of Rs 170) vs. Rs 1,040 earlier.