Hold Biocon; target of Rs 800: Axis Direct

Axis Direct's research report on BioconStrong growth & R&D progress – priced in? Q1FY17 PAT at Rs 1.47bn was 45% higher than our estimate due to higher growth of 15% YoY in the base business, lower R&D, and higher other income.While R&D expense was lower at 8.1% of sales (FY16:11.3%), Bioconmaintains to file four biosimilar products in FY17 and maintains R&D expense at 12-14% of FY17 sales.Progress in R&D was filing (by Mylan) and acceptance by EMA#of Pegfilgrastim. We raise TP by 18% to Rs 800 (22x FY18E EPS vs.19x FY18E) and R&D value to Rs 160 (Rs 130 earlier) on advancing R&D pipeline, increasing regulatory visibility and improving base business. However, with 70% spike in stock’s price in 6 months, we downgrade our rating to HOLD. While news flow wrt R&D pipeline is expected to remainpositive, further upside to our R&D value depends upon progress on regulatory uncertainties(inter-changeability, extrapolation, etc).