Neutral Biocon; target of Rs 360: Motilal Oswal

Motilal Oswal's research report on Biocon

We recently met with BIOS’ management to understand its business outlook in greater detail. Here are the key takeaways: After two years (FY20/FY21) of earnings decline, BIOS is well-positioned to revive earnings growth meaningfully. In addition to steady traction in already launched Biosimilars, BIOS has Insulin Glargine (Semglee) contracts starting 4QFY22. This would be further supported by b-Aspart, subject to regulatory clearance. The recent agreement with the Serum Institute of India (SII) to market its COVID-19 vaccine further increases its business prospects from 2HFY23E onwards. We expect 36% earnings CAGR over FY21-23E, led by Insulin Glargine, scaling up of the Biologics business in emerging markets, and ramp-up in research services. We are yet to factor in the Vaccine business in our estimates. While the earnings outlook remains promising, we maintain our Neutral stance with a TP of INR360 per share (32x 12-month forward earnings) as current valuations factor in an earnings upside over the medium term.

Outlook

We value BIOS at 32x 12-month forward earnings to arrive at our TP of INR360. We maintain our Neutral rating as current valuations adequately captures in potential upsides from a ramp-up in launched Biosimilars in the US.