Sell Biocon; target of Rs 780: Centrum

Centrum's research report on Biocon

We downgrade Biocon to Sell from Hold rating, with a TP of Rs780 (earlier Rs780) based on 18x March’18E EPS of Rs43.2. Biocon’s Q2FY17 results were below our expectations. The company reported 20%YoY growth in revenues, 400bps increase in margins to 25.2% and 51%YoY improvement in net profit as per new Ind-AS. With the approval of insulin glargine in Japan and tentative approval of rozuvastatin tablets in US, it is poised for good growth. The insulin facility in Malaysia has commenced production and is likely to contribute from H2FY17. Key risks to our assumptions are slowdown in the biopharma segment and delay in receiving regulatory approvals for its biosimilar products in developing markets.

We downgrade Biocon to Sell from Hold rating, with a TP of Rs780 based on 18x March’18E EPS of Rs43.2, and with a downside of 20.4% over CMP. The stock had a sharp run up in recent months. We expect the company to deliver superior performance due to its strong presence in biopharma and insulin space and good growth in Syngene International as well as from entry into the lucrative Japanese market. The commencement of an insulin facility in Malaysia would contribute to revenues from H2FY17. We recommend a switch to Aurobindo Pharma or Sanofi India due to its rich valuations.