Insulin shot….BUY Biocon target Rs 625/-

Pharma has been on a tear the past year or so…a lot of stocks have posted new 52 week highs this past month and continue to be on a strong path of growth and margin expansion.

One stock that has not participated in the rally , and some would say with good reason is Biocon.  The Q3 results were not what one would hope for. Overall revenue growth was ok but capacity constraint and slow API growth hit the bio-pharma business which grew by only 4%. EBITDA margins and EBITDA were muted, and Net Profit declined by 13.5% to Rs 90.9 crore.

CRAMS continued to deliver but for the rest it was not all that good for some or the other reason.

So this brings us to the question why do I like it, well several reasons:

Biocon is the 4th largest insulin player in the world, just last week it got approval for its insulin Glargine from the Mexican health authority Cofepris. Galactus by PiSA is the first insulin Glargine to be approved in Mexico as per the biocomparable approvals pathway defined in 2012. The combined market for insulin Glargine in Mexico is estimated to be in excess of USD 40 million, Biocon said.  This is a step ahead in Biocon’s  journey to make affordable insulin available globally for effective treatment of Diabetes.

The Malaysian integrated insulin manufacturing facility will be ready for pilot runs  by FY16, this will further help Biocon improve its global footprint for rh-insulin to more than its current 20 countries, as capacity constraints will be over.

The CRAMS division of Biocon – Syngene, the research arm has 8 molecules under late stage development.  Their contracts with pharma majors give them good revenue visibility – add to this the recent announcement that Syngene would get listed in FY16 and that the DRHP will be filed in Q1.  There is an expectation that the valuation of Syngene will be better than the Rs3800 crore base valuation as per the price at which the last transaction was done, in any case it is a value unlock for the company

Their strategic collaboration with Mylan to develop bio-similars should see good traction over the next 2-3 years.

Meanwhile their domsetic formulations business which has been seeing some portfolio restructuring should benefit from shifting focus back to areas of diabetes, oncology and nephrology.

All said the next 3 – 4 years could well prove to be good years for Biocon and their profitability record should improve.  My working shows that the company could end FY17E with an EPS of Rs 25 which would give me a target of Rs 625/- on the stock assuming a PE of 25.

Comments

  • Is Biocon the next target for Teva after today’s offer for Mylan?

    John BarnesApril 21, 2015
    • No, don’t think so its a company I like on its own merit anyway

      Sharmila JoshiJuly 29, 2015
  • sharmila ji I am being following your trading tips since one month and have found mixed results but I have enjoyed your tips. I want ask you that is it a good idea to invest Rs10000/- in just one share and wait for its target to be achieved. Why I am asking this because I dont have sharp mind to invest in many shares and keep watching whole day. I want to put large money in one share and wait for the profit. Kindly reply soon and may God bless you.

    dheerajJuly 14, 2015
    • Sorry for the late reply – I think its better to put in more than one scrip – if your amount is rs 10000 put in 2 or 3 scrips each from different sectors. It is always safer.

      Sharmila JoshiJuly 29, 2015

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