Buy Biocon, target price Rs 390: Geojit

Geojit has given a buy rating to Biocon with a 12-month target price of Rs 390 based on 31 times FY22E adjusted EPS. According to the brokerage, the company’s medium-term growth outlook remains intact on new product launches and strong pipeline despite challenges amidst Covid-19 pandemic. Therefore, it has upgraded its rating to buy.

The Q4FY20 revenue of the company grew 3.4% year on year to Rs 1,581 crore, supported by strong growth in Small Molecules segments (+14.6% year on year) and research services (+13.7%). EBITDA fell 11.5% year on year to Rs. 382 crore, as EBITDA margin contracted by 410bps to 24.1% primarily on higher employee costs (+21.1% year on year). Biocon Limited is an integrated biopharmaceutical company engaged in discovering, developing and producing biologics in chronic therapies. Key products include statins, immunosuppressants, anti-diabetic drugs and specialty enzymes.

Investment Rationale


The brokerage points out that the company has received an establishment inspection report (EIR) for its insulin manufacturing facility in Malaysia, which had gone under inspection on 10th and 20th February. This should enable the company to cater to the US market by introducing Insulin Glargine with its partner Mylan. Besides this, company also received EIR and VIA classification for its two Bangalore-based API manufacturing facility and also received Zero observation for Oral Solid Dosage facility. Biocon also commercialized Pegfilgrastim, Fulphila® in Australia and Canada in Q4FY20. Despite the poor performance in the branded formulation segment, CANMAb® sales commenced in Sri Lanka in Q4FY20. The management expects the Biologics business to start showing recovery in Q1FY21 and normalization from Q2FY21 onwards.

According to the brokerage, new product launches and smooth operation amidst US FDA approval for most of the facilities should support longer-term earning growth prospects. Also, the brokerage believes branded formulation and bBiologics segment (impacted by Covid-19) will recover gradually. Hence, it has raised the target price to Rs 390.

Financials

FY20 earnings were moderately better than FY19. Revenue came in at Rs 63.7 billion, up 15 per cent year on year. EBITDA stood at Rs 16 billion, down 8.7 per cent year on year. The EBITDA margin was at 25.2 per cent, up 10 bps year on year. Reported PAT came in at Rs 7.5 billion for FY20, up 4 per cent year on year.

Promoter/FII Holdings

Promoters held 60.67 per cent stake in the company as of March 31, 2020, while FIIs held 14.98 per cent, DIIs 7.32 and public and others 17.03 per cent.