Stock Buzz: Biocon to remain flavour of the street for short term

ET Now’s Nikunj Dalmia shares his views on Biocon.
Excerpts:

Nikunj Dalmia: Biocon is the flavour of the street. Pharma stocks like Lupin and Sun Pharma are getting whack today, but Biocon is holding on. It is not trading at the highest point of the day, but has touched a new 52-week high. The stock has turned up very nicely and smartly after the first quarter numbers. The market knows that insulin business has turned around, which is generating a lot of upside momentum.

Here are a couple of factors that could differentiate Biocon this quarter:

1. They will get a huge capacity bump up from their Bangalore facility which was under renovation for the quarter gone by for about two months.

2. Biocon follows a very conservative forex policy. At the beginning of the year, they tend to hedge their total receivables. The upside for the rupee for Biocon will only kick start in the second half of this year.

3. Even though its numbers were strong for the quarter gone by, there was a bit of a dip or a down tick as far as the licensing income is concerned. The licensing income which cracked from about Rs 130 million to about Rs 76 million could see a bump up all the way back to Rs 110 million and Rs 150 million in the coming two quarters, which could be a big upside. The licensing income was volatile for Q1, but it could pick up in the coming quarters.

Statins (cholesterol lowering/levelling molecules) did the trick for Biocon for the quarter gone by, which was a one-type up tick. The management indicated that they could have a differentiated strategy when it comes to Recombinant Human (RH) insulin that could be a risk for Biocon. However, in terms of the technical set up for Biocon, things are looking up. It is going up on a day when other pharma stocks are under pressure.

The stock is up 20%. Its PE multiple is still very supportive, trading at about 12-13 times, whereas average pharma stocks, even midcap pharma stocks in India, are now trading at PE multiples of 20 plus. With the valuation and rupee upside, and the fact that licensing income could make a comeback, there are triggers for Biocon in the short term.