We continue to expect company to get benefits of first wave of Biosimilar commercialisation in the next two years which should drive higher revenues and margins. We have updated our financials reflecting latest quarterly numbers and continue to remain positive on the stock and maintain our BUY rating with a revised target price of ₹321 per share.
Valuation: We like Biocon for its long term earnings visibility, strong traction in biologics segment, healthy launch pipeline of biosimilar coupled with increasing market penetration of the existing products. In our view, Biocon is well placed to play the first mover advantage in evolving biosimilar market. Maintain BUY. We have revised our target price to Rs300 (Rs320 earlier) based on SoTP valuation. We expect robust earnings growth of ~30% EPS CAGR over FY19-21E. At CMP, the stock is trading at a PE of 32x/23x on FY20/FY21 earnings.
We have made minor changes to our estimates for Biocon based on 1QFY20 numbers/commentary. Biocon’s revenue and net profit growth should remain on positive trajectory in the near to medium term. The new launches should add to the topline, but existing high value launches (Fulphila) would be prone to price erosion as new competition enters market. We see challenges for biosimilar players including Biocon in gaining share in Trastuzumab. In view of the recent ~25% correction in the stock price we upgrade Biocon from Sell to Accumulate with a target price (TP) of Rs257 (adjusted for bonus issue), based on 22x FY21E earnings.
Like FY19, FY20 is also expected to be driven by growth segments i.e. 1) biologics mainly on the back of new launches across developed markets and geographical expansion in emerging markets and 2) Syngene on the back ofpersistent clients’ addition. With better visibility, the company has optically accelerated the scalability capex and R&D, which is likely to push related expenses higher in the near term. Biosimilar launches in developed as well as emerging markets and Syngene’s performances remain key levers for the company. On an SoTP basis, we ascribe a target price of Rs 330/share.
We remain positive on the stock on the back of strong prospects in both biologics and services (Syngene) segments. We believe the correction in the stock is overdone and the stock offers a compelling bet at the current level. We maintain our BUY recommendation on the stock. Our revised target price of Rs 330 is based on the SOTP methodology.