Biocon - Attractive valuations with healthy growth - Systematix

Biocon reported strong growth of 31% in its core biopharma business (excluding licensing income) in Q3FY13 against its historical growth trend of about 15%, which we believe is a key positive. OPM stood at 22.4% (v/s est. 20.9%), resulting in better than expected net profit of Rs.920mn (v/s est. Rs.835mn). Overall Biocon's YTD performance was in-line with our expectations. Going ahead, we believe Biocon will deliver healthy earnings growth led by continued growth momentum in its base business.

On the other hand, its recent deal with BMS to out-license IN-105(oral insulin) reduced concern of lower margin due to disproportionate jump in R&D spend on research projects.

Further, we consider GE Capital's PE investment of Rs.1.25bn for 7.69% stake in Syngene (valuing Syngene at Rs.16.25bn) as the first step towards value unlocking for its research services capabilities. Hence, we reiterate our 'BUY' rating on Biocon with a revised Target Price of Rs.320.

Source : Equity Bulls

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