[T.S.R:16131] Biocon-Sell

Q2FY11 results. Biocon's adjusted net profit grew 20.1% yoy driven by 17% revenue growth and a170-bp better EBITDA margin. We maintain our Sell on the stock. However, we raise the target price to `377 from `298 owing to the recent Pfizer deal.     n       Revenue growth led by AxiCorp. The 17% yoy revenue growth was primarily fuelled by 24% growth in AxiCorp (~39% of sales) and 14% yoy growth in the rest of the bio-pharma business. Excluding AxiCorp, revenue growth was just 13% yoy. Research Services continues to be pressured and grew only 7% yoy. n       Incorporating value from Pfizer deal. We view the Pfizer deal for Biocon's bio-similar Insulin and Insulin analog products as long-term positive and do not expect any major short-term upside. We value the deal at `70 per share for Biocon. n       Raise estimates. We add US$10m, US$25m and US$40m to our FY11e, FY12e and FY13e revenue respectively as recognition of upfront payment from Pfizer, which would go directly to PBT. This is more of an accounting entry. However, we slightly increase our adjusted FY11-13e PAT by 1-3%, factoring in interest income on cash lying idle in the books (initial cash milestone payment of US$100m less capex over FY11-13e). n       Valuation and risks. Incorporating value from the Pfizer deal, we raise the target price to `377 from `298. However, we re-iterate our Sell on the stock owing to stretched valuations. Upside risks: out-licensing of oral Insulin. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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