Biocon Raise target price on Pfizer deal; maintain Sell :: Anand Rathi

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Biocon
Raise target price on Pfizer deal; maintain 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.
 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.
 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.
 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).
 Valuation and risks. Incorporating value from the Pfizer deal,
we raise the target price to `377 from `298. However, we reiterate
our Sell on the stock owing to stretched valuations. Upside
risks: out-licensing of oral Insulin.