Biocon:At Above 44 PE Of Adjusted Q1FY17 TTM EPS, It May Be Running Much Ahead Of Its Fundamentals & Technicals; 835-855 May Be A Good Hurdle

Trading Idea: Biocon

CMP: 810

Either sell around 825-845 OR on rise around 895-915;

TGT: 795*-765-740*-710-685*-640-605*-575-545*-505 (1-6M)

TSL> 855 OR > 925

Note: For Any reason, consecutive closing (3 days) above 855, Biocon may further rally towards 895-915 area, which may again be a strong supply zone and sustain above 925 zone, it may further rally up to 950-975* & 1020 territory in the near to long term (alternative bullish case scenario from the current trading level).

For Biocon (Consolidated):

Q1FY17 EPS: 8.46(Diluted/Reported)

Q1FY17 TTM EPS: 18.20 (Adjusted without exceptional income for Mar'16 & Sep'15 QTR)

FY1-6 EPS :16.05 (Adjusted )

Projected FY-17 EPS: 25.25 (Adjusted)

Average PE:22

Projected fair value may be around: 555 (FY-17)

* Q1FY17 result and for QTR trend indicates an implied probability of around 20% CAGR in every quarter, which may be very tough to deliver.maintain for Biocon or any other co in the long term.

In that scenario projected FY-17 EPS :45.20 (Adjusted) and FY-17 fair value may be around 995.

An EPS of 45.20 in FY-17 or FY-18 may be only possible, if Biocon is able to capture significant market share in Japan (through Fuji Pharma) & other EMS for its Biosimilars & Insulin analogs (Glargine etc).

The next catalyst may be its fate of product approvals for the EU & US market (through Mylan), which may be quite challenging, specially for Biosimilars & Insulin analogs .

R&D expenses management may also be a challenge at 92 cr in Q1, which is around 9.3% of the gross revenue. New product development will be vital for Biocon to stay ahead in the competition.

Biocon also got approval from Malaysia for production and commercialization for its RH-Insulins and Glargine.

Some points may be noted:

1. In Q1FY17, total revenue grew by only 0.37% on QOQ basis, although the growth for the same is around 17.95% on YOY basis.

2. EBITDA grew by 23.46% (QOQ) and 24% (YOY) on the back of cost optimization, may be due to operational synergy with the Syngene.

3. EBITDA margin improved quite smartly at Q1FY17 and is at 26.78% against 21.77% (QOQ) and 25.47% (YOY)

4. Q1FY17 EPS is at 8.46 against 4.63 (QOQ) & 6.31 (YOY)  without any exceptional item. Adjusted average EPS for the last five QTRS is at 4.90

Considering all the above sets of news flows and recent price action, the same might be already discounted to a large extent as the stock already rallied by around 95% in the last one year or so.

No doubt. Biocon is a great story in the Indian Bio-Pharma sector and for an investment point of view, buy on dips around 600-550 area may be better rather than chasing the stock at this point of time, considering the risk reward ratio. 

Existing investor can also hold it with a TSL<790 for any breakout above 855 and subsequent targets of around 900.

Analytical Charts:

Biocon-Q1FY17 result comparative analysis:

BIOCON-CONS-Q1FY17	Jun '16	Mar '16	Dec '15	Sep '15	Jun '15	YOY	QOQ
Net Sales/Income from operations	972	970.3	828.2	828.48	778.96	24.78	0.18
Other Operating Income	10.4	8.5	8.2	8.72	54.03	-80.75	22.35
REVENUE	982.4	978.8	836.4	837.2	832.99	17.94	0.37
EXPENDITURE
Consumption of Raw Materials	265.5	307.8	310.3	346.66	290.12	-8.49	-13.74
Purchase of Traded Goods	58.9	29.5	30.9	24.16	22.42	162.71	99.66
Increase/Decrease in Stocks	66.2	23.9	-28.5	-41.2	13.99	373.20	176.99
Power & Fuel	0	0	0	0	0	0.00	0.00
Employees Cost	178.5	173.5	158.9	149.68	154.27	15.71	2.88
Excise Duty	0	0	0	0	0	0.00	0.00
Admin. And Selling Expenses	0	0	0	0	0	0.00	0.00
R & D Expenses	0	0	0	0	0	0.00	0.00
Provisions And Contingencies	0	0	0	0	0	0.00	0.00
Exp. Capitalised	0	0	0	0	0	0.00	0.00
Other Expenses	150.2	231	175.7	160.24	140.01	7.28	-34.98
TOTAL OPERATING EXPENSES	719.3	765.7	647.3	639.54	620.81	15.86	-6.06
EBITDA	263.1	213.1	189.1	197.66	212.18	24.00	23.46
Depreciation	66.1	62.8	62.1	59.61	57.8	14.36	5.25
EBITA	197	150.3	127	138.05	154.38	27.61	31.07
Other Income	40.9	24.7	19.7	24.6	23.52	73.89	65.59
PBIET	237.9	175	146.7	162.65	177.9	33.73	35.94
Interest	5.7	1.4	1.5	2.93	4.42	28.96	307.14
PBET	232.2	173.6	145.2	159.72	173.48	33.85	33.76
Exceptional Items	0	268.4	0	307	0	0.00	-100.00
PBT	232.2	442	145.2	466.72	173.48	33.85	-47.47
Tax	55.2	58.2	24.1	137.69	36.95	49.39	-5.15
PAT	177	383.8	121.1	329.03	136.53	29.64	-53.88
Prior Year Adjustments	0	0	0	0	0	0.00	0.00
Extra Ordinary Items	0	0	0	0	0	0.00	0.00
Net Profit/(Loss) For the Period	177	383.8	121.1	329.03	136.53	29.64	-53.88
Minority Interest	-10.4	-22.9	-18.1	-23.06	-10.29	1.07	-54.59
Share Of P/L Of Associates	0	0	0	0	0	0.00	0.00
Net P/L After M.I & Associates	166.6	360.9	103	305.97	126.24	31.97	-53.84
Equity Share Capital	100	100	100	100	100	0.00	0.00
EPS	8.33	18.045	5.15	15.2985	6.312	31.97	-53.84
EPS Before Extra Ordinary
Basic EPS	8.49	18.05	5.15	15.3	6.31	34.55	-52.96
Diluted EPS	8.46	18.05	5.15	15.3	6.31	34.07	-53.13
EPS After Extra Ordinary
Basic EPS	8.49	18.05	5.15	15.3	6.31	34.55	-52.96
Diluted EPS	8.46	18.05	5.15	15.3	6.31	34.07	-53.13
EXCEPTIONAL INCOME/SHARE	0	13.42	0	15.35	0	0.00	-100.00
ACTUTAL EPS W/O EXCEPTIONAL ITEM	8.46	4.63	5.15	-0.05	6.31	34.07	82.72
AVG EPS	4.9
TTM EPS	18.19	16.04
EBITDA MARGIN	26.78	21.77	22.61	23.61	25.47	5.14	23.01

Article Courtesy: Frontiza.com