The company will be evaluated considering a group of 5 peer companies according to the market classifications. Biocon shares relative valuation will be done using our 5-10-5 -star rating methodology (5 companies, 10 parameters, Out of 5 stars). From this, we will arrive at a combined peer rating for the company. Companies considered in this analysis are as follows.
- Dr Reddy Labs
- Aurobindo Pharma
- Sun Pharma
About the Company:
Biocon Limited is an Indian biopharmaceutical company based out of Bangalore. The Company manufactures generic active pharmaceutical ingredients that are sold in over 120+ countries across the globe, including the developed markets in the United States and Europe. Biocon has expanded and commercialized a differentiated portfolio of novel biologics, biosimilars, and complex small molecule APIs in India.
The company operates in the pharmaceutical industry where market dominance is achieved through R&D, Regulatory Approvals, Scale, distribution and Branding. Biocon Biologics has a product pipeline of 28 molecules, including 11 partnered with Mylan, several with Sandoz and many being developed independently. The partnerships are such that the company aims to be an early mover in oncology, diabetes and Autoimmune Biosimilar drugs in the next 3-5 years. The company has approvals from EMA, US FDA, Health Canada, ANVISA, COFEPRIS, PMDA, TGA and MCC for manufacturing of biosimilars and their sale in 120+ countries in the world.
Read More Here: Biocon Fundamental Analysis and Future Outlook
Get the Excel Dashboard used for this analysis from below:
1. Market Capitalization (★ ★ ☆ ☆ ☆)
Market capitalization is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share. Out of the 5 peer companies, Biocon has the second-lowest market capitalization after Sun pharms, Dr Reddys and Cipla. This shows the second-lowest Enterprise Value amongst the peers. Therefore this category gets 2 stars in Biocon shares relative valuation.
2. Price/Earnings Ratio (★ ☆ ☆ ☆ ☆)
The price-earnings ratio is the ratio of a company’s share price to the company’s earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. P/E higher than Industry average means Overvalued and Lower than Industry average means Undervalued. Biocon shares have the highest P/E and its way above industry average, so its shares are overvalued. Therefore this category gets 1 star in Biocon shares relative valuation.
3. Price/Book Value Ratio (★ ☆ ☆ ☆ ☆)
The price-to-book ratio is a financial ratio used to compare a company’s current market price to its book value. Lower than average P/B shows undervalued and higher P/B shows overvalued. Biocon shares have the highest P/B amongst the competitors. Therefore this category gets 1 star in Biocon shares relative valuation.
4.Dividend Yield (★ ☆ ☆ ☆ ☆)
The dividend yield of a share is the dividend per share, divided by the price per share. This shows how much dividend the company pays out. Dividend yield above-average line is considered good and vice versa. Biocon has the lowest dividend yield amongst its competitors. Therefore this category gets 1 star in Biocon shares relative valuation.
5.Price/Sales Ratio (★ ☆ ☆ ☆ ☆)
The price-to-sales ratio calculated by taking a company’s market capitalization (the number of outstanding shares multiplied by the share price) and divide it by the company’s total sales or revenue over the past 12 months. The lower the P/S ratio, the more attractive the investment. Biocon has the highest P/S ratio amongst the competitors which makes its shares highly overvalued. Therefore this category gets 1 star in Biocon shares relative valuation.
6.ROCE (★ ★ ★ ★ ☆)
ROCE is a financial ratio that determines a company’s profitability and the efficiency of capital use. A higher ROCE implies a more economical use of capital and above-average ROCE is considered a good investment. Biocon has the second-highest ROCE amongst its competitors and it is also above the average line. Therefore this category gets 4 stars in Biocon shares relative valuation.
7. Return on Assets (★ ★ ★ ★ ☆)
The return on assets shows the percentage of how profitable a company’s assets are in generating revenue. Higher the ROA better is the asset utilization by the company and higher the efficiency. Biocon has the second-highest ROA amongst its competitors and it is also above the average line. Therefore this category gets 4 stars in Biocon shares relative valuation.
8. Price/ FCF Ratio (★ ☆ ☆ ☆ ☆)
This is calculated by dividing market capitalization by free cash flow of the company. A lower value for price to free cash flow indicates that the company is undervalued and its stock is relatively cheap. Biocon has the negative Price/FCF ratio amongst its peers and its way below the Industry average line. This shows that Biocon shares are highly overvalued. Therefore this category gets 1 star in Biocon shares relative valuation.
9. Earnings Per Share (★ ★ ☆ ☆ ☆)
Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock, and is a widely used metric to estimate corporate value. Higher the EPS higher is profitability. Biocon is in the 4th position with EPS also lower than the industry average. Therefore this category gets 2 stars in Biocon shares relative valuation.
10.Return on Equity (★ ★ ★ ☆ ☆)
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. ROE is considered a measure of how effectively management is using a company’s assets to create profits. Biocon has the 3rd highest ROE amongst the Peers and its also equal to the industry average. Therefore this category gets 3 stars in Biocon shares relative valuation.
The overall rating is arrived by taking the average of the above 10 parameter ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5. The stock is undervalued if the rating is above 3 (i.e 4 or 5 stars), it is fairly valued if the rating is around 3 and is overvalued if the rating is below 3 (i.e 2 or 1 star). The ratings are exclusive to each company so more than one company can have the same ratings within the peer group.
Overall Relative Rating:
BIOCON SHARES (2.0/5)
This means the stock is highly Over-Valued at the current price levels for FY 2021
★ ★ ☆ ☆ ☆
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|Relative Valuation Summary|
|Market Capitalization||★ ★ ☆ ☆ ☆|
|Price/ Earnings Ratio||★ ☆ ☆ ☆ ☆|
|Price/ Book Value Ratio||★ ☆ ☆ ☆ ☆|
|Dividend Yield||★ ☆ ☆ ☆ ☆|
|Price to Sales||★ ☆ ☆ ☆ ☆|
|ROCE||★ ★ ★ ★ ☆|
|ROA||★ ★ ★ ★ ☆|
|Price/ Cashflow||★ ☆ ☆ ☆ ☆|
|Earnings Per Share||★ ★ ☆ ☆ ☆|
|ROE||★ ★ ★ ☆ ☆|
|Overall Peer Rating||★ ★ ☆ ☆ ☆|
(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)