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IndiaNivesh Sec
Sharon Bio-Medicine (Buy)
CMP: ₹50.60
Target: ₹140
USFDA approval — a key near term trigger: Sharon Bio-Medicine (SBML) has completed the capex of ₹90 crore at its Uttarakhand formulation facility. SBML received the UKMHRA approval for existing as well as expanded facility. The USFDA inspection is expected to happen anytime soon. The positive outcome would enable SBML to start selling in the US market on considerable scale. This would also enhance profitability of SBML. However, given the uncertain nature of review of USFDA inspection, we have not yet built any upside from business in US market from this facility.
The stock has corrected by 40 per cent in the past three months on absolute basis. Though the business continues to be normal and stock has become attractive in terms of valuation, we suggest investors to wait for the results of key near-term trigger — USFDA inspection and its subsequent assessment to review the investment decision. At CMP, the stock is trading at 5.2x FY15E EPS of ₹9.9 and 3.7x FY16E EPS of ₹13.9. Currently, we maintain our estimates and continue to value SBML at 10x FY16E earnings to arrive at the price target.
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