Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Biocon: Biopharma drives growth - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Biocon: Biopharma drives growth

Jan 17, 2008

Performance summary
  • Revenues for 9mFY08 grow by 11% YoY largely driven by the strong performances of both the biopharmaceuticals and contract research businesses. However, sharp rupee appreciation hampers revenue growth in the contract research business.

  • EBDITA margins contract by 30 basis points (0.3%) during the nine-month period on the back of a considerable rise in staff costs and other expenses (both as percentage of sales).

  • PAT growth at 15% YoY is aided by a lower tax outgo despite higher interest costs and depreciation charges.

  • Announces a strategic partnership with IATRICa Inc, a US based biotech company to co-develop molecules catering to the therapeutic areas of cancer and infectious diseases.

  • Plans to list its 100% subsidiary Syngene on the Indian bourses during FY09.

Financial performance: A snapshot
(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Net sales 2,460 2,370 -3.7% 7,070 7,870 11.3%
Expenditure 1,700 1,780 4.7% 5,110 5,710 11.7%
Operating profit (EBIDTA) 760 590 -22.4% 1,960 2,160 10.2%
Operating profit margin (%) 30.9% 24.9%   27.7% 27.4%  
Other income 10 210 2000.0% 30 240 700.0%
Depreciation 180 230 27.8% 470 690 46.8%
Interest 10 30 200.0% 50 80 60.0%
Profit before tax 580 540 -6.9% 1,470 1,630 10.9%
Tax 50 40 -20.0% 110 70 -36.4%
Minority interest 20 10   30 40 33.3%
Profit after tax/ (loss) 550 510 -7.3% 1,390 1,600 15.1%
Net profit margin (%) 22.4% 21.5%   19.7% 20.3%  
No. of shares (m) 100.0 100.0   100.0 100.0  
Diluted earnings per share (Rs)*         21.8  
P/E ratio (x)*         24.8  
(* on a trailing 12-months basis)

What has driven performance in 9mFY08?
  • Biocon’s topline clocked a 13% YoY growth during 9mFY08, chiefly led by its biopharmaceutical and contract research businesses. The biopharmaceutical business reported a 13% YoY growth in sales. While statins continued to remain the mainstay of the biopharma business, growth was also led by the strong performance of insulin (namely ‘Insugen’) and its branded products for nephrology and oncology (‘Biomab EGFR’) in India.

  • The enzymes business reported a 40% YoY decline in revenues for 9mFY08, as Biocon completed the divestment of this business to Novozymes for a consideration of Rs 4.6 bn. While the contract research business grew at a healthy pace (43% YoY growth) during 9mFY08, led by revenue generation from new contracts signed, the same was adversely impacted during the third quarter due to the sharp appreciation of the rupee against the dollar.

    Business mix
      3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
    Biopharmaceutical 2,040 2,260 10.8% 5,410 6,120 13.1%
    (% of consolidated revenues) 82.9% 95.4%   76.5% 77.8%  
    Enzymes 220 - -100.0% 760 460 -39.5%
    (% of consolidated revenues) 8.9% 0.0%   10.7% 5.8%  
    Contract research 200 110 -45.0% 900 1,290 43.3%
    (% of consolidated revenues) 8.1% 4.6%   12.7% 16.4%  
    Total 2,460 2,370 -3.7% 7,070 7,870 11.3%

  • Biocon’s operating margins witnessed a 0.3% contraction during 9mFY08. This was largely due to the rise in staff costs (attributed to the addition of personnel at the research facilities of Syngene) and other expenses. Bottomline grew by 15% YoY during 9mFY08 aided by higher other income and lower tax outgo. The company had invested proceeds received from Novozymes in mutual funds, which generated the income. Besides this, while Novozymes made an upfront payment of Rs 4 bn (out of the consideration of Rs 4.6 bn), the remaining was to be made within a few years and part of this amount received has also been reflected in the other income figure. With Biocon Park enjoying SEZ status, tax expenses fell by 36% YoY ensuring that the bottomline growth outpaced the topline growth for nine-month period.

What to expect?
At the current price of Rs 541, the stock is trading at a multiple of 17.8 times our estimated FY10 earnings. Given the fact that statins is a commodity like business facing pricing pressure, Biocon’s strategy to increasingly focus on insulin, immunosuppressants, branded formulations and monoclonal antibodies in a bid to reduce its dependence on statins will be critical to drive growth in the future. While these new segments will take some time to significantly contribute to revenues, products like Insugen and Biomab EGFR are performing strongly, which is a positive sign. The company has also been active in inking deals with innovator companies for developing biotech products, which will augur well from a long-term perspective.

Contract research will be a significant revenue driver in the future as is amply demonstrated by the rising contribution of this segment to overall revenues. The company has unveiled plans of listing its 100% subsidiary Syngene on the Indian bourses during FY09 given that this business has attained critical mass and also to unlock value. The company is also gearing up for biosimilar launches in Europe beginning with insulin and is focusing on branding of products and getting closer to the markets. That said, pricing pressure on statins, higher depreciation charges and increased R&D spend are expected to pressurise the profitability of the company in the medium term. Overall, we maintain our positive view on the stock.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms


Mar 20, 2019 (Close)