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Biocon: The 'biopharma' booster

Jan 20, 2011

Biocon has announced its 3QFY11 results. The company has reported 15% YoY and 24% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues for 3QFY11 grow by 15% YoY, led by the strong performance of biopharmaceuticals business.
  • EBDITA margins improve by 3.2% during the quarter on the back of a fall in raw material costs and other expenses (as percentage of sales).
  • Despite the strong 33% YoY growth in operating profits, bottomline growth is lower at 24% YoY due to higher tax expenses.

Financial performance: A snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 6,351 7,281 14.6% 17,110 20,691 20.9%
Expenditure 5,084 5,597 10.1% 13,699 16,260 18.7%
Operating profit (EBIDTA) 1,267 1,684 32.9% 3,411 4,431 29.9%
Operating profit margin (%) 19.9% 23.1%   19.9% 21.4%  
Other income 64 96 50.0% 282 281 -0.4%
Depreciation 360 406 12.8% 1,035 1,172 13.2%
Interest 27 66 144.4% 136 200 47.1%
Profit before tax 944 1,308 38.6% 2,522 3,340 32.4%
Tax 112 292 160.7% 343 611 78.1%
Minority interest (23) (10)   (53) (63)  
Profit after tax/ (loss) 809 1,006 24.4% 2,126 2,666 25.4%
Net profit margin (%) 12.7% 13.8% 12.4% 12.9%
No. of shares (m)       200 200  
Diluted earnings per share (Rs)*         17.4  
P/E ratio (x)         21.7  
* on a trailing 12 months basis

What has driven performance in 3QFY11?
  • Biocon's topline grew by 15% YoY during 3QFY11. This was largely led by the strong performance of the biopharmaceuticals (excluding AxiCorp) business, which grew by an impressive 40% YoY. Growth in the business was largely driven by immunosuppressants, statins and the branded formulations segment. The domestic branded formulations business grew by 32% YoY during the quarter led by the therapeutic areas of diabetology, cardiology, nephrology, dermatology and oncology. Further, there was a significant increase in the sales of both MMF and Tacrolimus (drugs used in transplant) to the US and European markets following patent expiry.

  • The German company AxiCorp, however, had a poor outing this quarter as sales declined by 16% YoY. This was largely because the German government had forced drug makers to give a 16% rebate for the next three years. AxiCorp intends to counter the situation by eliminating certain low margin products from the current portfolio. Revenues from contract research, grew by 14% YoY during the quarter. Syngene's business, particularly, gained momentum during the quarter as sales grew by 21% YoY.

    Business mix
      3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Biopharmaceutical - Biocon 3,069 4,308 40.4% 8,455 11,021 30.3%
    (% of consolidated revenues) 48.3% 59.2%   49.4% 53.3%  
    Biopharmaceutical - AxiCorp 2,588 2,184 -15.6% 6,588 7,380 12.0%
    (% of consolidated revenues) 40.7% 30.0%   38.5% 35.7%  
    Contract research    694    788 13.5% 2,067 2,290 10.8%
    (% of consolidated revenues) 10.9% 10.8%   12.1% 11.1%  
    Total 6,351 7,280 14.6%   17,110    20,691 20.9%

  • Biocon's operating margins improved by 3.2% during 3QFY11. This was largely due to a significant fall in raw material costs and other expenses (as percentage of sales). Raw material costs decreased from 58.4% of sales in 3QFY10 to 52.8% in 3QFY11. R&D expenses, however, jumped from 2.7% of sales in 3QFY10 to 7.6% in 3QFY11. This was largely due to R&D expenditure undertaken as part of its deal with Pfizer. Overall, operating profits grew by 33% YoY during the quarter. However, growth in the bottomline at 24% YoY was lower than that in operating profits due to higher tax expenses.

What to expect?
At the current price of Rs 378, the stock is trading at a price to earnings multiple of 14.7 times our estimated FY13 earnings. Biocon's focus going forward will be on insulin, immunosuppressants, and branded formulations, which will be critical in driving growth in the future. The company has also been active in inking deals with innovator companies such as Mylan and Amylin for developing biotech products, which will augur well from a long-term perspective. Besides this, there are some biologics programs in the pipeline which will enhance revenues in the longer term and could translate into licensing opportunities. The company's recent deal with Pfizer is expected to bolster its biotech business in the overseas markets going forward. We maintain our view on the stock from a long term perspective.

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