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Biocon: Benefitted by biopharma
Jan 21, 2010

Performance summary
  • Revenues for 3QFY10 grow by a robust 46% YoY, led by the strong performance of both its biopharmaceuticals and contract research businesses.
  • EBDITA margins fall by 3.8% during the quarter on the back of a rise in raw material costs and other expenses (as percentage of sales).
  • While the bottomline grows at a stupendous pace during the quarter, the same is largely due to the forex loss incurred in 3QFY09, which is not present this quarter. On excluding the same, growth in bottomline stands at 15% YoY.


Financial performance: A snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 4,364 6,350 45.5% 11,424 17,110 49.8%
Expenditure 3,368 5,142 52.7% 8,928 13,682 53.2%
Operating profit (EBIDTA) 996 1,208 21.3% 2,496 3,428 37.3%
Operating profit margin (%) 22.8% 19.0%   21.8% 20.0%  
Other income 2 45 2150.0% 282 265 -6.0%
Depreciation 256 355 38.7% 796 1,035 30.0%
Interest 35 26 -25.7% 115 136 18.3%
Profit before tax 707 872 23.3% 1,867 2,522 35.1%
Tax 54 113   134 343 156.0%
Extraordinary item (458) -   (1,058) -  
Minority interest (13) (23) 79.2% 7 (53)  
Profit after tax/ (loss) 182 736 305.1% 682 2,126 211.7%
Net profit margin (%) 4.2% 11.6%   6.0% 12.4%  
No. of shares (m)       200 200  
Diluted earnings per share (Rs)*         13.9  
P/E ratio (x)         21.0  
* Excludes extraordinary item

What has driven performance in 3QFY10?
  • Bioconís topline grew by a robust 46% YoY during 3QFY10. This was largely led by the strong performances of the biopharmaceuticals (up 50% YoY) and contract research (up 15% YoY) businesses. However, it must be noted that the biopharmaceutical revenues include the sales of AxiCorp in which Biocon has bought a 71% stake and therefore on a like-to like basis, overall sales (biopharma+contract research) recorded a growth of 24% YoY. As far as the biopharma business is concerned, excluding the AxiCorp revenues, sales grew by 23% YoY. This growth was led by healthy growth in insulin sales in India and the emerging markets, strong growth in the branded formulations business and robust sales of APIs, specifically statins and immune-suppressants in the developed markets.

  • The German company AxiCorp also did well with sales having doubled during the quarter especially in a market which is moving towards a tender based one. Growth was driven by a ramp up in its existing business and from the sales of the drug ĎMetforminí for which AxiCorp had won the AOK tender. Revenues from the contract research business grew by 15% YoY during the quarter bolstered by the contract with BMS, which now accounts for 30% of Syngeneís revenues. Besides the existing business, Syngene also saw the addition of new customers.

    Business mix
      3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Biopharmaceutical 3,757 5,652 50.4% 9,857 15,042 52.6%
    (% of consolidated revenues) 86.1% 89.0%   86.3% 87.9%  
    Contract research 607 697 14.8% 1,567 2,067 31.9%
    (% of consolidated revenues) 13.9% 11.0%   13.7% 12.1%  
    Total 4,364 6,349 45.5% 11,424 17,109 49.8%

  • Bioconís operating margins fell by 3.8% during 3QFY10. This was largely due to the rise in raw material costs and other expenditure (as percentage of sales). Raw material costs were higher by 4% and a large part of this rise has been attributed to the inclusion of AxiCorp results in Bioconís numbers. AxiCorp at present is a topline driven company and margins are expected to improve only after Biocon launches insulin in the European markets, which will be 18 to 24 months from now. Till such time, AxiCorp will continue to pressurise Bioconís operating profits.

  • While Bioconís net profits grew at a stupendous rate during the quarter, the same was on account of the mark to market forex loss of Rs 458 m in 3QFY09. No such loss was reported this quarter. Thus, excluding this impact, the bottomline registered 15% YoY growth. This was lower than the growth in operating profits due to higher depreciation charges and tax expenses.

What to expect?
At the current price of Rs 293, the stock is trading at a price to earnings multiple of 18.4 times our estimated FY12 earnings. Bioconís focus going forward will be on insulin, immune-suppressants, 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.

Contract research will be a significant revenue driver in the future and the contribution of this segment to overall revenues has been rising. 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 and hence the rationale for acquiring 71% stake in AxiCorp, a Germany based pharma company. Given Bioconís strong performance, we shall have to upgrade our numbers for the full year. We maintain our positive view on the stock.

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