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Biocon: Good end to the year

Apr 25, 2014

Biocon has announced its 4QFY14 results. The company has reported 15% YoY growth in sales and a decline of 54.5% YoY in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grow by 15% YoY during the quarter led by growth in both its biopharmaceuticals and contract research businesses.
  • Operating margins improve by 6.5% helped by product mix and lower R&D expenses.
  • Bottomline declines by 54.5% due to one time income received in Q4FY13. Excluding this one time income, net profits are up by 141% YoY.

Financial performance: A snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Net sales 6,301 7,226 14.7% 24,276 28,527 17.5%
Other Operating income 70 59 -14.7% 577 246 -57.4%
Expenditure 5,250 5,530 5.3% 19,423 21,902 12.8%
Operating profit (EBDITA) 1,121 1,756 56.6% 5,430 6,871 26.5%
EBDITA margin (%) 17.6% 24.1%   21.8% 23.9%  
Other income 119 172 45.5% 527 559 6.1%
Interest (net) 10 7 -23.2% 81 17 -78.9%
Depreciation 458 540 17.9% 1,793 2,036 13.6%
Profit before tax 772 1,381 78.8% 4,082 5,376 31.7%
Exceptional income 2,019 -   2,019 -  
Tax 281 192 -31.9% 975 1,069 9.6%
Minority Interest 23 58 153.5% 38 170 344.6%
Profit after tax/(loss) 2,487 1,131 -54.5% 5,088 4,137 -18.7%
Net profit margin (%) 39.5% 15.6%   21.0% 14.5%  
No. of shares (m)         200.0  
Diluted earnings per share (Rs)         25.8  
Price to earnings ratio (x)*         18.1  
*based on trailing 12 months earnings

What has driven performance in 4QFY14?
  • Biocon's topline grew by 15% YoY during 4QFY14 largely led by growth in both contract manufacturing and Branded formulations. The Branded formulations business (India) grew by 9% YoY, during the quarter. The company launched Canmab during 4QFY14 in the Indian market. The drug is equivalent to Trastuzumab. The said drug is indicated for breast cancer patients. The growth in the remaining Biopharmaceuticals was due to recovery in the company’s insulin segment in the emerging markets. Biocon has filed for approval of Insulin in 55 countries of which currently it has approvals in 8-10 markets. The company had enhanced its Bangalore facility, until the Malaysian facility is upto mark. Over and above, we believe company might face some capacity issues until the Malaysian facility is operational. The company is also manufacturing more specialty products that have better margins.

    Business mix
    (Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
    Biopharmaceuticals 3,790 4,420 16.6% 15,240 17,470 14.6%
    % of consolidated revenue 60% 61%   63% 61%  
    Branded formulations (India) 850 930 9.4% 3,470 3,910 12.7%
    % of consolidated revenue 13% 13%   14% 14%  
    Total Biopharmaceuticals 4,640 5,350 15.3% 18,710 21,380 14.3%
    % of consolidated revenue 74% 74%   77% 75%  
    Contract Research 1,660 1,880 13.3% 5,570 7,150 28.4%
    % of consolidated revenue 26% 26%   23% 25%  
    Total 6,300 7,230 14.8% 24,280 28,530 17.5%

  • The company's contract manufacturing segment witnessed growth of 13% YoY during 4QFY14. Biocon's Clingene (now part of Syngene) which was a loss making unit, reported profit for the current quarter. The company is looking forward to list Syngene in FY15 post elections and remains confident of better growth in this segment.

  • During the quarter, the operating margins of Biocon showed good improvement of 6.5% (650 bps) YoY. The improvement is largely due to lower R&D spent for the quarter and also for FY14. This was lower as the company could not do trials in India due to various regulatory challenges. Further the company has also capitalized R&D expenses of Rs 80 m towards tratuzumab after launching in India. This is done as per the company's new policy. Once the company launches drug in the major markets, the R&D expenses incurred post launch are capitalized. For FY15, the R&D expenses are expected to increase and thus the operating margins will get impacted going forward.

  • Bottomline declined by 54.5% YoY due to one-time income received in 4QFY13. Excluding this one-time income, net profits were up by 141% YoY in 4QFY14. Other Income too, increased by 45.5% which helped the bottom line growth.

What to expect?
At the current price of Rs 467, the stock is trading at a price to earnings multiple of 18 times our estimated FY16 earnings. The branded formulations business will be the key growth driver for the company going forward. In this regard, the Malaysian facility, which is largely for insulin, is expected to become operational by FY15. Launch of new products in the Indian Branded formulations space will also help in the company's growth in the long run. Further Biocon has been developing a pipeline of ANDAs for the US market. The filings for the same will begin in CY14. However, any significant revenue opportunity from these products is not expected atleast for the next two to three years.

Over and above the main risks to our view include failure in its R&D programs where the company is incurring huge costs. While this year witnessed a fall in R&D expenses, these are expected to increase going forward as the company will have to incur trials outside India, which will be expensive. The stock of Biocon has moved up sharply, we would thus suggest not to buy shares at the current price.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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Jun 17, 2021 (Close)