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Biocon: Biopharma bolsters performance

Apr 28, 2011

Biocon has announced its FY11 results. The company has reported 17% YoY and 25% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues for FY11 grow by 17% YoY, led by the strong performance of biopharmaceuticals whereas the performance of AxiCorp and contract research businesses is muted.
  • EBDITA margins rise by 1.3% during the year due to lower raw material cost (as percentage of sales).
  • Growth in bottomline stands at 25% YoY mainly due to cost management which improved the operating profit margins.
  • The board announces Rs 1.5 as interim dividend and Rs 3 as final dividend. Thus, the total dividend stands at Rs 4.5 per share (yield of 1%).

Financial performance: A snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 6,568 7,017 6.8% 23,678 27,708 17.0%
Expenditure 5,264 5,581 6.0% 18,963 21,841 15.2%
Operating profit (EBIDTA) 1,304 1,436 10.1% 4,715 5,867 24.4%
Operating profit margin (%) 19.9% 20.5%   19.9% 21.2%  
Other income 88 148 68.2% 370 429 15.9%
Depreciation 366 396 8.2% 1,401 1,568 11.9%
Interest 33 57 72.7% 169 257 52.1%
Profit before tax 993 1,131 13.9% 3,515 4,471 27.2%
Tax 144 110   487 721 48.0%
Extraordinary item 0 0   0 0  
Minority interest -43 -12 -72.1% -96 -75 -21.9%
Profit after tax/ (loss) 806 1,008 25.1% 2932 3675 25.3%
Net profit margin (%) 12.3% 14.4%   12.4% 13.3%  
No. of shares (m)       200    
Diluted earnings per share (Rs)*       14.7 18.4  
P/E ratio (x)       20.6 20.6  

What has driven performance in FY11?
  • Biocon's topline grew by 17% YoY during the year. This was largely led by the 25.6% YoY growth in biopharmaceuticals (excluding Axicorp) business. Growth in this business was largely driven by immunosuppressants (36% YoY), statins and branded formulation. The licensing income that rose 201% to Rs 1525 m also gave the boost to this business.

  • Biocon holds 78% stake in AxiCorp, which is a German pharmaceutical marketing and distribution company. This company was acquired with an aim of distributing Biocon's products in the European markets. Axicorp had a poor performance for the year with a modest 7% YoY growth.

  • Revenues from the contract research business grew by 13.2% YoY supported by renewal of existing customers and introduction of new customers. Also, the margins for the contract research business have been better and are set to improve.

  • On the capex front, the company would be spending US$ 160 m in Malaysia over the next 3 years to establish a biosimilar manufacturing and R&D facility. Besides this, the regular capex required for Indian facilities would be in the range of US$ 130 m to 150 m per year.

  • The operating margins (EBITDA) grew by 1.3% to 21.2% in FY11 on the back lower raw material costs. As a percentage of sales, Raw material costs fell from 56.3% in FY10 to 54.8% in FY11. Strong performance at the operating level flowed down to the bottomline which grew by 25% YoY during the year. This is despite higher interest costs and tax expenses.

    Business mix
      4QFY10 4QFY11 Change FY10 FY11 Change
    Biopharma 3,353 3,805 13.5% 11,808 14,826 25.6%
    (% of consolidated revenues) 51.1% 54.2%   49.9% 53.5%  
    Axicorp 2,475 2,325 -6.1% 9,063 9,705 7.1%
    (% of consolidated revenues) 37.7% 33.1%   38.3% 35.0%  
    Contract Research 740 887 19.9% 2,807 3,177 13.2%
    (% of consolidated revenues) 11.3% 12.6%   11.9% 11.5%  
    Total 6,568 7,017 6.8% 23,678 27,708 17.0%

What to expect?
In FY11, Biocon had tied up with Pfizer to market its biosimilar products in the emerging and developed markets. As this tie-up will now take care of the marketing in Europe, Biocon has decided to divest its stake in Axicorp. This coupled with a possible turnaround in the contract research business, significant capital expenditure and recruitment of 1,000 employees should help Biocon grow over the next few years. The divestment of AxiCorp means that while sales will reduce, operating margins will see an improvement as AxiCorp was weighing heavy on Biocon's overall operating performance. We have yet to factor the same in our estimates, At the current price of Rs 379, the stock is trading at a price to earnings multiple of 14.7 times our estimated FY13 earnings. We maintain our view on the stock from a long term perspective. (Research Pro subscribers can view the recommendation here).

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