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Biocon: Biopharma rules the roost

Apr 29, 2010

Biocon has announced its FY10 results. The company has reported 50% YoY and 212% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues for FY10 grow by a robust 50% YoY, led by the strong performance of biopharmaceuticals, AxiCorp and contract research businesses.
  • EBDITA margins fall marginally by 0.6% during the year on the back of a rise in raw material costs (as percentage of sales).
  • While the bottomline grows at a stupendous pace during the year, the same is largely due to the forex loss incurred in FY09, which is not present this year. On excluding the same, growth in bottomline stands at 22% YoY.

Financial performance: A snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 4,666 6,570 40.8% 16,090 23,680 47.2%
Expenditure 3,810 5,220 37.0% 12,740 18,900 48.4%
Operating profit (EBIDTA) 850 1,350 58.8% 3,350 4,780 42.7%
Operating profit margin (%) 18.2% 20.5%   20.8% 20.2%  
Other income 250 50 -80.0% 540 310 -42.6%
Depreciation 310 370 19.4% 1,100 1,400 27.3%
Interest 60 30 -50.0% 180 170 -5.6%
Profit before tax 730 1000 37.0% 2,610 3,520 34.9%
Tax (20) 140   120 490 308.3%
Extraordinary item (410) -   (1,470) -  
Minority interest (90) (40) -55.6% (80) (100)  
Profit after tax/ (loss) 250 820 228.0% 940 2,930 211.7%
Net profit margin (%) 5.4% 12.5%   5.8% 12.4%  
No. of shares (m)       200 200  
Diluted earnings per share (Rs)*         14.7  
P/E ratio (x)         20.6  

What has driven performance in FY10?
  • Biocon's topline grew by a robust 47% YoY during FY10. This was largely led by the strong performances of the biopharmaceuticals (up 51% YoY) and contract research (up 25% 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 28% YoY. For the biopharma business, excluding the AxiCorp revenues, sales grew by 29% YoY.

  • As far as the biopharma business is concerned, insulin sales grew by 11% YoY due to growing momentum in the emerging markets. Immunosuppressants registered a strong 28% YoY growth despite pricing pressures. Tacrolimus API sales to customers awaiting ANDA approvals helped in bolstering overall immunosuppressants sales. Statins also did well to grow by 26% YoY during the year despite pricing pressures. This was due to enhanced capacity enabled by improved productivity. Further, Simvastatin remained Biocon's largest product by sales. However, Atorvastatin and Rosuvastatin are expected to add significantly in the coming year. The domestic branded formulations business grew by 36% YoY during the year led by the therapeutic areas of diabetology, cardiology, nephrology and oncology.

  • The German company AxiCorp also did well with sales having grown by 55% YoY on a like-to-like basis. Growth was driven by efficient sourcing of products for its business, restructuring of its sales force and winning the AOK, BKK and DAK tenders for several generic products. Revenues from the contract research business grew by 25% YoY during the year bolstered by the contract with BMS, which now accounts for 30% of Syngene's revenues. Besides the existing business, Syngene also saw the addition of new customers.
    Business mix
    4QFY09 4QFY10 Change FY09 FY10 Change
    Biopharmaceutical  3,980  5,830 46.5% 13,840 20,870 50.8%
    (% of consolidated revenues) 85.4% 88.7%   86.0% 88.1%  
    Contract research 680 740 8.8% 2,250  2,810 24.9%
    (% of consolidated revenues) 14.6% 11.3%   14.0% 11.9%  
    Total 4,660 6,570 41.0% 16,090 23,680 47.2%

  • Biocon's operating margins marginally fell by 0.6% during FY10. This was largely due to the rise in raw material costs (as percentage of sales). Raw material costs increased from 56.4% of sales in FY09 to 59.3% in FY10. While Biocon's net profits grew at a stupendous rate during the year, the same was on account of the mark to market forex loss of Rs 1.5 bn in FY09. No such loss was reported this year. Thus, excluding this impact, the bottomline registered 22% YoY growth. This was lower than the growth in operating profits due to a surge in tax expenses, higher depreciation charges and reduction in other income.

    What to expect?
    At the current price of Rs 302, the stock is trading at a price to earnings multiple of 16.8 times our estimated FY12 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. 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. We maintain our positive view on the stock.

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