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Biocon: Exceptional income saves the day - Views on News from Equitymaster
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Biocon: Exceptional income saves the day
May 16, 2015

Biocon has announced its 4QFY15 results. The company has reported 14.8% YoY growth in sales and approx 78.5% in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 14.8% YoY during the quarter, driven by the contract manufacturing and biopharmaceutical segments.
  • Operating margins decline by 2.1% to 21.4% in 4QFY15, on the back of higher R&D expenses and absence of Fidoximicin sales.
  • The bottomline zooms by 78.5% YoY. This one time income is on back of sale of Syngene shares.

Financial performance: A snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 7,233 8,302 14.8% 28,528 30,592 7.2%
Expenditure 5,532 6,525 18.0% 21,903 23,940 9.3%
Operating profit (EBDITA) 1,701 1,777 4.5% 6,625 6,652 0.4%
EBDITA margin (%) 23.5% 21.4%   23.2% 21.7%  
Other income 225 243 8.0% 804 837 4.1%
Interest (net) 7 - -100.0% 17 89 423.5%
Depreciation 541 586 8.3% 2,036 2,210 8.5%
Profit before tax 1,378 1,434 4.1% 5,376 5,190 -3.5%
Exceptional Item - 1,051   - 1,051  
Tax 191 318 66.5% 1,069 957 -10.5%
Profit after tax/(loss) 1,187 2,167 82.6% 4,307 5,284 22.7%
Minority Interest 58 152 162.1% 170 310 82.4%
Net profit after minority int 1,129 2,015 78.5% 4,137 4,974 20.2%
Net profit margin (%) 15.6% 24.3%   14.5% 16.3%  
No. of shares (m)         200.0  
Diluted earnings per share (Rs)         24.9  
Price to earnings ratio (x)*   0.1     17.4  
*based on trailing 12 months earnings

What has driven performance in 4QFY15?
  • Topline grew by 14.8% YoY during the quarter, led by growth in biopharmaceuticals and contract manufacturing.

    Business Mix
      4QFY14 4QFY15 Change FY14 FY15 Change
    Biopharmaceuticals 4,424 4,934 11.5% 17,468 18,071 3.5%
    (% of consolidated revenues) 61.2% 59.4%   61.2% 59.1%  
    Branded Formulations 926 984 6.3% 3,914 4,296 9.8%
    (% of consolidated revenues) 12.8% 11.9%   13.7% 14.0%  
    Contract Manufacturing 1,883 2,384 26.6% 7,146 8,225 15.1%
    (% of consolidated revenues) 26.0% 28.7%   25.0% 26.9%  
    Total 7,233 8,302 14.8% 28,528 30,592 7.2%

  • Company's contract manufacturing witnessed healthy growth during the quarter. However, Indian branded formulations witnessed poor growth at 6.3% YoY. The company is undergoing sales rationalization and focusing on high margin products. This has impacted the domestic growth. The global biopharmaceuticals business continued to remain under pressure due to capacity constraints. However, the company received some revenues from Cubist, which are non-recurring in nature. This has helped the growth of this segment.

  • Lack of Fidoximicin sales and increasing R&D costs impacted the company's operating margins. Over and above, it is also pertinent to note that the company is capitalizing all the expenses incurred for development of its manufacturing facility in Malaysia. The company will expense out these costs after the commercialization of the facility.

  • The bottomline zoomed by 78.5% YoY. Biocon sold some shares of Syngene, the income from this sale is recorded under exceptional items. Excluding this exceptional income, the company's bottom line declined by approximately 12% YoY after adjusting for taxes.
What to expect?
At the current price of Rs 432, the stock is trading at a price to earnings multiple of 16.2 times our revised estimated FY17 earnings.

The company continues to face pressure in its biopharmaceutical segment. While the new Malaysian facility will fuel the growth in the long term, it will take some time for the company to ramp up sales. The company has filed prospectus with the SEBI since it is looking to list the shares of Syngene. Risk in our view is failure of its R&D programs where the company is incurring huge costs.

In addition to this, the current valuations do not offer margin of safety and thus we recommend investors not to Buy stock at these levels.

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