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Biocon: Statins driving growth…

May 24, 2004

India's largest biopharmaceuticals company, Biocon, declared its maiden quarterly and annual results. Since the comparative figures for 4QFY04 are not available, we will focus on the yearly comparison. Total sales of the company has increased by 94% to Rs 5.5 bn while the net profit has risen by 219% to Rs 1.4 bn. Operating profit margin stood at 34% compared to 29%, which is due to better economies of scale. The net profit margin stood at 28% due to lower interest outgo and higher operating margins.

Results at a glance...
(Rs m)FY03FY04Change
Net sales 2,539 5,019 97.7%
Fee income278 387 39.2%
Other income16 87 443.8%
Expenditure2,092 3,697 76.7%
Operating profit (EBDITA)725 1,709 135.7%
Operating profit margin (%)28.6%34.1% 
Interest 50 16 -68.0%
Depreciation138 163 18.1%
Profit before tax553 1,617 192.4%
Tax118 231 95.8%
Profit after tax/(loss)435 1,386 218.6%
Net profit margin (%)17.1%27.6%  
No. of shares (m)100.0 100.0  
Diluted earnings per share (Rs)*4.4 13.9  
P/E ratio (x)  38.5  

The major growth came from exports (up 150% and 63% of sales) on the back of strong performance by statins and immunosuppressants. Statins are the molecules used for the treatment of cardiovascular disease, which is one of the fastest growing therapeutic segment, both nationally and internationally. The company has gained significant market share in the US and European market as the supplier of off patent statins. Statins, in fact, contribute to 56% of the consolidated revenues of Biocon. The following chart shows the contribution of revenue by statins over last 4 years.

Its not only the statins that have shown phenomenal growth but also the other segments like anti-diabetics, neutraceuticals, gynecology and anti-osteoporosis have also shown robust growth. The table below gives a perspective on the company's growth in various segments.

Business segments...
(Rs m) FY03 FY04 Growth
BioPharmaceuticals2,007 4,354 116.9%
Statins1,199 3,028 152.5%
Immunosuppressants35 137 291.4%
Others773 1,189 53.8%
Enzymes532 665 25.0%
Research services277 387 39.7%
Custom research266 385 44.7%
Clinical research11 2 -81.8%
Total2,816 5,406 92.0%

The company's plants are USFDA approved, which gives it a chance to expand its market in simvastatin, which will go off patent in the US market from the year 2006. The total size of simvastatin is estimated to be US$ 6 bn. More importantly, the company has signed an agreement with the Bristol Myers Squibb for the supply of recombinant human insulin, which is likely to be in the markets by the 2QFY05.

On domestic front, Biocon has launched 11 formulations in the cardio-diabetic therapeutic segment under its own brand name. The greater challenge lies in marketing of these products, on which one is likely to have some visibility by the end of 2QFY05.

The company is very well known for its focus on R&D activities. It spends about 5% of its revenue in R&D activities. Earlier, Biocon focussed on process development but now it is also working towards product development. It has filed 88 patent applications in the FY04. The two entities of the company, which are purely dedicated towards research (including custom research and clinical research), have shown a good performance in FY04. These subsidiaries also provide research services to the third party.

The stock is currently trading at a P/E of 38.5x FY04 earnings. Though valuations may seem expensive, considering the overall strengths from a long-term perspective, valuations are not high on a relative basis. The new contracts earned and the launch of new drugs in the Indian markets is likely to fuel growth. Also, the year 2006 will be crucial for the company when simvastatin will go off patent in the US markets.

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