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Biocon: Bolstered by biopharma

Jul 23, 2010

Biocon has announced its 1QFY11 results. The company has reported 33% YoY growth in sales and net profits each. Here is our analysis of the results.

Performance summary
  • Revenues for 1QFY11 grow by a robust 33% YoY, led by the strong performance of biopharmaceuticals business.
  • EBDITA margins fall marginally by 0.8% during the quarter on the back of a rise in raw material costs (as percentage of sales).
  • Strong performance on the both the topline and operating margin front percolate down to the bottomline, which also grows by a healthy 33% YoY.

Financial performance: A snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 4,985 6,637 33.2%
Expenditure 3,946 5,310 34.6%
Operating profit (EBIDTA) 1,039 1,327 27.7%
Operating profit margin (%) 20.8% 20.0%  
Other income 68 81 17.7%
Depreciation 324 375 15.7%
Interest 56 70 24.0%
Profit before tax 727 962 32.4%
Tax 137 164 19.4%
Minority interest (13) (31)  
Profit after tax/ (loss) 576 767 33.1%
Net profit margin (%) 11.6% 11.6%  
No. of shares (m) 200 200  
Diluted earnings per share (Rs)*   15.7  
P/E ratio (x)   20.6  
* on a trailing 12 months basis

What has driven performance in 1QFY11?
  • Biocon's topline grew by a robust 33% YoY during 1QFY11. This was largely led by the strong performance of the biopharmaceuticals (up 37% YoY) business. Growth was driven by insulin, immunosuppressants, statins and branded formulations. Immunosuppressants are expected to do well this fiscal on the back of several new registrations for MMF and Tacrolimus. The domestic branded formulations business grew by 28% YoY during the quarter led by the therapeutic areas of diabetology, cardiology, nephrology and oncology.

  • The German company AxiCorp also did well with sales having grown by 37% YoY. 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 contract research grew by 13% YoY during the quarter.

    Business mix
      1QFY10 1QFY11 Change
    Biopharmaceutical 4,320 5,900 36.6%
    (% of consolidated revenues) 87.1% 89.1%  
    Contract research 640 720 12.5%
    (% of consolidated revenues) 12.9% 10.9%  
    Total 4,960 6,620 33.5%

  • Biocon's operating margins marginally fell by 0.8% during 1QFY11. This was largely due to the rise in raw material costs (as percentage of sales). Raw material costs increased from 58% of sales in 1QFY10 to 60.7% in 1QFY11. However, operating profits grew by 28% YoY during the quarter. Thus, strong performance on the both the topline and operating margin front percolated down to the bottomline, which also grew by a healthy 33% YoY.

What to expect?
At the current price of Rs 323, the stock is trading at a price to earnings multiple of 13.8 times our estimated FY13 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. In statins, near term opportunities are present in the form of ĎAtorvastatiní whose patent expires in various European markets beginning this year and in the US in 2011.

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. We maintain our positive view ResearchPro subscribers can view latest updates here on the stock from a long term perspective.

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