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Biocon: Biopharma's stellar show - Views on News from Equitymaster
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Biocon: Biopharma's stellar show
Oct 22, 2009

Performance summary
  • Revenues for 2QFY10 grow by a robust 30% YoY, led by the strong performance of the both its biopharmaceuticals and contract research businesses.
  • EBDITA margins improve by 2% during the quarter on the back of a fall in other expenditure (as percentage of sales).
  • Bottomline during the quarter grows by 47% YoY growth on excluding the forex loss that was reported in 2QFY09, which was not present this quarter.


Financial performance: A snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 4,474 5,811 29.9% 7,164 10,795 50.7%
Expenditure 3,688 4,669 26.6% 5,661 8,615 52.2%
Operating profit (EBIDTA) 786 1,142 45.3% 1,504 2,181 45.0%
Operating profit margin (%) 17.6% 19.6%   21.0% 20.2%  
Other income 104 113 8.5% 178 181 1.6%
Depreciation 290 351 20.7% 543 675 24.3%
Interest 42 52 23.9% 79 109 37.2%
Profit before tax 557 852 52.8% 1,060 1,578 48.9%
Tax 59 94 60.0% 76 231 204.2%
Extraordinary item (255) -   (600) -  
Minority interest 6 (17)   16 (30)  
Profit after tax/ (loss) 250 741 196.2% 401 1,317 228.9%
Net profit margin (%) 5.6% 12.8%   5.6% 12.2%  
No. of shares (m)       200 200  
Diluted earnings per share (Rs)*         13.6  
P/E ratio (x)         20.4  
* Excludes extraordinary item

What has driven performance in 2QFY10?
  • Bioconís topline grew by a robust 30% YoY during 2QFY10. This was largely led by the strong performances of the biopharmaceuticals (up 30% YoY) and contract research (up 39% 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 21% YoY. As far as the biopharma business is concerned, excluding the AxiCorp revenues, sales grew by 18% YoY. This growth was led by insulin and the retail healthcare business as well as licensing income of Rs 100 m that Biocon received from Mylan as part of its partnership on completing certain milestones. Revenues from the contract research business grew by a robust 39% YoY during the quarter bolstered by the contract with BMS, which now accounts for 30% of Syngeneís revenues.

    Business mix
      2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Biopharmaceutical 3,891 5,069 30.3% 6,103 9,385 53.8%
    (% of consolidated revenues) 87.5% 86.7%   85.8% 86.6%  
    Contract research 558 777 39.3% 1,008 1,450 43.9%
    (% of consolidated revenues) 12.5% 13.3%   14.2% 13.4%  
    Total 4,449 5,846 31.4% 7,111 10,835 52.4%

  • Bioconís operating margins improved by 2% during 2QFY10. This was largely due to the fall in other expenditure (as percentage of sales) from 12% in 2QFY09 to 7.2% in 2QFY10. Raw material costs, however, were higher by 2% and a large part of this rise has been attributed to the inclusion of AxiCorp results in Bioconís numbers. AxiCorp at present is a topline driven company and margins are expected to improve only after Biocon launches insulin in the European markets, which will be 18 to 24 months from now. Till such time, AxiCorp will continue to pressurise Bioconís operating profits. If one excludes the AxiCorp numbers, Bioconís operating margins during quarter improved by 3.6%.

  • While Bioconís net profits jumped by 196% YoY during the quarter, the same was on account of the mark to market forex loss of Rs 255 m in 2QFY09. No such loss was reported this quarter. Thus, excluding this impact, the bottomline still registered an impressive 47% YoY growth.

What to expect?
At the current price of Rs 277, the stock is trading at a price to earnings multiple of 19.1 times our estimated FY12 earnings. Bioconís 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. However, AxiCorp at present is a low margin business and since the biosimilar opportunity in the developed markets will start taking shape two years from now, till such time AxiCorpís low margins will be a drag on Bioconís overall profitability. The company has done considerably better than our estimates both on the topline and the margin front and we shall have to accordingly upgrade our numbers for the full year.

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