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Biocon: Benefits from biopharma
Oct 22, 2010

Biocon has announced its 2QFY11 results. The company has reported 17% YoY and 20% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues for 2QFY11 grow by 17% YoY, led by the strong performance of biopharmaceuticals business.
  • EBDITA margins improve by 2% during the quarter on the back of a fall in raw material costs and other expenses (as percentage of sales).
  • Bottomline growth at 20% YoY is lower than operating profit growth due to lower other income, higher interest costs and tax expenses.


Financial performance: A snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 5,800 6,790 17.1% 10,760 13,410 24.6%
Expenditure 4,720 5,390 14.2% 8,700 10,680 22.8%
Operating profit (EBIDTA) 1,080 1,400 29.6% 2,060 2,730 32.5%
Operating profit margin (%) 18.6% 20.6%   19.1% 20.4%  
Other income 170 130 -23.5% 220 180 -18.2%
Depreciation 350 390 11.4% 680 770 13.2%
Interest 50 70 40.0% 110 140 27.3%
Profit before tax 850 1,070 25.9% 1,490 2,000 34.2%
Tax 90 160 77.8% 230 320 39.1%
Minority interest (20) (20)   (30) (50)  
Profit after tax/ (loss) 740 890 20.3% 1,230 1,630 32.5%
Net profit margin (%) 12.8% 13.1%   11.4% 12.2%  
No. of shares (m)       200 200  
Diluted earnings per share (Rs)*         16.4  
P/E ratio (x)         27.1  
* on a trailing 12 months basis

What has driven performance in 2QFY11?
  • Biocon's topline grew by 17% YoY during 2QFY11. This was largely led by the strong performance of the biopharmaceuticals (up 18.5% YoY) business. Growth was driven by insulin, immunosuppressants, statins and branded formulations. The domestic branded formulations business grew by 32% YoY during the quarter led by the therapeutic areas of diabetology, cardiology, nephrology and oncology.

  • Further, Biocon entered into an alliance with global company Pfizer for the worldwide commercialization of Biocon's biosimilar versions of 4 insulin and insulin analog products. The size of the deal has been pegged at US$ 350 m. Besides this, Biocon will also get payments linked to the sales of these products by Pfizer. While the immediate opportunity will begin in the emerging markets, the bigger opportunity will be 2015 onwards when the developed markets for biosimilars open up.

  • The German company AxiCorp also did well with sales having grown by 30% YoY and this was led by its generics business which reported a stellar growth of 117% YoY. Revenues from contract research, however, grew by a lukewarm 7% YoY during the quarter.

    Business mix
    2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Biopharmaceutical 5,070 6,010 18.5% 9,390 11,910 26.8%
    (% of consolidated revenues) 87.4% 88.5%   87.3% 88.8%  
    Contract research 730 780 6.8% 1,370 1,500 9.5%
    (% of consolidated revenues) 12.6% 11.5%   12.7% 11.2%  
    Total      5,800      6,790 17.1%   10,760    13,410 24.6%

  • Biocon's operating margins improved by 2% during 2QFY11. This was largely due to the fall in raw material costs and other expenses (as percentage of sales). Raw material costs decreased from 60% of sales in 2QFY10 to 58.9% in 2QFY11. Thus, operating profits grew by 30% YoY during the quarter. However, growth in the bottomline at 20% YoY was lower than that in operating profits due to lower other income, higher interest costs and tax expenses.

What to expect?
At the current price of Rs 446, the stock is trading at a price to earnings multiple of 19 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. The company's recent deal with Pfizer is expected to bolster its biotech business in the overseas markets going forward. The company has done better than our estimates on the topline front and we will have to upgrade our numbers for the full year accordingly.

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