Biocon net down 1%, plans Syngene IPO

Bio Pharma major Biocon had announced its quarterly results on Wednesday, 25^th January 2011. While the company reported a 1% growth in its consolidated revenues to Rs 532 crore, its net profit declined by 1% to Rs 85 crore.

At its subsequent conference call, the company attributed the lower than expected quarterly performance to significant allocation of production capacities for drug development programs. Its EBITDA margins have declined by 188 basis points as compared to corresponding quarter last fiscal. Licensing income, which forms significant part of its revenues, has also gone down sharply. However, the company expects growth in the licensing income in the fourth quarter.

Company has launched some new products for which its sales expenses have gone up significantly. Beside this its total debt has also increased from Rs 334 crore in Q3FY11 to Rs 376 crore in Q3FY12. 

Segment wise, its revenues in bio pharma have gone down by 3%. Revenues from contract research are up by 20%. Its other income is also down by 6%.

Its tax in the quarter remained 11% compared to 18% in the corresponding quarter last fiscal.

During the conference call, the company also said that they are planning an IPO of its division ‘Syngene’ in future based on the market conditions. The ‘Syngene’ division which is one of the largest contract research organizations contributes about 10-11% to Biocon’s overall top line. Its contribution to the bottomline was 10% in FY 10 which has declined to 8 per cent in FY11.

The deal with Pfizer is in development tract and company expects higher licensing income from this deal as more products go on production in future. Company is also planning to launch oral insulin after more clinical trials are held. As for the current quarter, the company has launched reusable insulin pen- ‘Insupen’.

Going forward, our main concern is that significant part of its revenues come from licensing income for which firm has to incur R&D expenses. What we have seen is that there is high variability from licensing income which is difficult to forecast. Another fact that investor must take note of is that the products in bio Pharma take ample time for their discovery owing to the complex processes involved. This in turn delays their commercialization.  

In 2011 this stock fell by about 55%. At the CMP of 267.65 this scrip is trading at the PE of 12x which is cheap compared to industry leaders. After its dismal Q3 numbers we believe investors should wait till the announcement of the launch of Oral Insulin pen, which will be the key revenues driver.