Biocon Sales Jump 23%, Guides Revenues Of USD 1 Billion by 2018

Bangalore based biopharma major Biocon has posted a 23% rise a YoY basis in its revenues to Rs 634 crore in the Dec 2012 quarter. The net profit, however, grew by 10% to Rs 92.81 crore during this period. The high growth that the company has witnessed during the quarter is mainly due to growth momentum in the Biosimillars and CRAMS business.

In the subsequent conference call to the analysts, its Chairman Kiran Mazumdar-Shaw said that the net profit remained muted due to the higher taxes in the quarter. Its tax rate during the quarter remained 21% compared to 11% reported a year earlier. At the Profit before tax (PBT) level, the company has reported a 23% rise in the profit which should be seen as a comfortable growth post cancellation a Pfizer deal last year.

Biocon, during the quarter, has seen nearly a three-fold increase in its other operating income to Rs 8.7 crore. Except for the materials costs, all other costs also have remained under control. Cost of materials which forms half of its operating costs, increased by 30.5% on a YoY basis. This is majorly because the expenses related to power and imported raw materials increased by more than 25%. The higher manufacturing expenses pulled the EBITDA margins down by 75 basis points to 23.70%.

The company, during the conference call, said that in the first 9 months it has witnessed a growth of 25% each in its biopharma and branded products business. Research business grew by 34%. It also said that going ahead the R&D investments will increase which will yield better returns in future.

Recently company has received marketing authorization for its novel molecules Itolizumab (indicated in the Psorysis treatment). The company has said that it is expecting the launch of this drug in FY2014 which could be a Rs 100 crore drug in the next four years.

On the capacity expansion front, the company said that it is currently building a new manufacturing facility in Malaysia, which will commission by FY2015. This will increase its insulin production and will also decrease taxes in future. The management also said that the insulin will be a major growth driver for the company which will become a top revenue contributor in the next few years.

It has reiterated in the conference call that it is planning an IPO of its division ‘Syngene’ in future at appropriate market conditions.

The company has also given a guidance of USD 1 billion (Rs 5500 crore) revenue by 2018. The company, in FY2012, had reported revenue little over Rs 2000 crore. To reach the target revenue of USD 1 billion, the company is required to grow at a compounded annual growth rate of 18% every year. This seems like a possible target considering that it has clocked a 17% growth rate in the last six years ending FY2012.

On the valuation front, the stock is currently trading at a PE ratio of 14.6x which is undervalued of its peers. The stock has however has under-performed to most pharma stocks in the last year. The long term growth rate of 18% is lesser compared to many other pharma stocks and hence we advice not to enter the counter.