>BIOCON (RELIGARE SECURITIES)

Biocon’s results surpassed our estimates by a comfortable margin, as the contribution from Axicorp increased by a robust 67% YoY. The biopharma business also followed with a strong 33% growth, surprising us positively as it touched new highs in the last 15 quarters. The base business too logged a healthy growth of 29% during the quarter. The company also registered its highest ever licensing income during any quarter at Rs 175mn in Q3FY10. The performance of the research services business, however, was marginally below our estimates as it managed to post a modest 13% growth. We maintain our positive stance on Biocon. Buy.

Axicorp, biopharma forge ahead

Net sales up 46% YoY: Biocon’s net sales jumped 46% YoY during Q3FY10 as contribution from Axicorp skyrocketed 67%. The company also saw increased traction in its licensing income that touched its highest ever quarterly mark of Rs 175mn (vs. Rs 28mn in Q3FY09). Even after excluding the growth in Axicorp and licensing income, the underlying base business posted a healthy 29% growth – this was driven by a 33% and a 13% growth in the biopharma and research services businesses respectively.

Base business margins contract: The EBITDA margin for Biocon’s base business (excluding Axicorp and licensing income) contracted 188bps YoY to 32.6% for 9MFY10 (vis-à-vis 28% for FY09) on higher raw material costs. Axicorp’s margin, however, improved sharply to 7.2% vs. 2.7%. Biocon’s overall margins for the quarter dropped to 21.5% from 23.1% in Q3FY09.

Adj. PAT grows 26% YoY: The company’s adj. PAT surged 26% driven by strong growth in the EBITDA and lower interest costs during the quarter. Licensing income soars: Biocon generated a licensing income of Rs 175mn during Q3FY10 – its highest ever during any quarter. Earlier, the company’s licensing income stood at Rs 450mn in FY08 but plunged more than three times to Rs 122mn in FY09. The jump in the licensing income in the current quarter signals a revival in the company’s research partnerships.

Maintain Buy: We have marginally revised our revenue estimates for the next two years to factor in the stellar performance of Axicorp and the biopharma business. We, however, have pruned our earnings estimates for FY11 on expectations of lower other income. We maintain our positive stance on Biocon due to the company’s improving performance across business verticals and the continued strength in its balance sheet. Currently, the stock trades at a PER of 17.6x FY11E and 16x FY12E, and an EV/EBITDA of 12.3x FY11E and 11.2x FY12E. Buy.

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