>BIOCON (MOTILAL OSWAL)

Biocon’s 4QFY10 operational performance was above our estimates.

Key highlights:
■ Sales grew by 40.9%YoY to Rs6.6b (versus estimate of Rs6.2b) while PAT grew 219%YoY (on a low base) to Rs806m (versus estimate of Rs730m).

■ Topline growth was led by 49%YoY growth in Biopharma revenues and 44.3%YoY growth in Axicorp. Contract research revenues grew moderate 5.3 %.

■ EBITDA grew 45%YoY to Rs1.3b (versus estimate of Rs1.2b) primarily due to higher revenues while EBITDA margins expanded 60bpYoY to 19.8% (in line with our estimate). EBITDA margins expanded due to lower staff cost and higher licensing income (Rs206m versus Rs64m in 4QFY09).

■ PAT grew by 219%YoY to Rs806m (on low base of 4QFY09 due to forex losses), and was higher than estimate of Rs730m due to higher than expected revenues and improvement in EBITDA margins.

Traction in the company’s Insulin initiative and domestic formulation business coupled with incremental contribution from immuno-suppressants and ramp-up in contract research business would be key growth drives for FY11E. However, higher R&D costs and higher expenses linked to the scale-up of the domestic formulations business and currency appreciation will continue to temper down earnings growth. Option values for future include separate listing of Syngene
and a potential out-licensing of the oral insulin NCE. We estimate EPS of Rs17 for FY11E and Rs20.2 for FY12E leading to 17% earnings CAGR for FY10-12. Based on our revised estimates, the stock is currently valued at 17.8x FY11E and 15.0x FY12E earnings. Maintain Buy.

To read the full report: BIOCON