Monday, April 30, 2012

>BIOCON: Supply of Fidaxomicin to Optimer Pharma continues (Q4FY12 Result update)

Strong Growth Momentum

Biocon has reported excellent sales growth of 30%YoY for Q4FY12 due to good growth across its segments. However, EBIDTA margin declined by 250bps YoY from 27.8% to 25.3% due to sharp increase in other expenses.

The company’s other income fell sharply by 92%YoY from Rs169mn to Rs13mn. Net profit before EO items grew by 4%YoY. After the termination of the agreement with Pfizer for insulin and its analogues, the company is scouting for a new partner. For FY12, Biocon reported 16%YOY growth in sales and flat net profit despite net licensing income. Biocon’s subsidiaries
Syngene and Clinigene have reported 29%YoY growth in revenues. We have retained Buy rating for the scrip with a target price of Rs345 (based on 16x FY14E EPS of Rs21.5).

■ Strong revenue growth: During the quarter, the biopharmaceutical business (70% of revenues) reported 28%YoY growth, branded formulations (11% of revenues) grew by 34% and contract research (19% revenues) grew by 33% indicating strong growth across all segments.

 Margin under pressure: Biocon reported 250bps drop in EBIDTA margin from 27.8% to 25.3% due to sharp increase in other expenses. The PBIT margin of pharma business dropped by 920bps YoY from 41.3% to 32.1%. However, the PBIT margin of CRAMS business grew by 90bps from 30.2% to 31.1%. Biocon’s EBIDTA margin has shown improvement on QoQ basis after consecutive decline in four previous quarters.

 Decline in licensing income: During the quarter, Biocon’s licensing income fell by 40%YoY from Rs768mn to Rs463mn due to the termination of the agreement with Pfizer. For FY12, licensing income dropped by 17% YoY from Rs1.53bn to Rs1.27bn. We expect licensing income to fall further due to the termination of the agreement with Pfizer.

 Other developments: Supply of Fidaxomicin to Optimer Pharma continues. Trastuzumab (Mylan alliance) has entered phase III clinical trials in India. Itolizumab (psoriasis molecule) has completed Phase III studies in India. 􀂁 Cheap valuations, Reiterate Buy: We expect Biocon to become leading global player in insulin, immunosuppresants, statins and branded formulations. We have revised the EPS estimates downwards by 13% for FY13 and 2% for FY14. At the CMP of Rs239, the stock trades at 13.9x FY13E EPS of Rs17.2 and 11.1x FY14E EPS of Rs21.5. We retain Buy rating for the scrip with a target price of Rs345 (based on 16x FY14 earnings).