result update: q3 fy 11breport.myiris.com/firstcall/biocon_20110411.pdf · in the biological...

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1 SYNOPSIS Biocon is a fully integrated biotechnology enterprise, specializing in biopharmaceuticals, custom research and clinical research. . The Company has delivered the highest ever PAT this quarter and has crossed the Rs100 crore mark. The Company plans to set up manufacturing and R&D unit in Malaysia The net sales and net profit of the company are expected to grow at a CAGR of 26% and 20% respectively over FY09 to FY12E. During the quarter, Biocon SA has entered into a strategic agreement with Pfizer Ireland for worldwide commercialization of biosimilar insuliln products. The Company will enable to invest in advancing their research and expand their manufacturing and marketing partnerships. Years Net sales EBITDA Net Profit EPS P/E FY 10 23747.50 5085.10 2932.50 14.66 25.48 FY 11E 28323.71 6465.76 3660.95 18.30 20.41 FY 12E 32289.03 7324.48 4231.13 21.16 17.66 Stock Data: Sector: Pharma Face Value Rs. 5.00 52 wk. High/Low (Rs.) 464.60/272.05 Volume (2 wk. Avg.) 68000 BSE Code 532523 Market Cap (Rs.In mn) 74730.00 Share Holding Pattern 1 Year Comparative Graph Biocon Ltd BSE SENSEX C.M.P: Rs. 373.65 Target Price: Rs. 430.00 Date: April 11th 2011 BUY Biocon Ltd Result Update: Q3 FY 11

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Page 1: Result Update: Q3 FY 11breport.myiris.com/firstcall/BIOCON_20110411.pdf · In the biological segment it produces Insulin, Erythropoietin (EPO), Filgrastim (GCSF), Streptokinase &

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SYNOPSIS Biocon is a fully integrated biotechnology enterprise, specializing in biopharmaceuticals, custom research and clinical research. .

The Company has delivered the highest ever PAT this quarter and has crossed the Rs100 crore mark.

The Company plans to set up manufacturing and R&D unit in Malaysia

The net sales and net profit of the company are expected to grow at a CAGR of 26% and 20% respectively over FY09 to FY12E.

During the quarter, Biocon SA has entered into a strategic agreement with Pfizer Ireland for worldwide commercialization of biosimilar insuliln products.

The Company will enable to invest in advancing their research and expand their manufacturing and marketing partnerships.

Years Net sales EBITDA Net Profit EPS P/E

FY 10 23747.50 5085.10 2932.50 14.66 25.48

FY 11E 28323.71 6465.76 3660.95 18.30 20.41

FY 12E 32289.03 7324.48 4231.13 21.16 17.66

Stock Data:

Sector: Pharma

Face Value Rs. 5.00

52 wk. High/Low (Rs.) 464.60/272.05

Volume (2 wk. Avg.) 68000

BSE Code 532523

Market Cap (Rs.In mn) 74730.00

Share Holding Pattern

1 Year Comparative Graph

Biocon Ltd BSE SENSEX

C.M.P: Rs. 373.65 Target Price: Rs. 430.00 Date: April 11th 2011 BUY

Biocon Ltd Result Update: Q3 FY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Biocon Ltd 373.65 74730.00 22.19 16.75 4.75 70

DR.REDDY’s 1615.00 273505.2 57.95 27.89 4.62 225

CIPLA 320.15 257055.3 12.81 24.99 4.35 100 *As on 11/04/2011

Investment Highlights

Results Updates (Q3 FY11)

For the third quarter, the top line of the company increased 15%YoY and stood at Rs.7297.70mn against Rs.6370.00mn of the same period of the last year. The bottom line of the company for the quarter stood at Rs.1007.50mn from Rs.808.90mn of the corresponding period of the previous year i.e. a increase of 25%YoY.

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EPS of the company for the quarter stood at Rs.5.04 for equity share of Rs.5.00 each.

Expenditure for the quarter stood at Rs.5597.30mn, which is around 10% higher than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 45% of the sales of the company and stood at Rs.3311.30mn. Employee cost stood at Rs.811.10mn from Rs.637.40mn.i.e. an increase of 27%YoY.

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OPM and NPM for the quarter stood at 24% and 14% respectively from 21% and 13% respectively of the same period of the last year.

Set up manufacturing and R&D unit in Malaysia

The Company announced a strategic foreign direct investment in Malaysia with

the Malaysian Biotechnology Corporation SdnBhd (BiotechCorp). The investment

will be made towards setting up a Bio-manufacturing and Research and

Development facility in Bio-XCell, a custom-built biotechnology park and

ecosystem in Iskandar Malaysia, Johor. The investment is the largest for the

Malaysian biotechnology sector thus far.

The project would focus on the production of Insulins in the first phase. Biocon

proposes to invest around RM500 million (approximately US $161 million) in

this facility in the first phase which is targeted to be operational by 2014.

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Company Profile

Biocon, Asia’s largest biotechnology company, started itself with seed capital of Rs.10, 000 in 1978, is now a billion dollar company. The company manufactures biotechnological products catering to the healthcare segment. It is engages itself in all phases of the product cycle from discovering to development & then commercializing the same drugs. This pharmaceutical company has fermentation-based technology, creating cost effective drugs. Syngene and Clinigene, subsidiaries of Biocon conduct R& D programs for international pharmaceutical and biotechnology majors. Biocon produces anti diabetic agents like Acarbose, Pioglitazone, Repaglinides & Rosiglitazone. In the biological segment it produces Insulin, Erythropoietin (EPO), Filgrastim (GCSF), Streptokinase & Monoclonal Antibodies. The drug major produces mycophenolate mofetil, sirolimus and tacrolimus. It also produces & market mix of specialty & industrial enzymes for industries like paper, brewing, beverages, food, brewing, textiles & distilling. The company’s drug portfolio consists of lovastatin, simvastatin, pravastatin and atorvastatin. Subsidiary Companies: Syngene International Limited Syngene International Limited is a custom research organization offering synthetic chemistry and molecular biology services for early stage drug discovery and development. Clinigene International Limited Clinigene International Limited is a clinical research organization offering Phase I-IV clinical trials and studies for novel/generic molecules to international pharmaceutical majors. Biocon Biopharmaceuticals Private Limited (BBPL) Biocon Biopharmaceuticals Private Limited (BBPL) is a joint venture with CIMAB to develop and market a range of monoclonal antibodies and cancer vaccines. AxiCorp GmbH AxiCorp GmbH is a Friedrichsdorf (Germany) based pharmaceutical marketing company and is amongst the fastest growing in Europe. Biocon Limited acquired a majority stake in AxiCorp GmbH (70%) in February, 2008. NeoBiocon FZ LLC NeoBiocon FZ LLC is a research and marketing pharmaceutical company based in Abu Dhabi. Incorporated in January 2008, NeoBiocon is a 50:50 joint venture with Dr. B.R.Shetty, Managing Director of NeoPharma, Abu Dhabi.

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Company Products Biopharmaceuticals Active Pharmaceutical Ingredients (APIs)

• Anti-Diabetic Agents • Anti-Inflammatory Agents • Anti-Oxidants • Cardiovascular Agents • Anti-Obesity Agents • Digestive-Aid Enzymes • Anti-Hypertensive Agents • Haemostatic Agents • Hepatoprotective Agents • Immunosuppressants • Gastro-Intestinal Agents • Nutraceuticals

Biologicals

• Insulin • Streptokinase • EPO • GCSF • Monoclonal Antibodies

Branded Formulations Oncology

• BIOMAb EGFR® • NUFIL safe™ (Pre-filled Syringe) • NUFIL™ (Vials) • Abraxane® for injectable suspension

Nephrology

• ERYPRO safe™ (Pre-filled Syringe) • TACROGRAF™ • RAPACAN™ • CYCLOPHIL ME™ • RENODAPT™ • RENODAPT™ - S • CeRACaL™

Cardiology

• STATIX®

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• STATIX®-F • STATIX®-EZ • BESTOR® • TELMISAT™ • TELMISAT™-H • ZARGO® • ZARGO®-H • ZIGPRIL® • ACTIBLOK™-IPR • BRADIA™ • CLASPRIN® • THINRIN™ • MYOKINASE™ • CLOTIDE™ • DYNALIX®

Diabetology

• INSUGEN®-R • INSUGEN®-N • INSUGEN®-30/70 • INSUGEN®-50/50 • BASALOG™ 3ml, 10 ml • BLISTO™ 1, 2 & 4 • BLISTO™-MF 1, 2 & 4 • METADOZE-IPR® 500 & 850 • PIODART® • PIODART®-MF • TriGPM™ • ZUKER™-MF • GABIL™ • GMAB™ Plus • OLISAT™

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Financials Results 12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) FY09 FY10 FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 16165.10 23747.50 28323.71 32289.03

Other Income 567.10 300.90 321.15 350.05

Total Income 16732.20 24048.40 28644.85 32639.08

Expenditure -12853.10 -18963.30 -22179.09 -25314.60

Operating Profit 3879.10 5085.10 6465.76 7324.48

Interest -176.60 -168.90 -267.97 -289.41

Gross profit 3702.50 4916.20 6197.79 7035.07

Depreciation -1102.50 -1401.40 -1585.52 -1744.07

Profit Before Tax 2600.00 3514.80 4612.28 5291.01

Tax -118.30 -486.70 -877.74 -1005.29

Profit After Tax 2481.70 3028.10 3734.54 4285.71

Minority Interest -71.30 -95.60 -51.99 -54.59

Extraordinary Items -1471.90 0.00 -21.60 -

Net Profit 938.50 2932.50 3660.95 4231.13

Equity capital 1000.00 1000.00 1000.00 1000.00

Reserves 14184.60 16569.00 20229.95 24461.08

Face Value 5.00 5.00 5.00 5.00

Total No. of Shares 200.00 200.00 200.00 200.00

EPS 4.69 14.66 18.30 21.16

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11E

Description 3m 3m 3m 3m

Net sales 6637.00 6799.40 7297.70 7589.61

Other income 80.50 77.70 79.10 83.85

Total Income 6717.50 6877.10 7376.80 7673.45

Expenditure -5310.10 -5351.80 -5597.30 -5919.89

Operating profit 1407.40 1525.30 1779.50 1753.56

Interest -69.70 -65.10 -65.60 -67.57

Gross profit 1337.70 1460.20 1713.90 1685.99

Depreciation -375.40 -390.40 -405.80 -413.92

Profit Before Tax 962.30 1069.80 1308.10 1272.08

Tax -163.90 -156.00 -290.70 -267.14

Profit After Tax 798.40 913.80 1017.40 1004.94

Minority Interest -31.20 0.00 -9.90 -10.89

Extraordinary Items 0.00 -21.60 0.00 -

Net Profit 767.20 892.20 1007.50 994.05

Equity capital 1000.00 1000.00 1000.00 1000.00

Face Value 5.00 5.00 5.00 5.00

Total No. of Shares 200.00 200.00 200.00 200.00

EPS 3.84 4.46 5.04 4.97

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Key Ratio

Particulars FY09 A FY10 A FY11 E FY12 E

EBIDTA % 24% 21% 23% 23%

PAT % 15% 13% 13% 13%

P/E ratio (x) 79.63 25.48 20.41 17.66

ROE - % 6% 17% 17% 17%

ROCE - % 17% 19% 21% 20%

EV/EBIDITA (x) 7.88 12.00 12.94 12.75

Debt Equity Ratio 0.11 0.11 0.09 0.08

Book Value 75.92 87.85 106.15 127.31

Price/Book Value 2.01 4.25 3.52 2.94

Charts:

• Net sales & PAT

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• P/E Ratio (x)

• P/BV (X)

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• EV/EBITDA(X)

Outlook and Conclusion

At the market price of Rs.373.65, the stock is trading at 20.41 x and 17.66 x for FY11E and FY12E respectively.

On the basis of EV/EBDITA, the stock trades at 12.94 x for FY11E and 12.75 x for FY12E.

Price to book value of the company is expected to be at 3.52 x for FY11E and 2.94 x for FY12E respectively.

EPS of the company is expected to be at Rs.18.30 and Rs.21.16 for the earnings of FY11E and FY12E respectively.

The top line and bottom line of the company are expected to grow at a CAGR of 26% and 20% respectively over FY09 to FY12E.

We recommend ‘BUY’ this stock with a target price of Rs.430.00 for medium to long term investment.

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Industry Overview India is one of the fastest-growing pharmaceutical markets in the world, and its market size has nearly doubled since 2005. The Indian pharmaceutical market is expected to reach US$ 20 billion by 2015, growing at a compound annual growth rate (CAGR) of 11.7 per cent during 2005–2015 and establish its presence among the world’s leading 10 markets. India is also the third-largest market in the world in terms of volume and fourteenth in terms of value. India accounts for 8 per cent of global pharmaceutical production. Indian firms produce about 60,000 generic brands across 60 therapeutic categories. In addition, Indian firms manufacture approximately 500 different active pharmaceutical ingredients (APIs). Manufacturing costs in India are approximately 35 to 40 per cent of those in the US due to low installation and manufacturing costs. Moreover, according to an Ernst & Young and industry body study, the increasing population of the higher-income group in the country, will open a potential US$ 8 billion market for multinational companies selling costly drugs by 2015. Further, IMS Health India, which tracks drug sales in the country through a network of nationwide drug distributors, estimates the healthcare market in India to reach US$ 31.59 billion by 2020. Growth According to IMS Health, for the full year 2010, the Indian Retail Pharmaceutical Market was valued at US$ 10.2 billion, growing at 16.5 per cent over 2009. The pharmaceutical market has shown a strong double digit growth for the second successive year. As per the estimates of the Ministry of Commerce, Government of India, a whopping amount of US$ 6.31 billion will be invested in the Indian pharmaceutical industry by 2015. Also, the Indian pharmaceutical off-shoring industry is predicted to be a US$ 2.5 billion opportunity by 2012, due to the low cost of research & development (R&D) in India. According to the All India Organisation of Chemists and Druggists (AIOCD), the pharmaceuticals industry in India will grow by over 100 per cent over the next two years. "The people are increasingly becoming health conscious and the sell of all types of medicines, particularly anti-biotic, will zoom up in the coming years. We expect the business to double by 2012", as per JS Shinde, President, AIOCD. Diagnostics Outsourcing/ Clinical Trials

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According to the research published by RNCOS titled 'Indian Diagnostic Market Analysis', the Indian diagnostic services are projected to grow at a CAGR of more than 20 per cent during 2010-2012. Some of the major Indian pharmaceutical firms, including Sun Pharma, Cadilla Healthcare and Piramal Life Sciences, had applied for conducting clinical trials on at least 12 new drugs in 2010, indicating a growing interest in new drug discovery research. Generics According to MrSrikant Kumar Jena, Union Minister of State for Chemicals and Fertilisers, India tops the world in exporting generic medicines worth US$ 11 billion and currently, the Indian pharmaceutical industry is one of the world's largest and most developed. India tops the world in exporting generic medicines worth US$ 11 billion. According to McKinsey report ‘India Pharma 2015- Unlocking the potential of Indian Pharmaceuticals market’ – Generics will continue to dominate the market while patent-protected products are likely to constitute 10 per cent of the pie till 2015. Moreover, as per a press release by research firm RNCOS, the report titled ‘Booming Generics Drug Market in India' projects the Indian generic drug market to grow at a CAGR of around 17 per cent between 2010-11 and 2012-13. Government Initiatives 100 per cent foreign direct investment (FDI) is allowed under the automatic route in the drugs and pharmaceuticals sector including those involving use of recombinant technology. The Union Minister of Commerce and Industry and Minister of Trade and Industry, Singapore, have signed a ‘Special Scheme for Registration of Generic Medicinal Products from India’, which seeks to fast-track the registration process for Indian Generic medicines in Singapore. The Government had also issued an expression of interest (EoI) for technical and financial bids for the selection of a global level consultant (GLC) for the preparation of a detailed project report (DPR) in order to develop India as a drug discovery and pharma innovation hub by 2020. The Drugs and Pharmaceuticals Manufacturers Association has received an in-principle approval for its proposed special economic zone (SEZ) for pharmaceuticals, bulk drugs, active pharmaceutical ingredients (APIs) and formulations to be located at Nakkapallimandal in Visakhapatnam district, according to a government press release. The Department of Pharmaceuticals has prepared a "Pharma Vision 2020" for making India one of the leading destinations for end-to-end drug discovery and innovation and

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for that purpose provides requisite support by way of world class infrastructure, internationally competitive scientific manpower for pharma research and development (R&D), venture fund for research in the public and private domain and such other measures. The government plans to open 3,000 Jan Aushadhi stores, which sell unbranded generic drugs at heavy discounts to branded drugs, in the next two years. Investment The healthcare sector has attracted growing investor support in 2010 with nearly a tenth of the total private equity funding going to this sector. In the third quarter the calendar year 2010, a total of US$ 2,047 million was invested across 88 deals, of which 9 per cent were healthcare deals, according to research firm Venture Intelligence. The potential of the rural pharmaceutical market in India has encouraged many MNCs to enhance their focus on this market. The drugs and pharmaceuticals sector has attracted FDI worth US$ 1,875.48 million between April 2000 and January 2011, according to data published by Department of Industrial Policy and Promotion (DIPP). Some of the major investment developments in the sector include:

• Chandigarh-based Ind-Swift Laboratories has received approval from the Japanese Government's pharmaceutical and medical devices agency (PMDA) for the supply of Pioglitazone and Risedronate Sodium from its manufacturing facilities at Derabassi in Punjab.

• Gurgaon will now be home to the country’s first state-of-the-art laboratory that will exclusively work to design an effective vaccine against the deadly human immunodeficiency virus (HIV).The Translational Health Sciences and Technology Institute (THSTI), an autonomous institute under the department of biotechnology (DBT), and the International AIDS Vaccine Initiative (IAVI), have signed an agreement to jointly establish, operate and fund this HIV vaccine design programme.

• Seven months after pulling out of the race for Singapore’s Parkway, Fortis Healthcare, India’s second-largest hospital chain, announced its first venture in Singapore, with a US$33 million acquisition of an under-construction specialised cancer hospital.

• Panacea Biotec has signed a non-exclusive marketing agreement with Uruguay's Laboratorios Clausen SA, allowing the Latin American firm to market the Indian company's organ transplant drug, Pangraf, in Europe.

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Road Ahead According to a report by PwC, India will join the league of top 10 global pharmaceuticals markets in terms of sales by 2020 with the total value reaching US$ 50 billion.

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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