BIOCON LTD Result Update: Q4 FY 11

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1 BIOCON LTD Result Update: Q4 FY 11 C.M.P: Rs Target Price: Rs Date: June 25 th 2011 BUY Stock Data: Sector: Pharma Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs.In mn) Share Holding Pattern SYNOPSIS Biocon is a fully integrated biotechnology enterprise, specializing in biopharmaceuticals, custom research and clinical research. The Company also provides contract manufacturing services to the other pharmaceutical companies. The company has declared a total dividend of Rs per equity share of Rs.5.00 each for the financial year ended Year Comparative Graph The Company to sell a majority stake in its German unit AxiCorp GmbH for Rs crore. Biocon Ltd BSE SENSEX Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 16% over 2010 to 2013E respectively. Years Net sales EBITDA Net Profit EPS P/E FY FY 12E FY 13E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Biocon Ltd Dr. Reddy s Cipla *As on 25/06/2011 Investment Highlights Results Updates (Q4 FY11) During the quarter, the company disclosed a Consolidated profit of Rs million as against of Rs million for the quarter ended March 31, Net sales are increased by 7% to Rs million from Rs million in the same quarter previous year. In the same period, consolidated operating profit of the company was at Rs million, a rise of 14% over the prior year period. Company EPS is stood at Rs.5.04 for the quarter ended March Quarterly Results - standalone (Rs in mn) As At Mar-11 Mar-10 %change Net sales Net profit Basic EPS

3 Break-up of Expenditure Declaration of Dividend The Company has declared an interim dividend of 30% (Rs 1.50 per share). A final dividend of 60% (Rs per share), has also been recommended by the Board subject to the approval of the members thereby taking the total dividend for the year to 90% (Rs 4.50 per share) on the share capital of the Company. Biocon to sell majority stake in AxiCorp The Company to sell a majority stake in its German unit AxiCorp GmbH for Rs crore because it didn't need the company's services to sell Biocon's insulin products in the European nation after an alliance with the world's biggest drug maker Pfizer Inc. 3

4 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. The company has strategic alliances with Mylan Inc.; Amylin Pharmaceuticals, Inc.; DuPont; Bristol-Myers Squibb; Endo Pharmaceuticals; IATRICa, Inc.; and Vaccinex, Inc., Pfizer Inc. as well as a licensing agreement with Abraxis BioScience, Inc. 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 4

5 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 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 5

6 METADOZE-IPR 500 & 850 PIODART PIODART -MF TriGPM ZUKER -MF GABIL GMAB Plus OLISAT 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, 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. Research & Development Biocon s discovery-led R&D focuses on the entire drug development pathway - from process development, to non-clinical and clinical research. The depth and breadth of their technological and scientific expertise enables them to develop new and affordable therapeutics for the world s most debilitating diseases. R&D s ability to leverage frontier science, from cloning right through to identifying novel clinical biomarkers, continues to advance Biocon s reputation as a leading innovator company. 6

7 Financials Results 12 Months Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) FY10 FY11 FY12E FY13E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Profit After Tax Extraordinary Items Minority Interest & Share of Profit and Loss of Asso Net Profit Equity capital Reserves Face Value Total No. of Shares EPS

8 Quarterly Ended Profit & Loss Account (Consolidated) Value(Rs.in.mn) 30-Sep Dec Mar Jun-11E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Profit After Tax Extraordinary Items Minority Interest & Share of Profit & Loss of Asso Net Profit Equity capital Face Value Total No. of Shares EPS

9 Key Ratio Particulars FY10 A FY11 A FY12 E FY13 E EBIDTA % 21% 23% 22% 22% PAT % 13% 14% 14% 14% P/E ratio (x) ROE - % 17% 18% 17% 16% ROCE - % 19% 21% 20% 19% EV/EBIDITA (x) Debt Equity Ratio Book Value (Rs.) Price/Book Value Charts: Net sales & PAT 9

10 P/E Ratio (x) P/BV (X) 10

11 EV/EBITDA(X) Outlook and Conclusion At the current market price of Rs , the stock is trading at x FY12E and x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 16% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at x for FY12E and x for FY13E. Price to Book Value of the stock is expected to be at 2.87 x and 2.41 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. 11

12 Industry Overview India is one of the fastest-growing pharmaceutical markets in the world, and its market size has nearly doubled since 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 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 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$ billion by 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 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 Also, the Indian pharmaceutical off-shoring industry is predicted to be a US$ 12

13 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 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 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 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

14 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 and 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 The Drugs and Pharmaceuticals Manufacturers Association has received an inprinciple 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 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. 14

15 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, 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 15

16 Singapore, with a US$33 million acquisition of an under-construction specialised cancer hospital. Panacea Biotec has signed a non-exclusive marketing agreement with Uruguay's Laboratorios Clausen SA, allowing the Latin American firm to market the Indian company's organ transplant drug, Pangraf, in Europe. Road Ahead According to a report by PwC, India will join the league of top 10 global pharmaceuticals markets in terms of sales by 2020 with the total value reaching US$ 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. 16

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