Biocon (CMP: Rs505)
Mkt Cap: Rs50.5bn; US$1.3bn Bloomberg code (BIOS IN)
Biocon's Q2'08 results are in line with expectations with 12% growth in revenues and 20% growth in profits. Key positive is 29% operating margin which indicates Biocon's ability to successfully manage the sharp appreciation in rupee. While H1FY08 licensing income has grown to Rs320m from Rs190m in H1FY07, it is nearly matched by a corresponding sharp increase in R&D expenses. (Rs320m in H1FY08 from Rs190m in H1FY07). Statins' contribution to sales is reducing progressively as Biocon's business model shifts to higher value added products like insulin, immunosuppressants, oncology and nephrology formulations etc. Biocon's CRO (Syngene and Clinigene) continues to grow strongly with 44% yoy and the outlook is very strong as reflected in the Rs2.75bn capex plan over 2 years against ~Rs1.5bn that Biocon has invested so far in the business. In our view, multiple growth engines are imbedded in Biocon's business model which can unfold over the next 12—24 months in form of possible outlicensing of oral insulin and h-T1, launch of immunosuppressants and insulin in regulated markets, enhanced formulations footprint in Asia region, value unlocking in CRO businesses, inorganic growth leveraging the enzyme business sell-off proceeds etc. Maintain estimates and reiterate Outperformer. Unlocking of value discovery R&D assets / CRO business and acceleration in licensing revenue growth will be upsides to our estimates.SSKI Research
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