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Biocon sees muted quarter, lacks immediate triggers

Reduced exports to West Asia & North Africa, capacity constraints affect sales

Ram Prasad Sahu Mumbai
Last Updated : Oct 23 2014 | 11:55 PM IST
Biocon’s September quarter results were below estimates, with revenue growing 2.3 per cent over the year-ago quarter to Rs 757 crore, on muted performance of its biopharmaceutical segment.

Sales in the segment, 74 per cent of revenue, grew only one per cent. Consensus estimates had pegged the overall sales at Rs 794 crore. Despite lower taxes, weaker operational performance reflected in the net profit, flat over a year before at Rs 102 crore and lower than the consensus estimate of Rs 115 crore. This saw the stock end one per cent lower at Rs 475 on Wednesday versus the benchmark Sensex's 0.8 per cent rise.

The management said the biopharma segment was impacted by geopolitical challenges of credit risk in the Middle East and North Africa (MENA) region, reduced offtake of speciality API (active pharmaceutical ingredients) and capacity constraints. The company is looking at alleviating capacity constraints at existing facilities and expand its export markets beyond MENA. As in the June quarter, lack of incremental revenue from API supplies of anti-biotic Fidaxomicin to Cubist Pharmaceuticals also impacted the performance.

HIGHLIGHTS
  • Biocon said the biopharma segment was impacted by geopolitical challenges of credit risk in the West Asia and North Africa regions, reduced offtake of speciality active pharmaceutical ingredients and capacity constraints
  • The company is looking at alleviating capacity constraints at existing facilities

Branded formulations, smaller part of the biopharma business, grew 17 per cent to Rs 116 crore. The other segment it operates in, contract research, also had a slower growth, of two per cent to Rs 192 crore. It is, however, expected to perform better in the second half of the financial year. The two businesses are expected to be growth drivers for the company.

Slower revenue growth and costs growing at 3.5 per cent meant Ebitda (earnings before interest, taxes, depreciation and amortisation) was down two per cent to Rs 188 crore. And, margins fell 144 basis points over a year to 24.3 per cent. In addition to the existing business, the key triggers for the stock will be progress on phase-III clinical trials for insulin glargine ($8-billion market) in the US. Further, the Street will keep an eye on the listing of its contract research subsidiary, Syngene, valued at Rs 3,800 crore.

While most of the triggers are long-term in nature, over half of the analysts have a ‘buy’ rating on the stock, with a one-year target of Rs 505. Other than the listing of Syngene, there does not seem many near-term triggers. Investors with a three-year horizon can look at the scrip on dips.

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First Published: Oct 23 2014 | 11:49 PM IST

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