Biocon's consolidated net sales in Q1'FY'13 grew by robust 30% YoY to Rs 570.86 crore driven by rupee depreciation (around 16% growth due to currency upside). Also, The growth in sales driven by good growth from Pharma (28%) coupled with strong growth from CRAMS business (37%). There is lower licensing income (decline 5% to Rs 13.9 crore) during the quarter but expects to pickup for the full year.

However, margins continues to be under pressure on the back of higher R&D spend (impact was around 300 bps) coupled with rise in staff cost, over heads and adjustments for forex loss (around 200 bps impact) during the quarter. Eventually, OPM fell by sharp 400 bps YoY to 21.3% and this moderated operating profit growth to 10% YoY to Rs 122.70 crore.

The fall in other income (-21%) was off set by decline in interest cost (-35%) and Depreciation (-5%) during the quarter. Eventually, PBT growth was 13% YoY to Rs 92.72 crore. After marginal increase in effective tax rate (30 bps YoY to 14.8%) PAT growth stood at same 13% YoY to Rs 78.99 crore.

Notably, The biopharma business grew by 23% YoY to Rs 368.3 crore in Q1'FY13 on the back of traction in all segments. Also, branded formulations business grew by robust 52% YoY to Rs 86 crore led by Oncology, Diabetology and Comprehensive care. The company strategy is to steadily move up the value chain with building brands in formulation business and targets for revenues of Rs 500 crore by FY'15.

Also, Biocon's Insulin Gargine (equivalent to innovator product Lantus) has met all primary and secondary end points in the Phase 1 comparative study and going for next phase of trials. This expected to be one of key large opportunities (market size USD 6-7 billion) for the Company going forward with higher investments for the trials. Further, The Company indicated that R&D expenses going to be higher as part of its business model. However, this expected to put further pressure on margins going forward.

Consolidated Quarterly Performance:

Net sales grew by 30% YoY to Rs 570.86 crore for the quarter ended June 2012 on the back of growth across the segments. Revenues from core Pharmaceuticals business (77% of sales) grew by 28% to Rs 451.73 crore. Also, CRAMS business grew by robust 37% YoY to Rs 131.25 crore. However, margins fell by sharp 400 bps YoY to 21.3% on the back of higher proportion sales to adjusted net of stocks of other expenses (470 bps YoY to 20.6%) and staff cost (60 bps YoY to 15.6%) despite lower proportion of consumption cost (210 bps to 42.8%) to the sales. Eventually, operating profit growth moderated to 10% YoY to Rs 122.70 crore. Further, after 21% fall in other income to Rs 15.92 crore, PBIDT growth stood at 5% YoY to Rs 138.62 crore.

At PBIT level, margins from core Pharma fell by 150 bps YoY to 37.7% and accordingly segment profit grew by 23% to Rs 170.09 crore. However, margins from CRAMS business were up by sharp 600 bps YoY to 36.2% led to sharp 64% growth in segment profit to Rs 47.46 crore.

With marginal interest cost (Rs 3.21 crore vis-à-vis Rs 4.95 crore) coupled with decline in depreciation (5% to Rs 42.69 crore), PBT growth was eased to 13% YoY to Rs 92.72 crore. After the marginal increase in effective tax rate by 20 bps YoY to 14.8%, PAT growth was 13% YoY to Rs 78.99 crore.

Consolidated Yearly Performance:

Net sales grew by 14% YoY to Rs 2049.03 crore for the year ended March 2012. However, margins fell by sharp 410 bps YoY to 24.8% and accordingly there was 1% decline in operating profit to Rs 517.32 crore. But after the 20% growth in other income to Rs 61.81 crore, PBIDT grew by 1% YoY to Rs 579.13 crore. However, the fall in interest cost (47% to Rs 12.23 crore) was offset by increase in depreciation (up by 15% to Rs 174.42 crore). Eventually, PBT declined by 2% YoY to Rs 392.48 crore. Thanks to decline in effective tax rate by 90 bps YoY to 13.8%, PAT decline was muted to Rs 338.40 crore.

Other Information:

• The scrip is hovering at 246.15 at BSE, India on 26^th July 2012.
• In March 2012, it terminated agreement with the Pfizer over commercialization of Biocon's biosimilar insulin portfolio and pursuant to the termination and transition agreement, the exclusive rights to commercialize reverted to Biocon and the customer had no further obligations to Biocon. Biocon is committed to the biosimilar Insulins program and is continuing the development / clinical trial activities on a global scale.
• Biocon evaluated the prevalent regulatory framework, industry practices and ethics/governance requirements relating to clinical trials / regulatory submissions already initiated under the Agreement and determined that it has continuing obligations to complete the clinical development and regulatory activities. Accordingly, as at March 31, 2012, Biocon deferred the balance amount of Rs. 49290 Lakhs received from the customer to be recognized in the consolidated statement of profit and loss in subsequent periods in line with costs to be incurred towards such clinical trial and development activities. In line with this policy, during the quarter ended June 30, 2012, out of the deferred amount, Rs. 1320 Lakhs has been netted off against expenses incurred during the quarter ended June 30, 2012 towards such clinical trial and development activities.

Management Comments:

Commenting on the results, Chairman and Managing Director Kiran Mazumdar-Shaw stated, I am pleased to report that we have seen strong performances across all our business verticals and this reflects the success of our segmented business model. I draw attention to our R&D investments that have increased 75% YoY this quarter. This increase arises from the enhanced spend on clinical development, that is integral to delivering long-term sustainable growth. On the licensing front, we are in discussions for several advancing research programs. We are hopeful that many of these will be realized going forward. This will endorse our R&D led value creation strategy. We believe that the changing dynamics in global healthcare are providing a number of exciting opportunities, which are well aligned with our business strategy of delivering affordable products for chronic therapies. I believe we will continue to make good progress through the rest of the year

Commenting on Research Services business, Peter Bains, Director, Syngene International, said, Syngene and Clingene started the year well, with particularly strong performance in biology and custom synthesis.

Biocon - Consolidated Financial Results