IHS Global Insight Perspective | |
Significance | Biocon (India) has reported an 80% fall in net profits in spite of a 53% increase in sales, and a 15.8% increase in earnings before interest depreciation tax and amortisation (EBIDTA) for fiscal year (FY) 2008-09. |
Implications | The 1.47-billion-rupee (US$29.6-million) loss on the firm's forward-looking foreign-exchange contract is the key factor behind the lacklustre profits over the year. |
Outlook | In this year, the firm will try to limit its mark-to-market (MTM) losses by moving towards floating rates rather than fixed-rate contracts. Meanwhile, profits for FY 2009-10 will be affected by the firm's high level of investment in research and development (R&D) and depreciation in its Bristol-Myers Squibb R&D facility. Sales are set to be boosted by licensing fees of more than 120 million rupees. |
Forex Losses Hit Biocon Hard
Indian biotech firm Biocon's sales for the 12 months ending 31 March 2009 stood at 16 billion rupees (US$326 million), up year-on-year (y/y) by 53%. Biopharma was the leading contributor to revenues, and at 13.8 billion rupees constituted 86% of total sales. Contract research contributed to the remaining 14% of revenues. The firm's German subsidiary, Axicorp, contributed 29% to the firm's topline, with Indian subsidiaries Syngene and Clinigene together contributing 28% to sales growth over fiscal year (FY) 2008-09.
Expenditure for the year stood at 12 billion rupees, up by 70% y/y, primarily driven by manufacturing, staff, and power costs. Research and development (R&D) expenses over the period increased y/y by 27.7%. In spite of the firm posting a healthy rise in earnings before interest, depreciation, tax, and amortisation (EBIDTA) of 15.8%, mark- to-market (MTM) losses caused net profit to plunge by 80% (y/y). MTM losses for the whole year were reported as 1.47 billion rupees, with EBIDTA and net profit of 3.9 billion rupees and 930 million rupees respectively.
Sales for the fourth quarter of the year grew by 75% y/y, with the firm reporting a fall in net profit of 61%. MTM losses over this period stood at 410 million rupees.
Biocon: Selected Results, FY 2008/09 | ||||
Q4 FY 2008-09(mil. Rupees) | % Growth Y/Y | FY 2008-09 (mil. Rupees) | % Growth Y/Y | |
Total Sales | 4,660 | 74.5 | 16,090 | 52.7 |
Biopharma | 3,980 | 80.1 | 13,840 | 66.3 |
Contract Research | 680 | 47.8 | 2,250 | 27.8 |
Total Expenditure | 3760 | 104.3 | 12,850 | 70.2 |
Earnings Before Interest Depreciation Tax and Amortisation (EBIDTA) | 1,100 | 15.7 | 3,880 | 15.8 |
Net Profit | 250 | -61 | 930 | -80.0 |
Source: Biocon | ||||
Outlook and Implications
Biocon has exceeded its topline guidance of 20% y/y growth for FY 2008-09. However, as is the case with other Indian firms Wockhardt, Ranbaxy, and Jubilant Oraganosys, its profits have been affected by foreign-exchange hedges on forward-looking contracts. Biocon's results come as no surprise, however, given that the company reported profits falling by 71.7%, 50%, and 42% y/y in the first, second, and third quarters of FY 2008-09. However according to Kiran Mazumdar-Shaw, chairman and managing director of Biocon, the company's strategy of using floating rates to hedge contracts rather than fixed rates will make them less susceptible to MTM loss in FY 2009-10.
While no definitive sales and profit guidance has been announced for the current financial year, Mazumdar-Shaw has revealed that Biocon's net profits may be affected by its involvement in the Bristol-Myers Squibb (BMS, U.S.)-dedicated R&D facility that the firm is setting up and planned total capacity expansion of 1 billion rupees (see India: 24 March 2009: BMS in Pact with Syngene for Contract Drug Research in India). Operating profit will meanwhile be affected by R&D expenditure of 1 billion rupees (US$20 million) over the year (see India: 19 November 2008: Biocon to invest US$20 mil. in R&D from Next Year). Axicorp will continue to be a significant contributor to top line, with the firm winning a two-year tender contract from Germany's largest insurer, Allgemeine Ortskrankenkasse (AOK, see India - Germany: 22 January 2009: Biocon's German Subsidiary Receives Approval on AOK Tender). Biocon's focus on expanding their market share in cardiology, diabetes, nephrology, and oncology in key markets is also expected to drive sales. The firm estimates total licensing fees of more than 120 million rupees for FY 2009-10, which is inclusive of its Abraxane deal with Abraxis (U.S., see India - United Arab Emirates: 13 October 2008: Biocon Launches Abraxane in U.A.E. Through Neopharma Joint Venture and India - United States: 21 July 2008: Biocon Launches India's First Nanoparticle-Based Oncotherapeutic).