"Biocon (BIOS) posted better than expected results for 3QFY13. Revenue grew 22.6% YoY to INR6.34b (v/s our estimate of INR6.15b). EBITDA grew 11.2% YoY to INR1.41b (v/s our estimate of 2% YoY growth to INR1.3b). EBITDA margin declined 230bp YoY to 22.3% (v/s our estimate of 21.1%). PAT grew 8.2% YoY to INR917m, higher than our estimate of INR821m. Topline growth was led by 29% YoY growth in Biopharma to INR4.85b (v/s our estimate of INR4.62b) and 25% YoY growth in Contract Research revenue to INR1.4b (v/s our estimate of INR1.3b). However, licensing income declined 70% YoY to INR88m (v/s our estimate of INR362m). EBITDA was higher than our estimate mainly due to better than expected topline growth, and lower staff cost and other expenses."
"The decline in EBITDA margin was primarily due to absence of licensing income from Pfizer, increase in R&D costs and higher power cost. PAT growth was higher than our estimate due to higher other income and better than expected operational performance. It was lower than EBITDA growth due to significantly higher tax rate at 21.4% against 11.8% in 3QFY12 and our estimate of 20%."
"Given the high cost of developing biogeneric products, we believe cost pressures are likely to continue for FY13/14, impacting earnings and return ratios. Option values for the future include separate listing of CR business and a potential out-licensing of the oral Insulin NCE by BMS. The stock is currently valued at 14.4x FY14E and 12.8x FY15E earnings. Return ratios will remain subdued, with RoE and RoCE likely to be in the 13-14% range for FY13 and FY14. Maintain Neutral with a target price of INR315 (15x FY15E EPS)," says Motilal Oswal research report.
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