1

SYNOPSIS

Biocon is a fully integrated

biotechnology enterprise,

specializing in biopharmaceuticals,

custom research and clinical

research.

The Company also provides contract

manufacturing services to the other

pharmaceutical companies.

The company has declared a total

dividend of Rs. 4.50 per equity share

of Rs.5.00 each for the financial year

ended 2010-11.

The Company to sell a majority stake

in its German unit AxiCorp GmbH

for Rs. 263.20 crore.

Net Sales and PAT of the company

are expected to grow at a CAGR of

14% and 16% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 27766.60 6296.40 3675.20 18.38 19.11

FY 12E 30543.26 6867.37 4072.84 20.36 17.25

FY 13E 34819.32 7797.43 4697.08 23.49 14.96

Stock Data:

Sector: Pharma

Face Value Rs. 5.00

52 wk. High/Low (Rs.) 464.60/301.25

Volume (2 wk. Avg.) 64000

BSE Code 532523

Market Cap (Rs.In mn) 70250.00

Share Holding Pattern

1 Year Comparative Graph

Biocon Ltd BSE SENSEX

C.M.P: Rs. 351.25 Target Price: Rs. 400.00 Date: June 25th 2011 BUY

BIOCON LTD Result Update: Q4 FY 11

2

Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Biocon Ltd 351.25 70250.00 22.96 15.30 3.47 70.00

Dr. Reddy’s 1497.45 253409.40 52.79 28.37 4.28 225.00

Cipla 326.35 262033.40 12.05 27.08 3.81 100.00

*As on 25/06/2011

Investment Highlights

Results Updates (Q4 FY11)

During the quarter, the company disclosed a Consolidated profit of Rs. 1008.10

million as against of Rs.806.20 million for the quarter ended March 31, 2010. Net

sales are increased by 7% to Rs. 7032.30 million from Rs. 6582.10 million in the

same quarter previous year. In the same period, consolidated operating profit of the

company was at Rs. 1584.00 million, a rise of 14% over the prior year period.

Company EPS is stood at Rs.5.04 for the quarter ended March 2011.

Quarterly Results - standalone (Rs in mn)

As At Mar-11 Mar-10 %change

Net sales 7032.30 6582.10 7

Net profit 1008.10 806.20 25

Basic EPS 5.04 4.03 25

3

Break-up of Expenditure

Declaration of Dividend

The Company has declared an interim dividend of 30% (Rs 1.50 per share). A

final dividend of 60% (Rs. 3.00 per share), has also been recommended by the

Board subject to the approval of the members thereby taking the total dividend

for the year to 90% (Rs 4.50 per share) on the share capital of the Company.

Biocon to sell majority stake in AxiCorp

The Company to sell a majority stake in its German unit AxiCorp GmbH for Rs.

263.2 crore because it didn't need the company's services to sell Biocon's

insulin products in the European nation after an alliance with the world's

biggest drug maker Pfizer Inc.

4

Company Profile

Biocon, Asia’s largest biotechnology company, started itself with seed capital of Rs.10, 000 in 1978, is now a billion dollar company. The company manufactures biotechnological products catering to the healthcare segment. It is engages itself in all phases of the product cycle from discovering to development & then commercializing the same drugs. This pharmaceutical company has fermentation-based technology, creating cost effective drugs. Syngene and Clinigene, subsidiaries of Biocon conduct R& D programs for international pharmaceutical and biotechnology majors. Biocon produces anti diabetic agents like Acarbose, Pioglitazone, Repaglinides & Rosiglitazone. In the biological segment it produces Insulin, Erythropoietin (EPO), Filgrastim (GCSF), Streptokinase & Monoclonal Antibodies. The drug major produces mycophenolate mofetil, sirolimus and tacrolimus. It also produces & market mix of specialty & industrial enzymes for industries like paper, brewing, beverages, food, brewing, textiles & distilling. The company’s drug portfolio consists of lovastatin, simvastatin, pravastatin and atorvastatin. The company has strategic alliances with Mylan Inc.; Amylin Pharmaceuticals, Inc.; DuPont; Bristol-Myers Squibb; Endo Pharmaceuticals; IATRICa, Inc.; and Vaccinex, Inc., Pfizer Inc. as well as a licensing agreement with Abraxis BioScience, Inc. Company Products Biopharmaceuticals Active Pharmaceutical Ingredients (APIs)

• Anti-Diabetic Agents • Anti-Inflammatory Agents • Anti-Oxidants • Cardiovascular Agents • Anti-Obesity Agents • Digestive-Aid Enzymes • Anti-Hypertensive Agents • Haemostatic Agents • Hepatoprotective Agents • Immunosuppressants • Gastro-Intestinal Agents • Nutraceuticals

Biologicals

• Insulin • Streptokinase • EPO • GCSF

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• Monoclonal Antibodies Branded Formulations Oncology

• BIOMAb EGFR® • NUFIL safe™ (Pre-filled Syringe) • NUFIL™ (Vials) • Abraxane® for injectable suspension

Nephrology

• ERYPRO safe™ (Pre-filled Syringe) • TACROGRAF™ • RAPACAN™ • CYCLOPHIL ME™ • RENODAPT™ • RENODAPT™ - S • CeRACaL™

Cardiology

• STATIX® • STATIX®-F • STATIX®-EZ • BESTOR® • TELMISAT™ • TELMISAT™-H • ZARGO® • ZARGO®-H • ZIGPRIL® • ACTIBLOK™-IPR • BRADIA™ • CLASPRIN® • THINRIN™ • MYOKINASE™ • CLOTIDE™ • DYNALIX®

Diabetology

• INSUGEN®-R • INSUGEN®-N • INSUGEN®-30/70 • INSUGEN®-50/50 • BASALOG™ 3ml, 10 ml • BLISTO™ 1, 2 & 4 • BLISTO™-MF 1, 2 & 4

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• METADOZE-IPR® 500 & 850 • PIODART® • PIODART®-MF • TriGPM™ • ZUKER™-MF • GABIL™ • GMAB™ Plus • OLISAT™

Subsidiary Companies: Syngene International Limited Syngene International Limited is a custom research organization offering synthetic chemistry and molecular biology services for early stage drug discovery and development. Clinigene International Limited Clinigene International Limited is a clinical research organization offering Phase I-IV clinical trials and studies for novel/generic molecules to international pharmaceutical majors. Biocon Biopharmaceuticals Private Limited (BBPL) Biocon Biopharmaceuticals Private Limited (BBPL) is a joint venture with CIMAB to develop and market a range of monoclonal antibodies and cancer vaccines. AxiCorp GmbH AxiCorp GmbH is a Friedrichsdorf (Germany) based pharmaceutical marketing company and is amongst the fastest growing in Europe. Biocon Limited acquired a majority stake in AxiCorp GmbH (70%) in February, 2008. NeoBiocon FZ LLC NeoBiocon FZ LLC is a research and marketing pharmaceutical company based in Abu Dhabi. Incorporated in January 2008, NeoBiocon is a 50:50 joint venture with Dr. B.R.Shetty, Managing Director of NeoPharma, Abu Dhabi.

Research & Development

Biocon’s discovery-led R&D focuses on the entire drug development pathway - from

process development, to non-clinical and clinical research. The depth and breadth of

their technological and scientific expertise enables them to develop new and affordable

therapeutics for the world’s most debilitating diseases. R&D’s ability to leverage

frontier science, from cloning right through to identifying novel clinical biomarkers,

continues to advance Biocon’s reputation as a leading innovator company.

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Financials Results 12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 23747.50 27766.60 30543.26 34819.32

Other Income 300.90 370.00 392.20 415.73

Total Income 24048.40 28136.60 30935.46 35235.05

Expenditure -18963.30 -21840.20 -24068.09 -27437.62

Operating Profit 5085.10 6296.40 6867.37 7797.43

Interest -168.90 -257.00 -253.76 -270.89

Gross profit 4916.20 6039.40 6613.61 7526.53

Depreciation -1401.40 -1567.70 -1661.76 -1827.94

Exceptional Items 0.00 0.00 0.00 0.00

Profit Before Tax 3514.80 4471.70 4951.84 5698.60

Tax -486.70 -721.20 -802.20 -923.17

Profit After Tax 3028.10 3750.50 4149.65 4775.42

Extraordinary Items 0.00 0.00 0.00 0.00 Minority Interest & Share of

Profit and Loss of Asso -95.60 -75.30 -76.81 -78.34

Net Profit 2932.50 3675.20 4072.84 4697.08

Equity capital 1000.00 1000.00 1000.00 1000.00

Reserves 16569.00 19375.20 23448.04 28145.12

Face Value 5.00 5.00 5.00 5.00

Total No. of Shares 200.00 200.00 200.00 200.00

EPS 14.66 18.38 20.36 23.49

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) 30-Sep-10 31-Dec-10 31-Mar-11 30-Jun-11E

Description 3m 3m 3m 3m

Net sales 6799.40 7297.70 7032.30 7348.75

Other income 77.70 79.10 132.70 138.01

Total Income 6877.10 7376.80 7165.00 7486.76

Expenditure -5351.80 -5597.30 -5581.00 -5805.52

Operating profit 1525.30 1779.50 1584.00 1681.25

Interest -65.10 -65.60 -56.60 -57.73

Gross profit 1460.20 1713.90 1527.40 1623.51

Depreciation -390.40 -405.80 -396.10 -404.02

Exceptional Items 0.00 0.00 0.00 0.00

Profit Before Tax 1069.80 1308.10 1131.30 1219.49

Tax -156.00 -290.70 -110.60 -195.12

Profit After Tax 913.80 1017.40 1020.70 1024.37

Extraordinary Items -21.60 0.00 0.00 0.00 Minority Interest & Share of

Profit & Loss of Asso 0.00 -9.90 -12.60 -10.71

Net Profit 892.20 1007.50 1008.10 1013.66

Equity capital 1000.00 1000.00 1000.00 1000.00

Face Value 5.00 5.00 5.00 5.00

Total No. of Shares 200.00 200.00 200.00 200.00

EPS 4.46 5.04 5.04 5.07

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Key Ratio

Particulars FY10 A FY11 A FY12 E FY13 E

EBIDTA % 21% 23% 22% 22%

PAT % 13% 14% 14% 14%

P/E ratio (x) 23.96 19.11 17.25 14.96

ROE - % 17% 18% 17% 16%

ROCE - % 19% 21% 20% 19%

EV/EBIDITA (x) 8.93 10.20 11.46 11.26

Debt Equity Ratio 0.11 0.10 0.09 0.08

Book Value (Rs.) 87.85 101.88 122.24 145.73

Price/Book Value 2.59 3.45 2.87 2.41

Charts:

• Net sales & PAT

10

• P/E Ratio (x)

• P/BV (X)

11

• EV/EBITDA(X)

Outlook and Conclusion

At the current market price of Rs.351.25, the stock is trading at 17.25 x FY12E

and 14.96 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.20.36 and Rs.23.49 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 14% and

16% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 11.46 x for FY12E and 11.26 x

for FY13E.

Price to Book Value of the stock is expected to be at 2.87 x and 2.41 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.400.00 for Medium to Long term investment.

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Industry Overview

India is one of the fastest-growing pharmaceutical markets in the world, and its

market size has nearly doubled since 2005. The Indian pharmaceutical market is

expected to reach US$ 20 billion by 2015, growing at a compound annual growth rate

(CAGR) of 11.7 per cent during 2005–2015 and establish its presence among the

world’s leading 10 markets. India is also the third-largest market in the world in terms

of volume and fourteenth in terms of value.

India accounts for 8 per cent of global pharmaceutical production. Indian firms

produce about 60,000 generic brands across 60 therapeutic categories. In addition,

Indian firms manufacture approximately 500 different active pharmaceutical

ingredients (APIs). Manufacturing costs in India are approximately 35 to 40 per cent of

those in the US due to low installation and manufacturing costs.

Moreover, according to an Ernst & Young and industry body study, the increasing

population of the higher-income group in the country, will open a potential US$ 8

billion market for multinational companies selling costly drugs by 2015.

Further, IMS Health India, which tracks drug sales in the country through a network

of nationwide drug distributors, estimates the healthcare market in India to reach US$

31.59 billion by 2020.

Growth

According to IMS Health, for the full year 2010, the Indian Retail Pharmaceutical

Market was valued at US$ 10.2 billion, growing at 16.5 per cent over 2009. The

pharmaceutical market has shown a strong double digit growth for the second

successive year.

As per the estimates of the Ministry of Commerce, Government of India, a whopping

amount of US$ 6.31 billion will be invested in the Indian pharmaceutical industry by

2015. Also, the Indian pharmaceutical off-shoring industry is predicted to be a US$

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2.5 billion opportunity by 2012, due to the low cost of research & development (R&D)

in India.

According to the All India Organisation of Chemists and Druggists (AIOCD), the

pharmaceuticals industry in India will grow by over 100 per cent over the next two

years.

"The people are increasingly becoming health conscious and the sell of all types of

medicines, particularly anti-biotic, will zoom up in the coming years. We expect the

business to double by 2012", as per JS Shinde, President, AIOCD.

Diagnostics Outsourcing/ Clinical Trials

According to the research published by RNCOS titled 'Indian Diagnostic Market

Analysis', the Indian diagnostic services are projected to grow at a CAGR of more than

20 per cent during 2010-2012.

Some of the major Indian pharmaceutical firms, including Sun Pharma, Cadilla

Healthcare and Piramal Life Sciences, had applied for conducting clinical trials on at

least 12 new drugs in 2010, indicating a growing interest in new drug discovery

research.

Generics

According to MrSrikant Kumar Jena, Union Minister of State for Chemicals and

Fertilisers, India tops the world in exporting generic medicines worth US$ 11 billion

and currently, the Indian pharmaceutical industry is one of the world's largest and

most developed.

India tops the world in exporting generic medicines worth US$ 11 billion.

According to McKinsey report ‘India Pharma 2015- Unlocking the potential of Indian

Pharmaceuticals market’ – Generics will continue to dominate the market while

patent-protected products are likely to constitute 10 per cent of the pie till 2015.

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Moreover, as per a press release by research firm RNCOS, the report titled ‘Booming

Generics Drug Market in India' projects the Indian generic drug market to grow at a

CAGR of around 17 per cent between 2010-11 and 2012-13.

Government Initiatives

100 per cent foreign direct investment (FDI) is allowed under the automatic route in

the drugs and pharmaceuticals sector including those involving use of recombinant

technology.

The Union Minister of Commerce and Industry and Minister of Trade and Industry,

Singapore, have signed a ‘Special Scheme for Registration of Generic Medicinal

Products from India’, which seeks to fast-track the registration process for Indian

Generic medicines in Singapore.

The Government had also issued an expression of interest (EoI) for technical and

financial bids for the selection of a global level consultant (GLC) for the preparation of

a detailed project report (DPR) in order to develop India as a drug discovery and

pharma innovation hub by 2020.

The Drugs and Pharmaceuticals Manufacturers Association has received an in-

principle approval for its proposed special economic zone (SEZ) for pharmaceuticals,

bulk drugs, active pharmaceutical ingredients (APIs) and formulations to be located at

Nakkapallimandal in Visakhapatnam district, according to a government press

release.

The Department of Pharmaceuticals has prepared a "Pharma Vision 2020" for making

India one of the leading destinations for end-to-end drug discovery and innovation and

for that purpose provides requisite support by way of world class infrastructure,

internationally competitive scientific manpower for pharma research and development

(R&D), venture fund for research in the public and private domain and such other

measures.

15

The government plans to open 3,000 Jan Aushadhi stores, which sell unbranded

generic drugs at heavy discounts to branded drugs, in the next two years.

Investment

The healthcare sector has attracted growing investor support in 2010 with nearly a

tenth of the total private equity funding going to this sector. In the third quarter the

calendar year 2010, a total of US$ 2,047 million was invested across 88 deals, of

which 9 per cent were healthcare deals, according to research firm Venture

Intelligence.

The potential of the rural pharmaceutical market in India has encouraged many MNCs

to enhance their focus on this market.

The drugs and pharmaceuticals sector has attracted FDI worth US$ 1,875.48 million

between April 2000 and January 2011, according to data published by Department of

Industrial Policy and Promotion (DIPP).

Some of the major investment developments in the sector include:

• Chandigarh-based Ind-Swift Laboratories has received approval from the

Japanese Government's pharmaceutical and medical devices agency (PMDA) for

the supply of Pioglitazone and Risedronate Sodium from its manufacturing

facilities at Derabassi in Punjab.

• Gurgaon will now be home to the country’s first state-of-the-art laboratory that

will exclusively work to design an effective vaccine against the deadly human

immunodeficiency virus (HIV).The Translational Health Sciences and

Technology Institute (THSTI), an autonomous institute under the department of

biotechnology (DBT), and the International AIDS Vaccine Initiative (IAVI), have

signed an agreement to jointly establish, operate and fund this HIV vaccine

design programme.

• Seven months after pulling out of the race for Singapore’s Parkway, Fortis

Healthcare, India’s second-largest hospital chain, announced its first venture in

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• Singapore, with a US$33 million acquisition of an under-construction

specialised cancer hospital.

• Panacea Biotec has signed a non-exclusive marketing agreement with

Uruguay's Laboratorios Clausen SA, allowing the Latin American firm to market

the Indian company's organ transplant drug, Pangraf, in Europe.

Road Ahead

According to a report by PwC, India will join the league of top 10 global

pharmaceuticals markets in terms of sales by 2020 with the total value reaching US$

50 billion.

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

17

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