Company: Biocon Limited is an Indian biopharmaceutical company that is based in Bangalore, India founded by Kiran Mazumdar-Shaw. The company manufactures generic active pharmaceutical ingredients that are sold in over 120 countries across the globe, including the developed markets of the United States and Europe. A very good company from the sector of tomorrow - Biotechnology. From a Rs 10,000 biotechnology startup in 1978 & Just 2 Employees to Asia’s premier biopharmaceuticals Company. Able to grow its business since 1999 at 32 Cr which grew to 700 Cr and profit of 130 Cr from 2004 to today around 7000 Cr revenue and 900 Cr profits. Around 10X growth. Hence, investment of 1 lakh is also 10X during the last decade. Biocon established Syngene, India’s first CRO, in 1993 as its subsidiary to spearhead a new concept of providing scientific research services to the global pharmaceutical industry. Today Syngene does sales of around 2200 Cr, and it's a listed company. Yes, lease & debt liability are around 40% of the equity which is a little more than the normal 30%. Able to grow with consistent margins, and they make profits consistently. Due to high debt vertical growth is muted as margins are not expanding. But it is the Best in the sector, no other better choice. For a long time, we have been recommending Biocon as the Best in the sector.
Current Phase:
Biocon growth has been muted since last year. Hence we have not seen lifetime high profits also since past 2 years. Last year's Annual sales growth was 13% and profits have fallen by 3%. The same muted phase is continued this Q1 also as sales were muted with the growth of just 4%, not in line. This trend even continues for H1 as sales have grown by just 5% which were as expected. Due to increased debt and low growth, we have even decreased the weightage in Biocon from initially 3% to currently 2%. We can say growth is not what we generally look for. Profits have fallen by 26% which were somewhat better as during Q1 results profits have fallen by -36%. This 9M Results we saw somewhat relief as sales growth increased to 9% from 5% previously. At least the downtrend has stopped. Even Profits which were highly affected by 26% have fallen this time by just 11% is also a relief. Profits are suffering as their major cost is raw material and manpower. Both of these costs have increased by double-digit which has affected profits largely. Loss of 154 Cr from joint venture has also affected profit. The effect of this has already been reflected in the price during the past many months as the price is already down from 490 to currently 350. All those holding since long should be prepared that current year Biocon could stay in the range of 320 to 465 as Profits are not expected to grow this year. 320 can be used as the buying price and we may see the Biocon move in the range of 300 to 500 for this or next year where buying can be done at a lower channel while some 10% profits can be booked during recovery near 465.
Future:
Biotech is the future of tomorrow. Those doing SIP should continue the SIP with the maximum cap of 1-2% of the portfolio as stock is in the correction mode due to a fall in profits this year. New buying has already recommended around 320 even during last quarter and same should be the plan for this quarter till we see improvements. Can hold it for long term with the vision of wealth Creation.
Peer Investors:
FPI holds around an 18% stake while MF companies hold around 3%. Indian Retail Investor holds just around 4%.
Disclosure: Do Not Buy or sell before consulting your advisor as the writer may have the position in the above-given stocks or indices
