Biocon Q2 net drops as energy costs, wages rise

Biocon Ltd, India top biotechnology company, reported a 4% drop in quarterly profit due to higher energy costs and rise in wages, but said strong demand from branded formulations offered opportunities for growth.

The company, which licenses its insulin products to Pfizer for global sales, said consolidated net profit fell to Rs 85.7 crore (USD 17.5 million) in the fiscal second quarter ended Sept. 30 from Rs 89.22 crore a year ago.

The drop was in line with market expectations after Bangalore-based Biocon had divested in April its German arm Axicorp, which had contributed Rs 7.3 crore to the profit in the same month a year earlier.

"We expected the Axicorp divestment would improve the company's operating margins but higher costs have actually impacted the company's performance," Siddhant Khandekar, analyst at ICICI Direct, said.

Energy costs rose 14% to Rs 22.68 crore, while expenditure on employees soared 34% to Rs 77.83 crore, the company said.

Shares in Biocon, which have shed 17.3% this year compared with an 11.7% fall in the benchmark healthcare index, were subdued in a weak Mumbai market.

Licensing and developing fees worth Rs 36.5 crore helped lift consolidated quarterly sales by 21% to Rs 508 crore, the company said.

Branded formulations segment jumped 37%, while research services business grew 20%, it said.

"The global economic outlook is challenging at the moment. Nevertheless, I believe that the Biocon Group will continue to deliver broad-based growth in the second half," Chairman and Managing Director Kiran Mazumdar-Shaw said in a statement.

New products to drive sale

Biocon's newly launched insulin injection device INSUPen and active pharmaceutical ingredient fidaxomicin are products the company is looking forward to boost sales, the company said.

There has been better-than-expected offtake in fidaxomicin, an anti-bacterial drug, and Biocon is focused on improving operational efficiencies to meet the increased demand, it added.

(USD 1 = Rs 49.1)