Study of an Indian public-listed company BIOCON Final Project Report Contents Background3 Subsidiary Companies4 Products and Services4 The Auditors report5 The Director’s Report6 Accounting Policies7 Balance sheet14 Cash flow analysis18 ANNEXURES21 Ratio Analysis23 New Terminologies29 References30 Background Established in 1978, Biocon is India’s premier biotechnology company. Headquartered in Bangalore Biocon has evolved from an enzyme company to a fully integrated biopharmaceutical enterprise, focused on healthcare. In 2007, Biocon made a strategic decision to divest its historic enzymes business to Novozymes A/S of Denmark.
Biocon now strategically focuses its activities on its bio-pharma business verticals that include APIs, biologicals and proprietary molecules both commercialized and under development with this divestment, the company mission is to ‘Develop novel & affordable Biotherapeutics for global markets’. Biocon Limited and its two subsidiary companies, Syngene International Limited and Clinigene International Limited form a fully integrated biotechnology enterprise specializing in biopharmaceuticals, custom research and clinical research.
Biocon’s integrated business approach has enabled the company to establish a significant presence in the global biopharmaceutical market via its product offerings and customised, high value solutions at any stage in the lifecycle of a drug-from discovery to market. Biocon’s vision is to be an integrated biopharmaceutical enterprise of global distinction. The company applies its proprietary fermentation technologies to make effective and innovative biomolecules in diabetology, oncology, cardiology and other therapeutic segments.
Biocon’s products in the biopharmaceutical category include: anti-diabetic agents, anti-hypertensive agents, anti-inflammatory agents, anti-oxidants, biologicals, cholesterol-lowering agents, haemostatic agents, hepatoprotective agents, immunosuppressants, nutraceuticals and orthopaedic agents. With its strong focus on R Biocon offers services in custom research (Syngene) in the fields of synthetic chemistry and molecular biology in early stage drug discovery and development. Clinical research (Clinigene) is carried out in the fields of clinical studies and clinical trials.
Biocon Park, inaugurated in June 2006 by President APJ Abdul Kalam comprises an integrated cluster of research laboratories and manufacturing facilities laid out on a 90 acre expanse in Bommasandra Industrial Area – Phase IV. Built with a total investment of Rs. 650 crores, with further investments to follow, Biocon Park is the single largest capital investment made by Biocon in its 30-year history and is focused on exports of both bio-pharmaceutical products and research services.
The multi-product facilities mainly cater to the following disease segments: cardiovascular, cholesterol reduction, immunosuppressants in organ transplantation, diabetes and cancer. Biocon’s success has been characterized by an enduring set of corporate values based on innovation, integrity, strong leadership and social responsibility. As India’s first and leading biotechnology company Biocon extends its support to numerous community outreach and corporate citizenship initiatives with special concentration in the areas of healthcare, education and environment.
The Biocon Foundation, set up in 2004 has launched Arogya Raksha Yojana, a unique health initiative for rural India. Biocon aims to continuously create growth in different areas of the company and is the first company, globally to manufacture human insulin, Insugen® using a Pichia expression system. In addition, in 2006, Biocon launched BIOMAb EGFR™, the first indigenously developed humanized monoclonal antibody for Head & Neck cancer. Subsidiary Companies Syngene International Limited is a custom research organisation offering synthetic chemistry and molecular biology services for early stage drug discovery and development.
Clinigene International Limited is a clinical research organisation offering Phase I-IV clinical trials and studies for novel/generic molecules to international pharmaceutical majors. 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 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 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. Products and Services Over the years, Biocon have systematically leveraged our technology platforms from enzymes to small molecules to recombinant proteins and antibodies. Through partnerships and alliances, Biocon has strategically moved up the value chain from supplying pharmaceutical bulk actives to developing proprietary molecules and our own branded formulations.
In the areas of custom and clinical research services, collaborative partnerships with complementary biotechnology and pharmaceutical companies are yielding rich results. Biocon believes these partnerships will positively impact any and all phases of our discovery portfolio. Differentiation and a high degree of innovation distinguish all our products and services. Combined with India’s value advantage, they enable us to develop and deliver novel and affordable therapeutics for global unmet medical needs. • Biopharmaceuticals o APIs o Biologicals o Branded Formulations Dosage Forms • Licensing • Contract Manufacturing • Research Services The Auditors report M/S S R Batliboi & Associates are the auditors for the company. The auditors are of the opinion that company’s accounts have been properly kept by the company in the accordance with the accounting standards referred to in sub-section (3C)of section 211 of the companies Act,1956. The auditors states that proper books of account as required by law have been kept by company & the balance sheet, profit and loss account and cash flow statement are in agreement with the books of accounts.
The main points in auditors reports are as under- (i) As informed, the Company has granted unsecured loans to three companies listed in the register maintained under Section 301 of the Companies Act, 1956 (‘the Act’). The maximum amount involved during the year was Rs 2,237,590 thousands and the balance outstanding as at March 31, 2009 is Rs 2,024,938 thousands. In our opinion and according to the information and explanations given to us, the rate of interest, where applicable, and other terms and conditions of the loans given by the Company, are not prima facie prejudicial to the interest of the Company.
In respect of loans granted, repayment of the principal amount is as stipulated and payment of interest, wherever applicable, has been regular. Based on our audit procedures and the information and explanation made available to us, there is no overdue amount of the loan granted by the Company to the companies listed in the register maintained under Section 301 of the Companies Act, 1956. The Company has not taken/granted any other loans from/to companies, firms or other parties listed in the register maintained under Section 301 of the Act. ii) In our opinion and according to the information and explanations given to us, as well as taking into consideration the management representation that certain items of fixed assets are of special nature for which alternative quotations are not available, there is an adequate internal control system commensurate with the size of the Company and the nature of its business, for the purchase of fixed assets and inventory and for the sale of goods and services. During the course of our audit, no major weakness has been noticed in the internal control system in respect of these areas. iii) According to the information and explanations provided by the management, we are of the opinion that the particulars of contracts or arrangements referred to in Section 301 of the Act, that need to be entered into the register maintained under Section 301 have been so entered. In respect of transactions made in pursuance of such contracts or arrangements exceeding value of Rupees five lakhs entered into during the financial year, because of the unique and specialized nature of items involved and absence of any comparable prices, we are unable to comment whether the transactions are made at prevailing market prices at the relevant time. iv) The Company has not accepted any deposits from the public. (v) Undisputed statutory dues including provident fund, investor education and protection fund, employees’ state insurance, income-tax, sales-tax, wealth-tax, service tax, customs duty, excise duty, cess and other material statutory dues applicable to it have generally been regularly deposited with the appropriate authorities .
According to the information and explanations given to us, there were no undisputed dues in respect of provident fund, investor education and protection fund, employees’ state insurance, income-tax, wealth-tax, service tax, sales-tax, customs duty, excise duty, cess and other statutory dues which were outstanding, at the yearend for a period of more than six months from the date they became payable. The Director’s Report The director’s report begins with presenting financial highlights for the financial year ended on 31 march 2009. It recommended dividend of 60%, i. e. Rs. 3 per share. Further it states than during the year under eview, consolidated revenues grew by 53%, Profits (EBITDA) and Profit after Tax, before exceptional items grew by 16% and 7% respectively. The Net Profit for the year was impacted by loss under exceptional item of Rs 1,472 million, on account of Mark to Market (MTM) loss incurred due to volatility in the foreign exchange rates. In spite of the global economic meltdown the company was able to achieve growth due to its strong focus on operational efficiencies and aggressive defending of market position in the face of competition in the generic API space. The report propose to transfer Rs 112 millions to the General Reserves.
An amount of Rs 8,009 Million is proposed to be retained in the profit t and loss account. The report states that the consolidated financial statements have been prepared by the Company in accordance with the Accounting Standards as prescribed by the Companies (Accounting Standards) Rules, 2006. The audited consolidated financial statements together with Auditors Report thereon form part of the Annual report. The consolidated net profits of the Group before exceptional items for the year ended 31st March 2009 amounted to Rs 2,403 Million as compared to Rs 2,245 Million in the previous financial year.
For the year under review, profit (after exceptional items) amounted to Rs 931 Million, resulting in basic earnings per share Rs 4. 8 per share. Regarding business operations overview & Outlook During the year, report says that total revenues of the Company increased by 6% from Rs 9,292 Million to 9,871 Million. Statins registered a 12% growth and Immunosuppressant’s basket grew by 35% for the year under review. Our branded formulations business under our Healthcare umbrella has made rapid strides in garnering market share for our key brands in Cardiology, Diabetology, Nephrology and Oncology.
We see this as being a high growth segment in our business strategy going ahead. Our future prospects are being driven by a robust R engine where we are making good progress both in our bio-generics and novel biologics programs. This will call for significant incremental investments going forward which are expected to realize significant returns over the medium to long term. Patient enrolment is well under way in our Phase III clinical trials for IN105 (Oral Insulin). Our T1h (Anti CD6) monoclonal antibody program has completed patient recruitment for Phase II clinical trials for both Rheumatoid Arthritis as well as Psoriasis.
On the bio-generics front, our development plan for regulatory acceptance by EMEA and USFDA of our recombinant human Insulin is also on track. Insulin analogue, Glargine is now set to enter into a similar development path for global registrations. Accounting Policies The accounting policies of BIOCON are as given below: (i) Basis of preparation The financial statements have been prepared to comply in all material respects with the Accounting Standards, notified by the Companies Accounting Standards Rules, 2006 and the relevant provisions of the Companies Act, 1956.
The financial statements have been prepared under the historical cost convention except in case of assets for which provision for impairment is made and revaluation is carried out, on an accrual basis. The accounting policies have been consistently applied by the Company and are consistent with those used in the previous year except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in accounting policy hitherto in use. (ii) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. (iii) Changes in Accounting Policies
Exchange Differences on Long Term Foreign Currency Monetary Items Upto March 31, 2008, the Company was charging off exchange differences arising on foreign currency monetary assets and liabilities to the profit and loss account. During the year ended March 31, 2009, pursuant to Companies (Accounting Standards) Amendment Rules, 2009, notified on March 31, 2009, the Company has exercised the option of deferring the charge to the Profit and Loss Account arising on exchange differences, in respect of accounting periods commencing on or after December 7, 2006, on long-term foreign currency monetary items (i. . monetary assets or liabilities expressed in foreign currency and having a term of 12 months or more at the date of origination). As a result, such exchange differences so far as they relate to the acquisition of a depreciable capital asset have been adjusted with the cost of such asset and would be depreciated over the balance life of the asset, and in other cases, have been accumulated in Foreign Currency Monetary Item Translation Difference Account and would be amortized over the balance period of such long-term asset/ liability but not beyond, accounting eriod ending on or before March 31, 2011. There has been no impact of the above adoption on the financial results of the Company for the year ended March 31, 2009. b. Fixed assets and depreciation Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at estimated replacement cost as determined by valuers less impairment loss, if any, and accumulated depreciation. The Company capitalises all costs relating to the acquisition and installation of fixed assets.
Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives, or at the rates prescribed under Schedule XIV of the Companies Act, 1956 whichever is higher, as follows: |Nature of asset |Per cent | |Buildings |4. 0 | |Plant and machinery |9. 09 – 33. 33 | |Research and development equipment |11. 11 | |Furniture and fixtures |16. 67 | |Vehicles |16. 67 |
Leasehold land on a lease-cum-sale basis are capitalised at the allotment rates charged by the Municipal Authorities. Leasehold improvements are being depreciated over the lease term or useful time whichever lower. The depreciation charge over and above the depreciation calculated on the original cost of the revalued assets is transferred from the revaluation reserve to the profit and loss account. Assets individually costing less than Rs 5 are fully depreciated in the year of purchase. c. Impairment of assets
The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value at the weighted average cost of capital. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life.
A previously recognised impairment loss is increased or reversed depending on changes in circumstances. However the carrying value after reversal is not increased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment. d. Intangible assets Intellectual Property rights Costs relating to intellectual property rights which are acquired are capitalised and amortised on a straight-line basis over their estimated useful lives or ten years whichever is lower. Research and Development Costs
Research and development costs, including technical know-how fees, incurred for development of products are expensed as incurred, except for development costs which relate to the design and testing of new or improved materials, products or processes which are recognised as an intangible asset to the extent that it is expected that such assets will generate future economic benefits. Research and development expenditure of a capital nature is added to fixed assets. Development costs carried forward is amortised over the period of expected future sales from the related project, not exceeding ten years.
The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use, and otherwise when events or changes in circumstances indicate that the carrying value may not be recoverable. e. Inventories Inventories are valued as follows: Raw materials and packing materials: Lower of cost and net realizable value. However, materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.
Cost is determined on a first-in-first-out basis. Customs duty on imported raw materials (excluding stocks in the bonded warehouse) is treated as part of the cost of the inventories. Work-in-progress and finished goods: Lower of cost and net realizable value. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost of finished goods includes excise duty. Traded goods Lower of cost and net realizable value. Cost includes the purchase price and other associated costs directly incurred in bringing the inventory to its present location.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. f. Revenue recognition (i) Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and are recorded net of excise duty, sales tax and other levies. For the purposes of disclosure in these financial statements, sales are reflected gross and net of excise duty in the profit and loss account. ii) The Company enters into certain dossier sales, licensing and supply agreements and revenue from such agreements are recognised in the period in which the Company completes all its performance obligations. g. Investments Investments that are readily realisable and intended to be held for not more than twelve months are classified as current investments. All other investments are classified as long-term investments. Long-term investments are stated at cost. However, provision for diminution in value is made to recognise a decline other than temporary in the value of the investments.
Current investments are carried at lower of cost and fair value and determined on an individual investment basis. h. Retirement benefits (i) Retirement benefits in the form of Provident Fund is a defined contribution scheme and the contributions are charged to the Profit and Loss Account of the year when the contributions to the government funds are due. (ii) Gratuity liability is a defined benefit obligations and is provided for on the basis of an actuarial valuation on projected unit credit method made at the end of each financial year.
The gratuity benefit of the Company is administered by a trust formed for this purpose through the group gratuity scheme. Actuarial gains/losses are immediately taken to profit and loss account and are not deferred. i. Foreign currency transactions Initial Recognition Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
Conversion Foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.
Exchange Differences Exchange differences arising on a monetary item that, in substance, form part of the Companys net investment in a non-integral foreign operation is accumulated in a foreign currency translation reserve in the financial statements until the disposal of the net investment, at which time they are recognised as income or as expenses.
Exchange differences, in respect of accounting periods commencing on or after December 7, 2006, arising on reporting of long-term foreign currency monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, in so far as they relate to the acquisition of a depreciable capital asset, are added to or deducted from the cost of the asset and are depreciated over the balance life of the asset, and in other cases, are accumulated in a “Foreign Currency Monetary Item Translation Difference Account” in the financial statements and amortised over the balance period of such long-term asset/ liability but not beyond accounting period ending on or before March 31, 2011.
Exchange differences arising on the settlement of monetary items not covered above, or on reporting such monetary items at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognised as income or as expenses in the year in which they arise. Forward Exchange Contracts not intended for trading or speculation purposes The premium or discount arising at the inception of forward exchange contracts is amortised as expense or income over the life of the contract. Exchange differences on such contracts are recognised in the statement of profit and loss in the year in which the exchange rates change. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognised as income or as expense for the year.
However, exchange difference in respect of accounting period commencing on or after December 7, 2006 arising on the forward exchange contract undertaken to hedge the long-term foreign currency monetary item, in so far as they relate to the acquisition of depreciable capital asset, are added to or deducted from the cost of asset and in other cases, are accumulated in “Foreign Currency Monetary Item Translation Difference Account” and amortised over the balance period of such long-term asset/liability but not beyond March 31, 2011. j. Income tax Tax expense comprises of current, deferred and fringe benefit tax. Current income tax and fringe benefit tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act.
Deferred income taxes reflects the impact of current period timing differences between taxable income and accounting income for the period and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that they can be realised against future taxable profits.
At each balance sheet date the Company re-assesses unrecognised deferred tax assets. It recognises unrecognised deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be that sufficient future taxable income will be available against which such deferred tax assets can be realised. The carrying amount of deferred tax assets are reviewed at each balance sheet date. The Company writes-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised.
Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available. Minimum Alternative tax (MAT) credit is recognised as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognised as an asset in accordance with the recommendations contained in Guidance Note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the profit and loss account and shown as MAT Credit Entitlement.
The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal Income Tax during the specified period. k. Employee stock compensation costs Measurement and disclosure of the employee share-based payment plans is done in accordance with SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants of India. The Company measures compensation cost relating to employee stock options using the intrinsic value method. Compensation expense is amortised over the vesting period of the option on a straight line basis. I. Earnings per share (EPS)
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting preference dividends and attributable taxes) by the weighted average number of equity shares outstanding during the year. Partly paid equity shares are treated as a fraction of an equity share to the extent that they were entitled to participate in dividends relative to a fully paid equity share during the reporting year. The weighted average number of equity shares outstanding during the year is adjusted for events of bonus issue; bonus element in a rights issue to existing shareholders; share split; and reverse share split (consolidation of shares).
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. m. Operating lease Where the Company is a Lessee: Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term. Where the Company is a Lessor: Assets subject to operating leases are included in fixed assets. Lease income is recognised on a straight line basis over the lease term. Costs, including depreciation are recognised as an expense. Initial direct costs such as legal costs, brokerage costs, etc. are recognised immediately. n. Segment reporting
Identification of segments: The Companys operating businesses are organised and managed separately according to the nature of products manufactured/traded, with each segment representing a strategic business unit that offers different products to different markets. The analysis of geographical segments is based on the areas in which the Companys products are sold. Inter-segment Transfers: The Company generally accounts for inter-segment sales and transfers at an agreed marked-up price. Allocation of common costs: Common allocable costs are allocated to each segment according to the relative contribution of each segment to the total common costs. Unallocated items: The Corporate and other segment include general corporate income and expense items which are not allocated to any business segment.
Segment policies: The Company prepares its segment information in conformity with the accounting policies adopted for preparing and presenting the financial statements of the Company as a whole. o. Provisions A provision is recognised when an enterprise has a present obligation as a result of past event; it is probable that an outfow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. p. Expenditure on new projects and substantial expansion Expenditure directly relating to construction activity is capitalised.
Indirect expenditure incurred during construction period is capitalised as part of the indirect construction cost to the extent to which the expenditure is indirectly related to construction or is incidental thereto. Other indirect expenditure (including borrowing costs) incurred during the construction period which is not related to the construction activity nor is incidental thereto is charged to the Profit and Loss Account. Income earned during construction period is deducted from the total of the indirect expenditure. All direct capital expenditure on expansion is capitalised. As regards indirect expenditure on expansion, only that portion is capitalised which represents the marginal increase in such expenditure involved as a result of capital expansion.
Both direct and indirect expenditure are capitalised only if they increase the value of the asset beyond its original standard of performance. q. Cash and Cash Equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term investments with an original maturity of three months or less. r. Derivative Instruments As per the ICAI Announcement, accounting for derivative contracts, other than those covered under AS-11, are marked to market on a portfolio basis, and the net loss after considering the offsetting effect on the underlying hedge item is charged to the profit and loss account. Net gains are ignored. Balance sheet The Balance sheet of Biocon from 2004-2009 is given below. |Balance Sheet Company Name : Biocon Ltd.
Units :Rupees Crores | | | | |Mar ‘ 09 |Mar ‘ 08 |Mar ‘ 07 |Mar ‘ 06 |Mar ‘ 05 |Mar ‘ 04 | |SOURCES OF FUNDS | | | | | | | |Owner’s Fund | | | | | | | |Equity Share Capital |100. 00 |50 |50 |50 |50 |50 | |Share Application Money |0. 00 |0 |0 |0 |0 |0 | |Preference Share Capital |0. 00 |0 |0 |0 |0 |0 | |Reserves & Surplus |1273. 93 |1,277. 25 |890. 53 |751. 77 |644. 51 |490. 4 | |Loan Funds | | | | | | | |Secured Loans |162. 61 |143. 57 |106. 49 |104. 91 |76. 34 |64. 69 | |Unsecured Loans |1. 33 |0. 32 |0. 28 |0. 14 |0 |0 | |Total Loans |163. 94 |143. 89 |106. 77 |105. 05 |76. 34 |64. 69 | | | | | | | | | |Total |1537. 7 |1471. 14 |1047. 30 |906. 82 |770. 85 |604. 73 | | | | | | | | | |USES OF FUNDS | | | | | | | |Fixed Assets | | | | | | | |Gross Block |987. 50 |880. 11 |861. 19 |316. 11 |270. 2 |191. 3 | |Less : Revaluation Reserve |0. 95 |0. 95 |1. 11 |1. 27 |1. 43 |1. 59 | |Less : Accumulated Depreciation |273. 33 |200. 65 |145 |88. 29 |65. 37 |47. 12 | |Net Block |713. 22 |678. 51 |715. 08 |226. 54 |203. 4 |142. 52 | |Capital Work-in-progress |37. 69 |64. 63 |29. 9 |456. 43 |310 |54. 31 | |Investments |346. 69 |477. 6 |78. 6 |139. 06 |223. 73 |8. 93 | | | | | | | | | |Net Current Assets | | | | | | | |Current Assets, Loans & Advances |777. 01 |525. 07 |479. 92 |334. 56 |285. 7 |546. 15 | |Less : Current Liabilities & Provisions |336. 74 |274. 34 |256. 2 |249. 77 |251. 98 |147. 9 | |Total Net Current Assets |440. 28 |250. 73 |223. 72 |84. 79 |33. 71 |398. 97 | |Total |1537. 88 |1,471. 13 |1,047. 30 |906. 82 |770. 84 |604. 73 | The company overall has been in an expansion mode and almost all the items in the balance sheet show an increase on a year-on-year basis. There is a big jump in big jump in net fixed assets from 2006 to 2007. This means the co. Must have purchased capital goods of high value. The details of current assets from 2004 to 2009 are as under:- |Mar’09 |Mar’08 |Mar’07 |Mar’06 |Mar’05 |Mar’04 | |CurrentAssets | | | | | | | |Cash&BankBalances |6. 04 | 8. 12 | 7. 63 | 2. 00 | 3. 42 | 317. 51 | |TradeReceivables |310. 17 | 225. 66 | 274. 85 | 206. 04 | 172. 88 | 115. 96 | |Loans&Advances |266. 27 | 123. 55 | 46. 78 | 21. 21 | 38. 10 | 28. 73 | |Inventory-RawMaterial |70. 06 | 73. 12 | 67. 12 | 43. 10 | 30. 94 | 44. 9 | |Inventory-WorkInProcess |104. 40 | 80. 15 | 71. 73 | 52. 23 | 36. 04 | 33. 53 | |Inventory-FinishedGoods |14. 88 | 12. 40 | 9. 28 | 9. 19 | 3. 88 | 6. 00 | |Inventory-Other |5. 17 | 2. 07 | 2. 54 | 0. 79 | 0. 42 | 0. 22 | The details of current liabilities are as under:- |Current Liabilities & Provisions |Mar’09 |Mar’08 |Mar’07 |Mar’06 |Mar’05 |Mar’04 | |TradePayables |121. 83 |103. 04 |110. 8 | 98. 45 |181. 87 |97. 60 | |OtherCurrentLiabilities |138. 91 |103. 14 |105. 12 |111. 42 | 39. 82 |35. 30 | |TotalProvision | 76. 00 |68. 17 |40. 50 |39. 91 |30. 29 |14. 28 | The equity to loan ratio is depicted by following graph. [pic] The equity share capital is constant at Rs. 50 crore from 2004 to 2008. Its only in 2009 Biocon issued new shares to raise the equity capital to Rs. 100 crore. Hence almost all the rise in equity from 2004 to 2009 is through profits.
The long term debt has been rising steadily all through as expected of a co. in expansion mode. The current assets and current liability graph as under shows that there has been constant increase in working capital after 2005. [pic] Income statement of BIOCON of corresponding time period is shown below. | |Mar ‘ 09 |Mar ‘ 08 |Mar ‘ 07 |Mar ‘ 06 |Mar ‘ 05 |Mar ‘ 04 | |Income : | | | | | | | |Operating Income |904. 21 |833. 99 |825. 35 |691. 63 |650. 44 |501. 8 | | | | | | | | | |Expenses | | | | | | | |Material Consumed |416. 08 |398. 7 |421. 76 |386. 48 |348. 23 |255. 37 | |Manufacturing Expenses |84. 89 |88. 91 |73. 22 |36. 98 |31. 92 |23 | |Personnel Expenses |80. 42 |66. 81 |55. 27 |42. 06 |42. 04 |35. 7 | |Selling Expenses |34. 67 |31. 42 |22. 64 |16. 36 |12. 47 |8. 46 | |Adminstrative Expenses |78. 87 |71. 88 |64. 88 |29. 7 |25. 96 |26. 18 | |Expenses Capitalised |0 |0 |0 |0 |0 |-0. 71 | | | | | | | | | |Cost Of Sales |694. 93 |657. 71 |637. 78 |511. 58 |460. 63 |347. 6 | | | | | | | | | |Operating Profit |209. 27 |176. 28 |187. 57 |180. 05 |189. 81 |154. 32 | | | | | | | | | |Other Recurring Income |83. 6 |97. 27 |39. 72 |6. 27 |14. 99 |6. 86 | | | | | | | | | |Adjusted PBDIT |292. 87 |273. 54 |227. 29 |186. 31 |204. 8 |161. 8 | | | | | | | | | |Financial Expenses |4. 94 |3. 09 |8. 16 |2. 48 |2. 69 |3. 17 | |Depreciation |74. 28 |69 |57. 61 |22. 85 |18. 09 |13. 85 | |Other Write offs |0 |0 |0 |0 |0 |0 | | | | | | | | | |Adjusted PBT |213. 65 |201. 45 |161. 52 |160. 98 |184. 02 |144. 6 | | | | | | | | | |Tax Charges |10. 4 |10. 64 |12. 7 |27. 39 |14. 12 |22. 81 | | | | | | | | | |Adjusted PAT |203. 26 |190. 81 |148. 82 |133. 59 |169. 9 |121. 35 | |Non Recurring Items |-99. 19 |312. 5 |9. 53 |-0. 11 |3. 17 |3. 2 | |Other Non Cash adjustments |7. 73 |-68. 39 |0 |0 |1. 32 |0 | | | | | | | | | |Reported Net Profit |203. 81 |434. 92 |158. 35 |133. 48 |174. 39 |124. 67 | | | | | | | | | |Earnings Before Appropriation |882. 3 |872. 49 |488. 5 |372 |278. 76 |183. 5 | | | | | | | | | |Equity Dividend |60 |50 |30 |25 |20 |10 | |Preference Dividend |0 |0 |0 |0 |0 |0 | |Dividend Tax |10. 2 |8. 5 |5. 1 |3. 51 |2. 81 |1. 28 | |Retained Earnings |812. 1 |813. 99 |453. 4 |343. 49 |255. 96 |172. 47 | The sales have been higher than the cost of goods sold by a constant amount indicating that the co. has not increased the profit margin through this period. [pic] Cash flow analysis Industry structure and analysis
The global pharmaceutical market was $770 billion in 2008 (IMS data) and biotechnology drugs/biologics accounted for $120 billion and generics for $80 billion of the global market. Along with the pharmaceutical industry’s growing focus on high-growth markets, they are benefiting from increased government spending on healthcare and broader public and private healthcare funding, which is driving greater access to and demand for innovative medicines. Scanning the big picture The surge in generics together with the expected patent expiry of key immunosuppressant drugs provides Biocon with attractive opportunities in the near to medium term. In addition the opening up of bio-similar in US and Europe is seen as a large opportunity in the medium term. Success in
Biocon’s Research and Development initiatives into new drug discovery could also yield significant benefits. The Generic Industry is subject to patent litigation and regulatory issues. Patent challenges or delay in receipt of regulatory approvals could delay our product launch in key markets. In addition significant additional competition in key products could erode our market shares and result in reduced prices and profitability. The consolidation of the generic industry could result in larger generic players acquiring manufacturing capabilities thereby reducing the market for third party manufacturers. The failure to obtain regulatory approval for new drugs under development could affect long term business opportunities. Analysis of profit [pic]
The PBT has shown a marked increase in the year 2008. The reason for the same has been cited in the Director’s report. The high performance in the year 2008 reflects strong focus on operational efficiencies and aggressively defending of their market position in the face of strong competition in the generic API space, monetization of some of our research programs by way of licensing and partnering and the divestment of the Enzymes business. |Cash flow analysis |Mar ‘ 09 |Mar ‘ 08 |Mar ‘ 07 |Mar ‘ 06 |Mar ‘ 05 |Mar ‘ 04 | |P And L in Forex | -9. 03 | -1. 79 | 1. 0 | -0. 92 | -0. 28 | -2. 48 | |P and L On Sale Of Assets | 0. 00 | 0. 00 | -0. 03 | -0. 03 | 0. 00 | -0. 06 | |P and L On Sale of Investments | -0. 07 | -0. 07 | 0. 00 | -0. 18 | -0. 19 | 0. 00 | |Interest Income | -2. 52 | -1. 16 | -5. 11 | -2. 37 | -0. 91 | -1. 06 | |Interest Paid Net | 3. 95 | 3. 09 | 8. 16 | 2. 8 | 2. 69 | 2. 46 | |Dividend Received | -21. 59 | -13. 87 | -0. 29 | -2. 21 | -11. 28 | 0. 00 | |Amortization Of Expenses | 1. 58 | 2. 76 | 5. 03 | 0. 95 | 2. 34 | 1. 99 | |Provision And WO Net | 0. 00 | 0. 00 | 0. 00 | 0. 00 | -1. 32 | 0. 00 | |Provisions For Bad Debts NPA | 1. 58 | 1. 10 | 0. 98 | 0. 26 | 0. 4 | 1. 02 | |Trade And Other Receivables | -83. 48 | 49. 45 | -71. 99 | -32. 99 | -57. 40 | -45. 50 | |Inventories | -26. 79 | -17. 08 | -45. 35 | -34. 02 | 12. 66 | -37. 26 | |Trade Payables | 43. 17 | -3. 65 | 22. 38 | -50. 10 | 7. 58 | 55. 89 | |Direct Taxes Paid | -5. 14 | -14. 08 | -11. 07 | -18. 24 | -9. 92 | -19. 7 | |Loan And Advances | 5. 50 | -15. 19 | -18. 52 | -6. 03 | 4. 49 | -10. 86 | |Extra Ordinary Items | 20. 10 | -307. 75 | 0. 00 | 0. 00 | 0. 00 | 0. 00 | |Net Cash Flow-Operating Activity | 115. 99 | 264. 72 | 113. 94 | 40. 32 | 155. 31 | 105. 81 | Table 2: |Cash flow – Investing Activity |Mar ‘ 09 |Mar ‘ 08 |Mar ‘ 07 |Mar ‘ 06 |Mar ‘ 05 |Mar ‘ 04 | |Sale Of Fixed Assets | 0. 0 | 0. 00 | 0. 09 | 0. 05 | 0. 00 | 0. 15 | |Purchase Of Investments | -1,873. 71 | -2,136. 24 | -185. 05 | -189. 18 | -1,375. 38 | -0. 45 | |Sale Of Investments | 2,009. 87 | 1,706. 07 | 171. 01 | 346. 32 | 1,160. 76 | 0. 00 | |Interest Received | 2. 52 | 1. 16 | 2. 66 | 2. 39 | 0. 85 | 1. 10 | |Dividend Received Investment Activity | 21. 59 | 13. 7 | 0. 29 | 2. 21 | 11. 28 | 0. 00 | |Investment In Subsidiaries | -5. 52 | 0. 00 | 0. 00 | 0. 00 | 0. 00 | 0. 00 | |Loan to Subsidiaries | -134. 99 | -26. 51 | 40. 64 | -53. 01 | -14. 35 | 0. 00 | |Movement In Loans | 2. 39 | 4. 72 | 0. 00 | 0. 00 | 0. 00 | 0. 00 | |Others From Investment Activity | -12. 89 | 266. 84 | 0. 0 | 0. 00 | 0. 00 | 0. 00 | |Net Cash Used In Investing Activity | -74. 63 | -266. 16 | -86. 77 | -48. 30 | -468. 01 | -83. 67 | Table 3: |Cash flow – Financing Activity |Mar ‘ 09 |Mar ‘ 08 |Mar ‘ 07 |Mar ‘ 06 |Mar ‘ 05 |Mar ‘ 04 | |Proceed from bank Borrowings | 0. 00 | 0. 00 | 0. 00 | 0. 00 | 0. 00 | 3. 20 | |Proceed from other Long Term Borrowings | 7. 86 | 0. 00 | 0. 00 | 0. 0 | 0. 00 | 0. 00 | |Proceed from Short Term Borrowings | 10. 05 | 31. 18 | -9. 02 | 18. 35 | 2. 04 | 21. 71 | |Repayment Of Borrowings | 0. 00 | 0. 00 | 0. 00 | 0. 00 | 0. 00 | -33. 75 | |Dividend Paid | -50. 00 | -30. 00 | -25. 00 | -19. 93 | -10. 00 | 0. 00 | |Interest Paid | -3. 96 | -3. 09 | -8. 14 | -2. 50 | -2. 9 | -3. 78 | |Others From Fin Activity | -7. 39 | 8. 53 | 17. 72 | 8. 82 | 8. 81 | -8. 03 | |Net Cash Used in Fin. Activity | -43. 44 | 6. 61 | -24. 44 | 4. 74 | -1. 84 | 294. 35 | Ratio Analysis |Ratio Analysis |Mar ‘ 09 |Mar ‘ 08 |Mar ‘ 07 |Mar ‘ 06 |Mar ‘ 05 |Mar ‘ 04 | |Quick Ratio |1. 73 |1. 3 |1. 29 |0. 91 |0. 84 |3. 3 | |Inventory Turnover Ratio |4. 91 |5. 19 |5. 82 |6. 97 |9. 71 |6. 34 | |Long Term Debt / Equity |0. 04 |0. 04 |0. 05 |0. 04 |0. 03 |0. 03 | |Total Debt/Equity |0. 11 |0. 1 |0. 11 |0. 13 |0. 1 |0. 11 | |Fixed Assets Turnover Ratio |0. 95 |0. 97 |1. 02 |2. 19 |2. 41 |2. 2 | |Reported EPS (Rs. ) |10. 19 |43. 49 |15. 84 |13. 35 |17. 44 |12. 47 | |Reported Cash EPS (Rs. ) |13. 9 |50. 39 |21. 6 |15. 63 |19. 25 |13. 85 | |Dividend Per Share |3 |5 |3 |2. 5 |2 |1 | |Reported Return On Net Worth (%) |14. 83 |32. 76 |16. 83 |16. 64 |25. 1 |23. 08 |
Current Ratio has steadily increased from 2005 – 2009 which is good for the company. This means that BIOCON is better prepared to pay back its current liabilities when they are due. It also gives a better to creditors to give them the confidence to lend money to BIOCON. The current ratio at the end of Mar ’09 is 2. 31, which is a little more than the ideal ratio of 2. This might mean that the company can convert some of their current assets into long term investments. But before we make any conclusions, we will need to have a look at the quick ratio, to see if the current assets have a large contribution from inventory. Note: in 2009, the current ratio shows a value of 3. 71.
This is because BIOCON went IPO n 2004, which would have given high cash balance, thus resulting in a high current ratio. [pic] | |Mar ‘ 09 |Mar ‘ 08 |Mar ‘ 07 |Mar ‘ 06 |Mar ‘ 05 |Mar ‘ 04 | |Current Liabilities |336. 74 |274. 34 |256. 20 |249. 77 |251. 98 |147. 19 | |Current Ratio |2. 31 |1. 91 |1. 87 |1. 34 |1. 13 |3. 71 | Quick Ratio has steadily increased from a value of 0. 84 in 2005 to 1. 73 in 2009. Ideally one would like to have to have ratio of 1:1 for quick assets to quick liabilities.
The high ration implies that the management is being cautious about the recession period and probably waiting for some more time to make any investments. [pic] |Quick Ratio |1. 73 |1. 3 |1. 29 |0. 91 |0. 84 |3. 13 | Inventory turnover ratio has been steadily reducing in small margin from 2004-2009. This implies that the amount of products manufactured is not being sold out in comparison to the average inventory, as much as it was in the previous year. This is point of concerns and the company has to look into it. The reason for the lower ratio could also be because of the slowdown in the market. 005, shows a high turnover ratio because, after going public in 2004, it would have increased it capacity and thus shows a sharp rise when compared to the previous year. [pic] Debt-Equity Ratio shows constant low values. This implies that the company owns almost all of its assets. It also means that the company has total control on its activities. If the debt-equity ratio is high then the creditors might interfere with the operational activities of the company causing disturbances. Also the company has the possibility of getting high loans if required in the future as the safety margin is high for the creditors. [pic] The graph of total debt / equity is as shown below: [pic] Fixed Asset Turnover Ratio has significantly reduced from over 2 in 2006 to less than 1 in 2009.
Thus we see that the efficiency of the company has reduced drastically. BIOCON has the opportunity to increase its capacity to get a better turnover. Better turnover signifies better use of the assets. [pic] Earnings Per Share (EPS) does not depict a significance picture of the company. The trend shows that EPS and cash EPS has hwon a sharp increase in 2007-2008. But it has dipped in the year 2009. It might be attributed to the slow down in the market. It is a matter of concern. [pic] [pic] Dividend Per Share like EPS, has decreased in 2009, from what it was in 2008. Again this can be attributed to the market slowdown. [pic] Return on Net worth The return from net worth has decreased drastically in 2009. [pic]
New Terminologies 1. Preferred stock: also called preferred shares or preference shares, is typically a ‘higher ranking’ stock than common stock, and its terms are negotiated between the corporation and the investor. Preferred stock usually carries no voting rights, but may carry priority over common stock in the payment of dividends and upon liquidation. Preferred stock may carry a dividend that is paid out prior to any dividends being paid to common stock holders. Preferred stock may have a convertibility feature into common stock. Preferred stockholders will be paid out in assets before common stockholders and after debt holders in bankruptcy 2.
Marked-to-Market (mtm): loss accounting means calculating the gains and losses on the securities at market price at the end of year irrespective of its realisation. While calculating MTM positions on your securities, you calculate the loss/profit at the current prices of securities, assuming that securities are sold at that price. It is on the principal of accrued income. 3. Joint venture: (often abbreviated JV) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be or one specific project only, or a continuing business relationship such as the Fuji Xerox joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement. The phrase generally refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, limited liability Company, partnership or other legal structure, depending on a number of considerations such as tax and tort liability. 4. Secured loan: is a loan in which the borrower pledges some asset (e. g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan.
The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to satisfy the debt by regaining the amount originally lent to the borrower, for example, foreclosure of a home. From the creditor’s perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may satisfy the debt against the borrower rather than just the borrower’s collateral. 5. Unsecured loan: is a loan that is not backed by collateral.
Also known as a signature loan or personal loan. Unsecured loans are based solely upon the borrower’s credit rating. As a result, they are often much more difficult to get than a secured loan, which also factors in the borrower’s income. An unsecured loan is considered much cheaper and carries less risk to the borrower. However, when an unsecured loan is granted, it does not necessarily have to be based on a credit score. For example, if your friend lends you money without any collateral, meaning something of worth that can be repossessed if the loan isn’t repaid, then your credit score has zero to do with it, but rather the value of your friendship is at stake.
Therefore the real meaning of an unsecured loan is that it is not backed by any object of value and is lent to you based on your good name. For financial institutional purposes, they may want to look at your credit score because they are not your friend and it is strictly a business transaction, therefore your good name may be associated with your historical payment history on prior debt, reflecting in your credit score. 6. Contingent liability: that may or may not be incurred by an entity depending on the outcome of a future event such as a court case. These liabilities are recorded in a company’s accounts and shown in the balance sheet when both probable and reasonably estimable.
A footnote to the balance sheet describes the nature and extent of the contingent liabilities. The likelihood of loss is described as probable, reasonably possible, or remote. The ability to estimate a loss is described as known, reasonably estimable, or not reasonably estimable. 7. Corporate guarantee: A Corporate Guarantee is a guarantee in which a corporation agrees to be held responsible for completing the duties and obligations of a debtor to a lender, in the event that the debtor fails to fulfil the terms of the debtor-lender contract. Also known as a corporate guaranty. References 1. INSIGHT – http://insight. religaretechnova. com/home. htm 2. BIOCON official site – http://www. biocon. com