Forex losses dent Biocon, Jubilant net

Foreign exchange losses have impacted the operating results of two more drug majors. Biotech player Biocon and contract manufacturing specialist Jubilant Organosys have posted less profits for the fourth quarter, despite an increase in their business.

Year 2008 results of India's largest drug maker, Ranbaxy Laboratories, and Wockhardt were also impacted by forex losses. Companies such as Aurobindo and Orchid are also expected to post forex losses, say analysts.

Bangalore-based Biocon today posted a consolidated net profit of Rs 24.9 crore (Rs 249 million) for the quarter ended March 31, 2009, about 62 per cent less than the Rs 65.3 crore (Rs 653 million) in the quarter ended March 31, 2008. Consolidated total income of the company increased about 75 per cent to Rs 486.6 crore (Rs 4.86 billion) for the fourth quarter, from Rs 279.2 crore (Rs 2.79 billion) a year earlier.

A provision of Rs 147 crore (Rs 1.47 billion) on account of mark-to-market (MTM, the accounting rule to state the market value of assets sold or traded) losses caused the company to post a net profit of Rs 93.1 crore (Rs 931 million) for 2008-09, about 80 per cent lower than the Rs 463.9 crore (Rs 4.63 billion) net profit in 2007-08. Powered by 40 per cent growth in the domestic formulation business, total income increased by about 54 per cent to Rs 1,673.2 crore (Rs 16.73 billion) in the March quarter of 2008-09.

"We hedged at a fixed forward cover of Rs 41 against the dollar last year and that resulted in heavy forex losses. Foreign currency volatility made it difficult to manage a sharply depreciating rupee, resulting in large MTM losses. This has been a lesson for us. We have changed this strategy and about 75 per cent of our future hedging will be based on floating rates," said Kiran Mazumdar-Shaw, chairman and managing director of Biocon.

Jubilant Organosys today reported a consolidated net profit of Rs 12.4 crore (Rs 124 million) for the fourth quarter ended March 31, 2009, which is 81 per cent less compared with Rs 63.9 crore (Rs 639 million) in the corresponding quarter a year earlier.

Its total income rose 23 per cent to Rs 853.9 crore (Rs 8.53 billion) in the March quarter, from Rs 696.96 crore (Rs 6.96 billion) in the same period last fiscal.

Jubilant said it had an exceptional item loss of Rs. 36.9 crore (Rs 369 million) for the period, which comprises a gain of Rs 59.1 crore (Rs 591 million) on buyback of foreign currency convertible bonds worth $60.9 million, an unrealised loss of Rs 101.3 crore (Rs 1.01 billion) due to MTM of forward covers taken on future exports and a profit of Rs. 5.3 crore (Rs 53 million) on sale of fixed assets.

The company posted a net profit of Rs 283.2 crore (Rs 2.83 billion) for 2008-09, 4.75 per cent less compared with Rs 297.4 crore (Rs 2.97 billion) in the previous year. Jubilant's revenues for the full year of 2008-09 showed a robust growth of 41.3 per cent at Rs 3,517.9 crore (Rs 35.17 billion) as compared with Rs 2,488.9 crore (Rs 24.88 billion) last year.

Jubilant has a net debt of Rs 3,250 crore (Rs 32.5 billion) as of March 31, 2009, mainly due to capital expansion and two large acquisitions made in the past two years.

"We have a strong cash flow and hope to maintain a 25-27 percent margin on a top line growth of 20 per cent in the coming year. This will help to bring down the debt burden," said R Shankaraiah, chief financial officer of Jubilant.

Jubilant has to repay FCCBs worth $50 million in May 2010 and $142 million in 2011.

The acquired facilities, Draxis Healthcare and HollisterStier Laboratories, contributed about Rs 700 crore (Rs 7 billion) revenue to the company, he said. Jubilant has created adequate capacities for contract manufacturing and plans are afoot to improve capacity utilisation, said the executive.