CRISIL assigns valuation grade of 4/5 to Panacea Biotec

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CRISIL assigns valuation grade of 4/5 to Panacea Biotec

CRISIL Research has come out with its report on Panacea Biotec. The research firm has maintained the fundamental grade of "3/5" to the company, in its December 13, 2011 report.

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CRISIL Research has come out with its report on Panacea Biotec . The research firm has maintained the fundamental grade of "3/5" to the company, in its December 13, 2011 report.

Panacea Biotec Ltd (Panacea) has so far witnessed strong business momentum in both combination vaccines and formulations. While demand continues to gain traction, Panacea's growth will likely hit a roadblock as WHO (World Health Organisation) has de-listed its combination vaccines, including the highmargin EasyFive, from the pre-qualified list of vaccines. We have lowered our FY12 estimates to account for the loss in business. However, we maintain our fundamental grade of 3/5 as we believe that the problem is likely to be a short term one and the long-term business prospects look optimistic.

Growth momentum in combination vaccines stalled in the near term
Combination vaccines had been witnessing strong traction in demand, apparent from EasyFive's ~220% y-o-y revenue growth in FY11. WHO has recently delisted the product because of quality management issues. Consequently, we expect growth to get stalled as UNICEF is the largest customer. However, management is expecting to fix the issue in 3-4 months. We expect the supplies to resume by Q1FY13 and remain optimistic on the long-term growth prospects of combination vaccines.

Expect gradual de-growth in polio vaccine sales
Polio vaccine sales declined by ~17% y-o-y in FY11 largely due to: 1) decline in procurement by UNICEF because of increase in polio eradication globally, and 2) Indian government now procuring vaccines on need basis only. However, we view limited near-term risk to demand for polio vaccines given the significant number of cases still recorded globally. Going ahead, we expect sales to de-grow, but on a more gradual curve.

New products and geographic expansion to benefit formulations
Formulation sales grew ~24% y-o-y in FY11, largely driven by strong traction in its existing products and entries into new markets. Exports grew by ~110% driven by strong demand for Tacrolimus and Cyclosporine in Latin America. Going ahead, we believe that catalysts such as expected approval in regulated markets and launch of new products will continue to crank the growth engine.

Revenue growth and profitability curve to cave-in in FY12
We expect FY12 revenue to decline ~25% y-o-y to ~Rs 8,650 mn and EBITDA margin to contract by 1,440 bps to ~8% on loss of EasyFive sales to UNICEF and higher raw material costs driven by unfavourable forex movement. We expect revenue and margins to improve to ~Rs 11,934 mn and 19.0% in FY13.

Valuations - the current price has 'upside'
Based on our new estimates, we arrive at a fair value of Rs 100 per share. We propose a valuation grade of 4/5, indicating that the market price has upside from the current levels.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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