CRISIL maintains fundamental grade of 3/5 to Panacea Biotec

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CRISIL maintains fundamental grade of 3/5 to Panacea Biotec

CRISIL Research has come out with its report on Panacea Biotec

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Panacea Biotec BSE | NSE 31/05/12 Are Mutual Funds betting on Panacea Biotec?

CRISIL Research has come out with its report on Panacea Biotec .

Panacea Biotec Ltd's (Panacea's) Q2FY12 revenue was higher than CRISIL Research's expectations but EBITDA and PAT were below our expectations. During the quarter, WHO delisted the company's pentavalent vaccine from its list of prequalified vaccines, which affected the quarterly performance. Also, currency fluctuations added to the company's losses. We are likely to revise our estimates downwards post interaction with the management. We maintain our fundamental grade of 3/5.

Q2FY12 result analysis
• Q2FY12 revenues declined by 11% y-o-y (increased by 1% q-o-q) to Rs 2,288 mn mainly due to the decline in domestic sales of vaccines following WHO's delisting of the company's pentavalent vaccine.

• Q2FY12 EBITDA margin stood at 0.7% due to disqualification of the company's high margin pentavalent vaccine. Also, as the company imports most of the raw material, the rupee depreciation impacted raw material costs.

• The company reported loss of Rs 336 mn in Q2FY12. This loss is attributable to (a) lower operating margins and (b) a foreign exchange loss of Rs 87 mn.

Key developments - WHO disqualifies Panacea's flagship product
On August 17, 2011 three of Panacea's combination vaccines - EasyFive, Ecovac4 and EnivacHB - were delisted by WHO. Panacea will not be able to manufacture and sell these combination vaccines to global agencies (UNICEF is its largest customer), where WHO pre-qualification is must, until the issues (relating to quality systems) are fixed and the delisting is cancelled. EasyFive contributed ~32% to overall revenues and has grown at ~120% CAGR during FY09-11. As a result, we believe growth momentum from the high margin combination vaccines will likely stall in the near term. However, we believe management will be able to resolve the issue within the next six-nine months, post which supplies will get normalised.

Valuation: Current market price has strong upside
We continue to use the discounted cash flow method and value Panacea at Rs 229 per share. However, given the expected downward revision in earnings estimate, our fair value is under review.

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To read the full report click on the attachment