CRISIL maintains valuation grade of 5/5 to Panacea Biotec

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CRISIL maintains valuation grade of 5/5 to Panacea Biotec

CRISIL Research has come out with its report on Panacea Biotec. The research firm has maintained a valuation grade of 5/5 and fundamental grade of 3/5, in its August 19, 2011 report.

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CRISIL Research has come out with its report on Panacea Biotec . The research firm has maintained a valuation grade of 5/5 and fundamental grade of 3/5, in its August 19, 2011 report.

The delisting of three combination vaccines by the World Health Organisation (WHO) has come as a blow to Panacea Biotec's (Panacea) operations. WHO has found deficiencies in Panacea's quality management system pertaining to the raw material procurement by its subsidiary PanERA Biotec Pvt. Ltd. The delisting implies that Panacea will not be able to manufacture and sell the three combination vaccines to global agencies, where WHO pre-qualification is a necessity, till the issues relating to quality systems are fixed and WHO cancels the delisting. We believe there will be an impact on revenues and profitability in the short term and will lower our estimates and fair value post our interaction with the management. We maintain the fundamental grade of 3/5.

Event background
• The combination vaccines 'EasyFive', 'Ecovac4' and 'EnivacHB' were delisted by WHO. The delisting was on account of inadequate quality management system at the company's plant at Lalru in Punjab.

• As per WHO, the deficiencies found at the site relate to the manufacturing of the haemophilus influenzae type b (Hib) and hepatitis B bulks used for the formulation of 'EasyFive' (DTwP-Hep B-Hib), 'Ecovac4' (DTwP-Hep B) and 'EnivacHB' (hepatitis B) vaccines. The bulks are manufactured by Panacea's subsidiary, PanERA Biotec Private Ltd.

• The aforesaid vaccines earned revenues of ~ Rs 3,943 mn comprising 34% of Panacea's FY11 revenues.

• 'EasyFive' reports the highest margins in Panacea's vaccine portfolio.

Management view
As per the Panacea management, the issues relating to the quality management system will be fixed in a month or two. Post the fixing of quality issues, the WHO will re-inspect the site and re-issue pre-qualification to the manufacturing facility.

CRISIL Research opinion
The WHO delisting of the three combination vaccines will mean that Panacea will not be able to supply the vaccines to UNICEF, PAHO, GAVI and other international agencies for global usage. However, the company may continue to supply the vaccines to markets which do not require WHO pre-qualification In our opinion, the delisting will impact Panacea's business from UNICEF  and Panacea's revenues as well as profitability from combination vaccines in the short term. This will necessitate a downward revision of our estimates and fair value, says CRISIL Research report.

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.

© CRISIL Limited All Rights Reserved. Published under permission from CRISIL"

To read the full report click on the attachment