Accumulate Panacea Biotec; target of Rs 221: Emkay

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Accumulate Panacea Biotec; target of Rs 221: Emkay

Emkay Global Financial Services is bullish on Panacea Biotec and has recommended accumulate rating on the stock with a target of Rs 221 in its February 18, 2011 research report.

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RELATED NEWS Buy Lanco Infratech; target of Rs 64: A. K. Stockmart Buy IVRCL Infrastructure; target of Rs 115: Motilal Oswal Accumulate Garware Offshore; tgt of Rs 132: P Lilladher ALSO READ See previous views by Emkay Global Financial Services See what other Experts & Brokerages are saying about Panacea Biotec See messages about Panacea Biotec Panacea Biotec BSE | NSE 29/05/12 Are Mutual Funds betting on Panacea Biotec?

Emkay Global Financial Services is bullish on Panacea Biotec and has recommended accumulate rating on the stock with a target of Rs 221 in its February 18, 2011 research report.

"Panacea has reported robust revenue growth of 27% largely driven by a) strong traction in Pentavalent Vaccine - Easyfive (Rs 980mn vs. Rs 723mn in Q3FY10) resulting in 28% growth in vaccine business and b) 13% growth in the pharma business. Lower growth in the domestic pharma business to Rs 725mn was on account of attrition in the field force. However, commencement of supplies of organ transplant products in LatAM led to 80% growth in formulation exports."
 
"The supply of Easyfive to UNICEF under new contract began from Jan'10 onwards and company has a long term contract worth USD 222mn for 3years till Dec'2012. Other suppliers of same vaccine to UNICEF have some quality issues & supplies are disrupted from them and the Company is in short of capacity to exploit this opportunity. Company supplies 25 mn dosages per year of Easy-five to UNICEF and have total capacity of 30 mn dosages per year. Rest 5 mn dosages it sells in the domestic market. Company is in process of increasing the capacity which is expected to come by middle of FY12. This imparts long term visibility of revenues & stability of operating profits to the vaccine business. On the other hand, slowdown in the OPV segment continued, with revenues falling by 26%/ 11% during Q3/9MFY11."

"Panacea witnessed one of the best quarters in terms of operating profitability. EBITDA for the quarter was higher than our expectations at Rs 823mn (up 103% YoY). This was led by higher contribution from high margin Easy Five vaccine (contribution increased from 7% in Q3FY10 to 35% in Q3FY11). Margin expansion was also aided by lower contribution of low margin TOPV vaccine. This trend is expected to continue because of 3 year contract of Easy-Five with UNICEF Higher than expected growth in APAT to Rs 412mn (est. Rs 267mn) was driven by robust operating performance (EBITDA margins expanded 1056 bps). The PBT for the quarter grew strongly to Rs 546mn driven by robust revenue growth and strong operating performance. However, higher interest cost (up by 46.5% YoY) restricted expansion in net profit margin to 14% in Q3FY11. For FY11E as a whole, management has guided 22-23% tax rate."

"Panacea Biotec's performance for the quarter was above expectation. With good revenue and profitability visibility, we believe, worst is over for the company. We value the stock at 7xFY12E EV/EBITDA to arrive at a target price of Rs 221. Our valuation multiple is at a significant discount to its 3/5 years EV/EBITDA multiple of 10.9x/10.7x. Recent correction in stock price leaves enough room for valuations to expand. Upgrade the stock one-notch to Accumulate," says Emkay Global Financial Services research report.

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To read the full report click on the attachment