Buy Panacea Biotech; target of Rs 513: DSP Merrill Lynch

DSP Merrill Lynch report on Panacea Biotech

Stellar 2Q; raising estimates

Panacea reported Q2FY07 Net Profit of Rs.465 (103% growth YoY), which is a significant 68% ahead of MLe. We are raising our FY07E and FY08E net profit forecasts by 31% and 25% respectively. Our EPS estimates reflect only a marginal increase due to FCCB dilution. Maintain Buy with PO of Rs513/sh (30% upside).

Significant margin increase from impact of price increase

While 2Q revenues were 4% ahead of MLe, the surprise was mainly due to Rs90mn forex gain and significant 4% increase in EBITDA margin to 33%, driven largely by price increase in vaccines. Other highlights were robust 35% growth in vaccines, 16% growth in domestic formulations and lower tax rate.

Estimates raised

On the back of a strong 1H FY07, we are raising our Net Profit estimates by 31% and 25% in FY07E and FY08E respectively on the back of higher EBITDA margin, lower interest cost and lower tax rate. Our EPS estimates after the impact of FCCB dilution are Rs19.8 & Rs26.5 (vs earlier Rs19 and Rs26.5 respectively).

Reiterate BUY with a PO of Rs 513
 
We remain upbeat on the strong growth prospects in Panacea’s key businesses driven by (a) scale-up of oral polio vaccine business (b) new vaccine launches and (c) proprietary NDDS revenues.

Several catalysts ahead

a) Collaboration for anthrax vaccine for US stockpiling program

b) commercialization of IPV vaccine facility

c) Progress on NDDS project with an European MNC.

d) Cyclosporine NDDS approval for Brazil.