lal Street Choice Scrip Buy Calls – Panacea Biotec

- The company trades at a P/E 7.30x and its EV/EBITDA stands at 7.85x.
- Received orders to supply 75 million doses of pentavalent vaccine
with a sales value of USD 222 million over CY10-12.
- Focuses on niche segments.
Panacea Biotec (PBL) is the first Indian pharmaceutical company to
launch innovative branded combination vaccines such as Ecovac,
Easyfour and Easyfive. The market for combination vaccines is still at
a nascent stage as there are only four companies globally who have the
required WHO prequalification to supply the pentavalent vaccine that
covers five diseases to the UN agencies. PBL has entered into a very
lucrative agreement with the UNICEF to supply 75 million doses of the
pentavalent vaccine Easyfive. The order will generate close to USD 222
million cumulative sales for the company from CY10-12. Easyfive is an
extremely low competition product with only four players (Panacea,
GSK, Berna Biotec and Shantha Biotec) having WHO pre-qualification
globally. Also, the company's new facility in Baddi should be
operational by Q1FY12 which will benefit the company as it will be
able to sell combination vaccines to private practitioners apart from
UN agencies.

The company has received an order for 130 million doses of the
Bivalent Oral Polio Vaccine (BOPV) this year. The overall sales
generated are believed to be close to USD 20 million in FY11. The
EBIDTA margin in the BOPV space is also significantly higher and its
sales are expected to go up as it has been found to be a better
product than TOPV and MOPV. It is believed that the BOPV vaccine will
be used significantly by the Indian government as a single drop
protects against two deadly strains of polio i.e. P1 and P3. PBL is
also the only second Indian company after Cadila to have launched the
swine flu vaccine. The company has a capacity of producing 45 million
doses. PBL has an SBU-based domestic formulation business model with a
clear focus on only niche segments like organ transplant, pain
management, oncology, diabetes, CVS, osteoporosis and gastro diseases
that are growing at a much higher rate than the overall domestic
pharma growth due to the lifestyle changes in India. The company has a
strong field force of 1,485 with fresh sales employees added during
the year to expand its reach into newer regions in India. The Baddi
facility has received USFDA approval and is expecting product launches
to happen in the USA and Germany from Q2FY12 onwards. This will shoot
up its formulation exports significantly.
For the recently concluded 9MFY11 period the company has witnessed
better performance in terms of both topline and bottomline. Its
topline witnessed a growth of 26 per cent on a YoY basis for 9MFY11
and was Rs 807 crore as against Rs 581 crore. The bottomline witnessed
a significant jump as it has improved from Rs 22.50 crore in 9MFY10 to
Rs 92 crore for 9MFY11.
The operating and net profit margins were 25 per cent and 11 per cent
respectively for 9MFY11 as against 20 per cent and 5 per cent during
the same period last year. The company discounts its trailing 12-month
earnings by 7.30 times and its EV/EBITDA stands at 7.85 times. We
believe that the company is an ideal candidate to find place in one's
portfolio with an expected return of 10 – 15 per cent from the present
levels for a one year time horizon.