Panacea Biotec- Growth Remedy

Panacea Biotec, research based health management company involved in research, manufacturing and marketing of branded pharmaceutical formulations, vaccines and natural products, is a turnaround story. Primarily into the business of vaccines and formulations, the company’s profits had dwindled after reaching a peak in FY07, plunging into a loss in FY09 due to heavy forex transaction losses. The company was finally able to push its woes behind and return to profitability in FY10. It has earned the distinction of being a WHO pre-qualified supplier of oral polio and Hepatitis-B vaccines and is in the process of obtaining similar pre-qualifications for other vaccines.

For the quarter ended 30 June’10, the company's net profit was up at Rs 32.6 crore versus Rs 13 crore, yoy. Its net sales were up at Rs 254 crore versus Rs 177 crore, yoy. The robust revenue growth of 43% was largely triggered by strong traction in Easy five and BOPV vaccine which led to 46% growth in vaccine business and commencement of supply of organ transplant products in Latin American countries which resulted in 406% growth in export pharma formulation segment. Domestic pharma business for the quarter grew by 14%.

The company, in the beginning of this year, received an order of $222 million for EasyFive vaccines from Unicef to be delivered during 2010-12 and also a $120 million order for OPV vaccines to be delivered in 2010. Being one of the only two manufacturers of these vaccines in India, the company is likely to bag more such orders from UNICEF. For its formulations business, the company has filed for approvals in various other markets including the US and Germany, where the sales should begin in second half of FY11. The company is simultaneously expanding its capacity with a planned expenditure of around Rs 200 crore over the next three years to increase the capacity for its various existing products and also for the production of new ones. The company recently completed its buyback offer, leading to a reduction in equity and a boost in the earnings per share.

Panacea Biotech looks to be on a steady growth path and its stock is currently underowned. With a couple of large ticket UNICEF orders under its belt, we are quite sure about a strong financial stability ahead. Moreover, since there are only two key competitors to the business in the polio vaccine business in India, the company would be getting consistent orders from UNICEF even going forward. We recommend an addition of the scrip in one’s portfolio with a short term target of Rs.230 (12xFY12eEPS).