Panacea Biotec - Buy Call
Panacea’s reported mix set of numbers with a) Revenue grew by 15% to Rs1.69bn (est. of Rs1.65bn), b) Operating margins were flat at 16.6% (est. of 23%) and C) APAT of Rs21mn vs. loss of Rs20mn in Q2FY09 (est. of 128mn). Though revenue was in-line mainly because of 16% growth in vaccine business and 9% growth in formulation business, operating performance was mainly impacted because of higher contribution of TOPV vaccine where the realizations are low. Moreover, dollar depreciation had adverse impact at operational level as company had raw material at higher cost and revenue realization was at lower level. These two things have resulted gross margins to come down from 67.4% in Q2FY09 to 56.8% in Q2FY10 (on QoQ basis, gross margins were down by 1200 bps).
Since the supply of high margin MOPV1 has already resumed to UNICEF from Oct’ 2009 onwards and with Pentavalent supply starting from Jan’ 10 onwards, we expect company to report strong set of numbers from Q3FY10E onwards. We maintain our earning estimates of Rs13.9 and Rs22.5 for FY10E and FY11E and reiterate our ‘Buy’ rating with a target price of Rs225.
CMP: Rs 157 Target Price: Rs 225
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