Downgrade Panacea Biotec to Hold - Emkay

Panacea's Q4FY11 results were in-line with estimates with a) Revenues at Rs3.4bn (up 5% YoY), b) EBITDA at Rs671mn (up 33% YoY), and c) APAT at Rs443mn (up 142% YoY) n Although EBITDA margins improved 412bps YoY, there was a decline of 866bps QoQ to 19%. This was on account of higher raw material and employee expenses.

Delay in approval for Tacrolimus & Cyclosporin in US and slow ramp-up of anti-cancer drugs in India are key concerns.

On account of low revenue visibility going forward and delay in key product launches, we downgrade the stock one-notch to Hold with a target price of Rs185.

Q4 / FY11 Result Highlights

Strong traction in Pentavalent Vaccine - Easy five, was on account of supplies of 27mn dosages to UNICEF in FY11 which will continue for the next 2 years.

EBITDA margins declined QoQ (down 866bps) led by higher raw material (up 771bps) and staff cost (up 186bps). Higher raw material cost was due to increase in OPV sales which are cost sensitive. Rise in staff cost was due to increase in wages for the MR's in order to address rising attrition at the company level.

Delay in approval for Tacrolimus & Cyclosporin in US and slower ramp-up of anticancer drugs in the domestic market were the key concerns.

Future growth drivers

In International formulation business, Tacrolimus in expected to get approval in Germany in Q1FY12 and in US by Q2FY12. Approval for Tacrolimus got delayed due to additional data asked by the USFDA. Cyclosporine is expected to get approval by USFDA in H1FY12.

In the domestic formulation business, new launches such as Pacliall, Exeroz-F tablets and Evergraf tablets will ramp-up in FY12.

Company has already increased the capacity of Easy-Five at Baddi for which it is expecting the approval of WHO by July'11. This will further boost revenue contribution from high margin Easy-Five Vaccine.

Valuation

We expect Panacea to report 6% revenue CAGR over FY11-13E. We expect EBIDTA margins to decline from 22.8% in FY11 to 22.1% in FY12E and 22.6% in FY13E. Earnings are expected to decline by 5% in FY12 and increase by 9% in FY13E. We value the stock at 7xFY12E EV/EBITDA to arrive at a target price of Rs185. Downgrade the stock one-notch to Hold. Panning out of key approvals in the US & Europe and higher traction in the domestic market are the key upside triggers to our projections. At current price, the stock trades at 8.8x FY12E EPS of Rs20.6 and 8.1X FY13E EPS of Rs22.5.

Source : Equity Bulls

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