>PANACEA BIOTEC LIMITED (KR CHOKSEY)

Better prospects ahead!!

Topline below our expectation: Panacea Biotec posted its Q4 FY09 and FY09 numbers with
topline growing at the rate of 7.6% y-o-y to Rs 243.0crore whereas 34.2% q-o-q on consolidated basis. The standalone numbers reflect a 16% growth in net turnover to Rs227.6 crore against Rs195.5 crore during the same quarter a year earlier. The growth in the topline is mainly contributed by good growth from both of its segments. The formulation segment registered revenue of Rs 51.5 crore whereas vaccine segment clocked revenue of Rs 175.7 crore. The oncology segment of the company has reported a growth of nearly 55%.

Healthy performance at the Operating level: The company clocked an operating profit of Rs 99.5 crore compared to Rs 47.8 crore during the same quarter last year, thus registering a spurt of 108%. The increase in operating profit is mainly driven by decline in staff as well as other expenses. The margins of the company had shown an improvement of 1764 bps y-o-y to 38.8%, whereas it had improved around 3167 bps on a q-o-q basis. On the operating level the company is witnessing a decline in COGS this reflecting an increased operating efficiency.

Bottom Line – below our expectation: The bottom line of the company witnessed losses due to currency fluctuation which resultant in the company to report a negative bottom-line. The net profit of the company before adjusting for the losses showed a robust growth of 410% to Rs 105.2 crore against Rs20.64 crore, whereas after adjusting for losses it turned negative Rs 38.14. The net margins of the company before adjustment for losses recorded a significant improvement y-o-y..

Our View: We believe the sales of the company were mainly driven by good performance from its vaccine as well as pharma segments. The company reported forex losses of Rs 55 crore whereas created a provision for MTM loss of Rs170.2 crore during FY09. The company also witnessed an Increase in depreciation as well as interest expenses which had adversely impacted the profitability of the company.

Going forward, we believe that Panacea would post good growth numbers in the coming years as we see a good revenue visibility from its vaccine as well as formulation segment. The company would start its supply of combination vaccine to WHO from July 09 and the agreement stands for 3 years till 2012. The formulation segment is also expected to record good number backed by manufacturing agreement with MNC giants like GSK and Bayer. We expect the margins of the company would remain at the level of 25% and 17% at the operating and net level. Looking at the good growth opportunity coupled with robust revenue visibility we maintain our positive view on the company.

To see full report: PANACEA