Panacea Biotec, a second largest manufacturer of vaccines and a leading supplier of polio vaccines to UNICEF, has got fundamental grade of 3/5 from CRISIL Equities, India's leading rating, research, risk and policy advisory company. The grade indicates that the company's fundamentals are 'good' relative to other listed equity securities in India. This grade indicates that the current market price of Rs. 201 (On October 4, 2010) is 'aligned' with CRISIL's one-year fair value of Rs. 208. The grades are not a recommendation to buy, sell or hold the graded instrument,or a comment on the graded instrument's future market price or its suitability for a particular investor.
The assigned fundamental grade reflects Panacea's established position in the domestic vaccines market as the second largest manufacturer of vaccines. It is also one of the four WHO pre-qualified manufacturers of pentavalent vaccine (a combination vaccine for diphtheria, tetanus, pertussis, influenza B and hepatitis B in the world. CRISIL Equities expects the demand for pentavalent vaccines to grow by 15 per cent in view of GAVI (Global Alliance for Vaccines and Immunisation) propagating its inclusion in the country's routine immunisation programme by 2012. The grade is supported by Panacea's plans to launch 24 new formulations in FY 11, which will lead to the formulation division registering revenue CAGR of 20 per cent during FY 10-13. This remains a key monitorable for CRISIL.
The grade is constrained by the volatility in business due to external factors like government spending on immunisation and variations in product mix as per the need of the hour. Also majority of Panacea's vaccines are in the 'High' priority list of WHO in terms of quality assurance. Failure to meet the pre-qualified standards would pose a major risk to business. The grade is further influenced by Panacea's exposure to foreign exchange fluctuations since almost 68 per cent of its revenues are earned in US dollars.
CRISIL Equities expects Panacea's revenues to grow at a three-year CAGR of 13 per cent to Rs. 13.2 billion in FY13. EBITDA margins are estimated to improve over the next two years to 20.5 per cent with a change in product mix in vaccines. CRISIL expects EPS to double to Rs. 21 in FY13 from Rs. 10.2 in FY10 and RoE to increase to 16.3 per cent in FY13 from 10.4 per cent in FY10. CRISIL has used the discounted cash flow method to value Panacea and arrived at a one-year fair value of Rs. 208.