Smart Idea

24 July 2009
Analyst Details Panacea Biotec Buy
Huzaifa Suratwala A
+91-22 67897818 Panacea Biotec (PBio) is the 2nd largest vaccine producer and 3rd largest
huzaifa.suratwala@hsbcinv.com
biotechnology company in India (ABLE Survey 2008). PBio has
distinguished itself as an International health management company that
is actively conducting research and development of novel chemical and
Current Market Price 130 biological pharmaceutical formulations and has developed a diverse
proprietary product portfolio encompassing pediatric vaccines and
Target Price 180
therapeutics for emerging infectious diseases and other human health
needs. PBio has played a key role in eradicating polio by supplying more
Company Data than 5bn doses of oral polio vaccine (OPV) to UNICEF and Government of
BSE CODE 531349 India. New combination vaccines, launch of injectible polio vaccine (IPV)
and the aggressive penetration in pharma formulations business is likely
NSE CODE PANACEABIO
to aid the fortunes of PBio in the near future.
Equity Capital (Rs mn) 66.8
Growth Drivers
Face Value (Rs) 01
Oral Polio Vaccines (OPV) – Accounts for 95% of the company’s total
Market Cap (Rs mn) 8684
vaccines sales. The fact that PBio is one of the six companies in the world
Avg.Daily Volume (Qtly) 63,837 to have WHO pre-qualification for OPV shall help the company bid for
52 week H/L (Rs) 365/50 UNICEF tenders. PBio is expected to bag a major multi year new vaccine
supply orders from UNICEF by end of the month or early August 2009 for
supplies over 2009-12.
Financial Snapshot (Rs mn)
New Generation Combination Vaccine – PBio is likely to benefit from
Particulars FY09 FY10E FY11E
its 50:50 JV with UK based Chiron corporations (now an arm of Novartis),
Net Income 7,882 8,854 10,990
through which it has developed new generation combination vaccines for
OPM (%) (1.8%) 20.9% 24.9%
the domestic market. PBio has been pre-qualified by WHO to supply
Net Profit (670.5) 427.8 1,202.6
Hepatitis B, Ecovac 4 (DTwP-Hep B), Easyfour (DTwP-Hib) and Easyfive
NPM (%) (8.2%) 4.7% 10.6%
(DTwP-Hep B-Hib) Vaccines. The company is also likely to launch IPV in
EPS (Rs) (10.0) 6.4 18.0 the near future.
P/E (X) (13.0) 20.3 7.2
Div. Yield % 0.0 0.9 1.2 Strategic Investment in Pharmathene is Positive – Pharmathene is
a US based Biodefense Company developing medical countermeasures
Source: HISL Research, company
against biological and chemical threat is positive. Pharmathene along with
Sh holding (%) Dec08 Mar09 2 other company’s globally has pre-qualifications for Anthrax and it
Promoters 65.9 68.0 expects US supply contracts around Nov-Dec 09. PBio is also exploiting
FII’s 18.2 16.3 possibility of using Pharmathene as its entry points into the US markets.
MFs 1.2 1.0
Growing Formulations Segment – Accounts for 29% of PBio’s total
Corporates 10.2 10.3
sales and the main focus areas include pain management, diabetes,
Pub & Others 4.4 4.4
gastrointestinal, hemorrhoids and organ transplantation. These
therapeutic segments contribute 80% of the current revenue. The key
Panacea vs. Sensex
brands are- Nimulid & Willgo (pain management) and Panimun Bioral
Relative Performance

150 (Organ Transplantation). A recent addition like “ThankGod” for piles and
hemorrhoids is likely to further contribute to revenues. On export front,
100 company is focusing on expanding in CIS, Middle East and Asia in
addition to a foray in Europe.
50
Valuations
0
We expect the huge debt of about Rs70bn, outstanding FCCBs to weigh
Jul-08

Nov-08

Dec-08

Feb-09

Mar-09

May-09

Jul-09
Sep-08
Aug-08

on the bottomline in the current fiscal. However, new Unicef orders,

combi vaccines and higher pharma business would help the company
Panacea Sensex achieve a CAGR net sales growth of 18.1% over FY09-11 and an EPS of
Rs18 in FY11. We initiate coverage on the stock with a target of Rs180.
Source: Capitaline.

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Vast opportunity in vaccine segment
The global vaccine market is estimated to have reached US$10 bn by 2008 and would cross over US$23 billion by 2012, as per
various industry estimates. The recent Swine flu episode (H1N1 Virus) and the immediate need to curtail the pandemic through
vaccination would further contribute to the growth of the vaccine market. Indian vaccine market too is estimated to cross $1bn
by 2012.

Polio cases in India

2002 2004 2006 2008 2009 upto June
1600 134 676 559 124
Source: www.npspindia.org

Immunization against Polio to Continue: WHO and UNICEF launched the Global Immunization Vision and Strategy (GIVS) in
May 2005 to meet the challenges. These organizations together with Government of India are working to eradicate Polio in India
and hence we witness these mass vaccination drives monthly in our homes and neighbourhood. Even as the numbers of polio
cases are reducing, we need to vaccinate against polio till there are zero cases for 3 consecutive years and even there are no
polio cases in neighbour countries like Pakistan and Afghanistan. Post eradication the mode of immunization shall change from
OPV to Injectible Polio Vaccine (IPV). In those countries, where polio has been eradicated, IPV is being used. Hence we feel Pbio
is all set to benefit in the near future additionally through the IPV route and combination vaccines. The company also awaits
order allocation for vaccine supplies by UNICEF for 2009-12 tender. Furthermore recently Indian drug regulator has given
approval to Pbio to develop a vaccine for swine flu this if successfully done shall boost revenues.
Formulation business to be augmented – Pbio has engineered its sales and marketing network for Pharmaceutical
formulations into strategic business units. Pharma product portfolio includes highly innovative prescription products in important
therapeutic areas like pain management, diabetes & cardiovascular management, renal disease management, anti-tubercular,
gastro-intestinal care products and vaccines. Pbio aims to focus and increase its presence in the CIS, African & Middle East and
Asian markets in addition to a foray in Europe. Key products which enjoys high market share are Glizid and Fitliv dia for
diabetis, Willgo and Nimulid for pain management. We expect that the new products from PBio’s strong R&D initiatives and
penetration in newer geographies shall help the contribution of formulations to inch up from current levels of 29% to 33% in
FY11.

Brand Market share Ranking

Diabetis & Cardiac Care
Glizid 22% 1
Fitliv Dia 100% 1
Organ Transplantation
Panimun Bioral 89% 1
Mycept 49% 1
Pangref 39% 1
Fosbait 75% 1
Pain Management
Willgo 52% 1
Nimulid MD 24% 1
Tuberculosis Management
Myser 19% 3
Gastro- Intestinal
Livoluk 10% 4
Source: Company

Risk Factors
• Adverse movement of rupee/dollar could impact profitability due to high debt and FCCBs
• Strategic investment in Pharmathene at high valuation could prove more expensive if it does not bag any Anthrax vaccine
orders from US
• Delay in USFDA approval of its Baddi facility could impact future business prospects

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Technical View

ROE & ROCE

25% 12,000 30%
25%
20% 10,000 21% 25%
24%
15%
8,000 20%
10%
6,000 15%
5%
4,000 10%
0%
2,000 5%
(5%)

(10%) 0 0%

(15%) (2,000) (2%) (5%)

FY08 FY09e FY10e FY11e FY08 FY09 FY10e FY11e

ROE ROCE Net sales Adjusted net profit EBITDA (%)

Source:

Key Financial Extract

Profit & Loss Balance Sheet
In Rs million FY08 FY09 FY10e FY11e In Rs million FY08 FY09e FY10e FY11e
Net sales 8,413.4 7,881.9 8,853.6 10,989.5 Equity capital 66.8 66.8 66.8 66.8
EBITDA 2,019.6 (142.8) 1,846.4 2,736.5 Net worth 6,961.1 6,290.6 6,640.3 7,725.6
EBITDA (%) 24.0% -1.8% 20.9% 24.9% Long Term Debt 2,073.8 3,997.8 2,889.2 2,107.9
D&A 334.5 725.0 884.5 956.1 Short Term Debt 1,912.1 2,864.1 2,716.8 2,696.0
Interest Expense 150.7 321.5 748.1 624.6 Total borrowings 3,985.9 6,861.9 5,606.0 4,803.9
Other Income 342.4 312.0 321.0 347.5 Total liabilities 10,947.0 13,152.5 12,246.3 12,529.5
PBT 1,876.9 (877.3) 534.8 1,503.2 Net block 27,890.9 4,503.4 7,784.0 7,411.2
Net current
Tax 587.0 (206.8) 107.0 300.6 4,659.2 4,659.2 5,062.2 4,839.6
assets
Adjusted net profit 1,289.8 (670.5) 427.8 1,202.6 Total assets 10,947.0 13,152.5 12,246.3 12,529.5

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Disclaimer:
Issuer of the Document:- HSBC InvestDirect Securities (India) Limited*
Registered Office:-
Dhana Singh Processor Premises
J B Nagar, Andheri - Kurla Road
Andheri (East)
Mumbai – 400 059
Telephone: +91 22 6789 7830
Fax: +91 22 6789 7700
Website: www.hsbcinvestdirect.co.in

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