Merill Lynch Bullish on Panacea Biotec Limited

Merill Lynch in its research report has highlighted about its recent company visit and talks with the management of Panacea Biotec.

WHO pre-qualification process is in advanced stage for three combination vaccines (US$500mn market size); exports to WHO likely to begin by mid-07. Combination vaccine exports to WHO have potential to scale-up five-fold in FY09E YoY. Near doubling in growth expectations for the Indian vaccine JV, Panacea-Chiron. Plans for dossier filing of anthrax vaccine (Phase II A) by mid-end 2007. EU filing for Pharma NDDS dossiers targeted for 2007; launch likely in 2009

Panacea Biotec now has a Debt free status as of Oct’ 06; about US$40mn net cash position; tax rate likely to reduce to 25% levels by FY09 (current 30% tax rate). Merill Lynch Reiterates a Buy and strong earnings outlook. ML expects Panacea Biotec to deliver 156% EPS (FD) growth in FY07 and 34% growth in FY08 due to 34% core revenue CAGR (FY06-08E), in turn led by strong growth in vaccines in both institutional and private markets. OPM expansion to 29.2% in FY08E (from 22.1% in FY06), noting the entry into high margin markets. Tax and excise duty savings on account of operations in tax friendly zone of Baddi (Himachal Pradesh).

Merill Lynch has set a 12 Month price target of Rs 515 from current levels of Rs 390. EPS estimates for FY2007 and FY2008 are Rs 19.86 and Rs 26.55 respectively.

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