Dalal Street Investments

Merill Lynch Bullish on Panacea Biotec Limited

December 25, 2006

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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