Panacea Biotech

Any Further Boost In Valuation Depends On Co's Future Growth Trajectory

 

PANACEA Biotech, country's leading vaccine producer, has been in news recently for receiving supply commitments for its vaccine business. It has been witnessing growth in revenues and improvement in operating margins since the past two quarters (on a trailing four-quarter basis). The company has posted strong growth (QoQ and YoY) for the quarter ended December '09. 

   Traction in the company's vaccine business, which contributes over 70% of its total revenues, has led to the growth in revenues. The company's formulations business is also witnessing a steady improvement in revenues and earnings. Orders for future supply of vaccines hint at a promising growth for the company, going forward. 

   The company has bagged an order worth over Rs 1,000 crore from UNICEF for supply of pentavalent vaccine over the three years from 2010 to 2012. This order, while enhancing the company's revenues and earnings, will help in reducing the company's dependence on the oral polio vaccine, which constitutes more than half of the company's total revenues. The company recently signed an advance market commitment agreement with the government of India for providing vaccine against the swine flu virus. While the company has a capacity to manufacture 40-45 million doses, the likely increase in its revenues and bottomline through this agreement is yet to be known. 

   In January this year, a private firm Daivi Ventures increased its stake in the company from 5% to 6.3% capital of the company. The company has recently secured the approval of its members for an offer to buy back 55.9 lakh shares, constituting 8.4% of its paid-up capital at a price not exceeding Rs 229. This move is likely to further boost investor confidence in the company's stock. 

   Given the improvement in the company's performance and expectation of better performance in the future, the company's stock seems to be a good investment. With annual sales of Rs 800 crore, the company is currently valued at a market cap of over Rs 1,200 crore. At the buyback price of Rs 229, the company will be fairly valued at a market cap that will be around twice its revenues. Any further rise in its stock price will be dependent on the company's future growth trajectory.