Piramal Lifescience can go upto Rs 500-600

By Udayan Mukherjee, CNBC-TV18 

Piramal Life Sciences will be tricky one to value because you have got to value the Research and Development (R&D) pipeline of the company. When the stock went X the parent company Nicholas Piramal had Rs 40 taken out of the stock price. But the face value of this stock is very different. Its a Rs 10 stock versus the Rs 2 parent.

There are varying estimates of what Piramal Lifescience R&D pipeline is worth. Some say it is worth USD 250 million while some say it is close to USD 500 million. That milestone might be the key thing which they are expecting from Eli Lilly, if that turns out to be more than USD 100 million and that comes in sometime soon. I think that will set some sort of an anchor to that price.

Look at Sun Pharma’s research charm which is Spark. Spark trades at a marketcap of about Rs 1,500 crore. It has got a pipeline of about USD 300 million. Piramal Lifescience's pipeline can be assumed to be little bit more than Spark. So, even if you give Rs 1,500 crore, which is Spark’s valuations to Piramal Lifescience and take the 2.5 crore equity, you arrive at a price of Rs 600 that is on at par with Spark’s valuations divided by the equity of Piramal Life.

I don’t know whether it will be Rs 600 more or less and whether the market will assume USD 400 million or USD 300 million for the R&D pipeline of Piramal Life. We could be way off the mark with this one because its really a new entity. It's not a lot of cash flows that you are trying to value, it's an assessment and a value judgment of their R&D pipeline. So, be prepared for surprises but Rs 500-600 could be entirely possible.