May 09, 2011, 03.02 PM | Source:

Buy Piramal Healthcare: PPFAS

Parag Parikh Financial Advisory Services is bullish on Piramal Healthcare and has recommended buy rating on the stock in its May 9, 2011 research report.

Buy Piramal Healthcare: PPFAS
Parag Parikh Financial Advisory Services is bullish on Piramal Healthcare and has recommended buy rating on the stock in its May 9, 2011 research report.

“Piramal Healthcare (PHL), with its remaining businesses, seems to be getting back on track. The remaining businesses have shown good growth if compared with the same unit revenue from Q4FY10. Pharma Solutions (CRAMS) grew 37% YoY, Critical Care grew 31% YoY & OTC grew 26% over the same period. Operating profits (before investment income) are Rs. 1070 Mn, compared to sequential operating losses since the past two quarters. The reversal is mainly on account of business getting back on track. Inventory levels are up, which might indicate restocking for fulfilling new orders or slow off-take from customers. Overall, this quarter is not strictly comparable YoY as well as sequentially with any previous quarters.”

“PHL plans to enter the real estate sector by making Indiareit as a 100% subsidiary. This business involves managing client's money by deploying it across the board into some really promising developers. It has a very good history so far, having Mr. Ramesh Jogani at its helm. His fund management performance can be read about in this article from Forbes India magazine which is appended at the bottom. Like any investment management business, it also involves a key man risk, where a lot depends on the fund manager staying put, running the fund rather than leaving after a good stint. But in the light of all these risks & the cash available to deploy, PHL's investment will only be Rs. 300 Cr. So it can also enjoy the upside growth of real-estate industry by taking a relatively smaller portion of the risk.”

“The company has a good history of rewarding shareholders, by growing the business at ~ 25% over the past couple of decades. This performance may be an aberration & might owe a lot of it to luck by being in the right business at the right time, but it also speaks of execution capability of the management. The company after a very successful buyback (rewarding shareholders by an acceptance ratio of 25% instead of the earlier estimated 20%) & another round of dividend (regular @ Rs. 6 per share & Special @ Rs. 6 a share) shows respect for minority shareholders. The minority shareholders of Piramal Lifesciences, although being left with the smaller stick will be rewarded by 1 PHL share for every 4 PLSLshares they own. If you value the remaining business at 1x FY11 Sales, we get a valuation of ~ Rs. 2,500 Cr.”

“With the CMP, the low cost debt of Rs. 758 Cr & estimated left over cash ~ Rs. 7,100 Cr we get an enterprise value (EV) of Rs. 711 Cr. The remaining business with good growth potential is valued at less than 1x Sales. The new areas of investment into real estate and financial services are not even part of this valuation. Also the probability of a drug being discovered is perhaps not being considered at this time. Well it may not be a very juicy cash bargain, it may seem to wantonly diversify away from its core sector & it may seem to be available at an EV of less than 1X Sales - it still looks like a good opportunity to partner with a dedicated management team who has a good track record creating value for its shareholders. It is not a bargain, but "It is better to pay a fair price for a wonderful business than paying a wonderful price for a fair business." We recommend a BUY on Piramal Healthcare Limited,” says Parag Parikh Financial Advisory Services research report.

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