Buy Piramal Healthcare: PPFAS

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Buy Piramal Healthcare: PPFAS

Parag Parikh Financial Advisory Services (PPFAS) is bullish on Piramal Healthcare and has recommended buy rating on the stock in its October 21, 2011 research report.

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Parag Parikh Financial Advisory Services (PPFAS) is bullish on Piramal Healthcare and has recommended buy rating on the stock in its October 21, 2011 research report.

"Piramal Healthcare Ltd (PHL) reported a good second quarter. The quarterly results cannot be directly compared to the same quarter last year since the formulations business was sold in Q2FY11. On a QoQ basis, PHL Sales grew by 9% & reported an operating profit decline of 10%. The operating profits include Forex Gains of Rs 1,025 Mn since Abbott made its first payment this quarter, of Rs 18,500 Mn. The remaining amount is scheduled to be received annually in three more tranches. Without the forex gains PHL reported an operating loss. The loss mainly comes due to increased employee cost, material costs & other expenses which include marketing expenditure for OTC products. The sales for Q2FY12 also include Rs  300 Mn from India REIT. Biosynth, a Canadian subsidiary of PHL has been working on a cartilage repair gel which is planned to be launched in the next financial year. The merger of Piramal Lifesciences' New Chemical Entity (PLSL - NCE) unit will be completed by the end of Q3FY12."

"In the current quarter Q2FY12, the company purchased 5% stake in Vodafone Essar Limited (Vodafone India) for a consideration of Rs  28,569 Mn. We should not look at this as a strategic investment since it neither entails any control in the operations nor any representation on the board of Vodafone Essar Limited. It can be looked at like a work-out type of an investment for a short term of 1 to 2 years. It's a financial investment where the company expects a return of 17% pre-tax with an option to sell the stake if there is no IPO for the currently unlisted entity. This is true to what the company had mentioned about buying stakes in growing, high quality, global businesses as a way to use surplus cash. The current debt level stands at Rs 10,889 Mn, which has increased from Rs  6,450 Mn from same quarter of the previous year. The interest cost is ~5% on the debt & the cash held by the company yields ~9%. Since the debt is cheaper to get, it makes sense to have some leverage, especially for its foreign operations where interest costs are lower."

"As revealed in the previous quarter's management comments, the company expects a topline of Rs 1,00,000 Mn by FY2016-17. The current market valuation values this business at less than 1x Sales. The businesses expect to earn a return of an average 15-18%. The current valuation indicates that perhaps these plans may not succeed. We'll need an equivalent time horizon for this business to observe how these expectations turn out. As mentioned before, the teams for all the proposed business units are in place. Mr. Ajay Piramal's management team has shown their performance & capability in the previous couple of decades. We believe that all these factors surely deserve a higher valuation; maybe going ahead the actual numbers will speak louder than the current expectations being discounted in the price. We recommend a BUY for Piramal Healthcare Limited," says Parag Parikh Financial Advisory Services research report.

Public holding more than 90% in Indian cos

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