Hold Piramal Health: Emkay Global Financial Services

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Hold Piramal Health: Emkay Global Financial Services

Emkay Global Financial Services has recommended hold rating on Piramal Healthcare with a target of Rs 531 in its October 22, 2010 research report.

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Emkay Global Financial Services has recommended hold rating on Piramal Healthcare with a target of Rs 531 in its October 22, 2010 research report.

"Piramal Healthcare's revenue for the quarter de-grew by 25% to Rs 7.5 billion. Management has iterated that concentration of focus on completing the transaction with Abbott and Super Religare Labs led to de-focus on the business areas. This accounted for the subdued performance during the quarter. Key factors that led to overall de-growth in revenues are a) Domestic formulation business (contributed 54% to the overall revenues) de-grew by 22% to Rs 4.1 billion, b) CRAMS business (contributed 28%) de-grew by 28% to Rs 2.1 billion, c) Critical Care business (contributed 9%) de-grew 28% to Rs 640 million and, d) Diagnostics business (contributed 4%) de-grew 39% to Rs 334 million. The CRAMS business declined on account of ~41% Y-o-Y de-growth in assets in India and ~15% Y-o-Y de-growth in assets outside India."

"Management has indicated that they will prune down their guidance in the coming quarters. Earlier the management has guided for a 10-15% growth in the CRAMS business. We believe, the performance of residual business will improve on account of gradual up tick in CRAMS business coupled with improvement in the global critical care business. In the GCC business incremental growth from Sevoflurane and monetization of Minrad products in emerging markets will drive growth. We expect management to give further clarity on its residual business post Q3FY11E."

"Deployment of cash still remains an unanswered question for Piramal Healthcare and a big overhang on the stock performance. Management has indicated that they are studying various business proposals and it will take more than 6 months to from a decision. However, they have stated very clearly that they do not see enough opportunities in the healthcare space to deploy such a large amount and are looking non-healthcare segments (no real estate investment in this company). In fact, Management has stated that the business profile of this company (Piramal Healthcare) will change significantly in next two years. Owing to lack of clarity on the utilization of cash; we continue to retain our Hold rating on the stock with a price target of Rs 531. We will revisit our rating once the company announces concrete plans to deploy cash from the deal," says Emkay Global Financial Services research report.

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