Motilal Oswal 's research report on Piramal Enterprises
Piramal Enterprises'(PIEL) has announced 20% stake sale in the Pharma division with fresh equity infusion of ~USD490m by the Carlyle group. The deal values the Pharma division at an EV of USD2.8b (INR210b) and factors in net debt reduction to INR25b from INR42b. The stake sale is another step on the part of PIEL toward simplifying the group structure and effectively demerging the Pharma division in the ensuing quarters. Recently, PIEL sold its DRG division. The company has also made its intention clear of exiting its investments in Shriram group. In our view, ultimately PIEL would have a simplified structure with two listed businesses – Piramal Pharma Ltd (PPL) and PIEL (Listed Company will be for Financial Services business). The tough environment of the past 1-1.5 years has prompted PIEL to undertake various steps to protect its balance sheet. These steps include (a) consolidating its loan book and reducing the share of large exposure, (b) raising significant capital and reducing leverage, and (c) now preparing a strategy to foray into retail products in the Lending business.
More importantly, the company has been on a deleveraging exercise over the past year. It divested 10% stake in SHTF and also raised INR54b via a mix of preferential issue to CDPQ and a rights issue. Post this, it sold its DRG business for USD900m. Now, divestment of 20% stake in its Pharma business has already established the benchmark valuation. Using SOTP method (FY22E based), we value the Lending business at 1x BVPS, the Pharma business at 12x EV/EBITDA (in line with benchmark valuation and peers) and the Shriram group investments at our TP for its subsidiaries. PIEL has excess net worth of ~INR30b, which we have valued at 1x Cash. Maintain Buy with a revised TP of INR1,600.
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