Piramal Healthcare Ltd.

Retail Research Desk Company Note 21st June 2010

CMP (BSE) Rs. 489.40 Recommendation - Buy

Key Data Company Background
BSE Code 500302 Piramal Healthcare Ltd, a Piramal Group company, is a globally integrated
NSE Code PIRHEALTH
healthcare company that fulfills unmet medical needs across the world. PHL
Sensex 17876.55
CMP, Rs 489.40
is currently ranked 4th in the Indian market with a diverse product portfolio
2W TTQ avg 2.55 lk spanning several therapeutic areas. It is also one of the largest custom
Face Value 2.00 manufacturing companies with a global footprint of assets across North
Mcap,Rs Mn. 102667.33 America, Europe and Asia.
52 week H/L 599.90/293
Industry Pharmaceutical
Recent Activity:
Abbott Laboratories recently purchased Piramal Healthcare's Rs 1,823-crore
domestic formulations business which accounts for 54% of the company’s
revenues. The sale catapults the US drug-maker Abbott into No 1 position in
Share holding, Mar'09 % Holding
Indian Promoter 49.24%
the Indian market, even as it brings more than Rs 16,000 crore into Piramal
Total FIIs 26.06% Healthcare's kitty.
DII 8.76%
Others 15.94% Investment Rationale:
Total 100%
 We see the Abbott takeover of the domestic formulations business
in interest of PHL as far as the valuations are concerned.
 PHL would be receiving in excess of Rs. 9100 cr. in the first year out
Particlars FY10 FY09
of which it would retire its debt to the tune of Rs. 1300 cr and would
Total Operating
Income (Cr.) 3671.05 3281.10 be liable to pay LTCG Tax @ 22% of Rs. 3600 cr.
 It would then receive US$ 400m annually for 4 years, which
PAT (Cr.) 506.8 385.36
assuming a conservative discount rate of 15% and an exchange rate
Ratios of 43 would result in a present value of Rs. 4900 cr.
RONW (%) 28.6% 24.0%  The end of FY11 value of cash alone is in excess of Rs. 9000 cr. This
leaves us with close to Rs. 1000 cr. value pertaining to rest of
PAT Margin 13.80% 11.74%
business when we subtract the cash from current M. Cap.
 The sales of the other divisions (Pharma Solutions, Critical Care and
Diagnostic Services, etc) were Rs. 1670 cr. Assuming a conservative
Price performance vis-à-vis Sensex sales multiplier of 2.5 (much less than peers), the value of this
business comes close to Rs. 4200 cr. Taking an NPM of 10%, this
business is valued at a P/E multiple of 6. So, assuming a good
margin of safety, there still remains a decent upside potential.
 The company will retain its OTC division which has mass brands
like Saridon, i-Pill, Lacto Calamine and Supractiv under its
umbrella. We see good growth in this segment going forward. The
nascent critical and diagnostic divisions are also showing 25%+
growth.

Concerns:

1) The company could under-utilise is cash by keeping it idle or making

Source: www.bseindia.com unworthy acquisitions.
2) The Healthcare Solutions business was the backbone of the company
with phenomenal growth and opportunities. The loss of this division
mohitrathi@spagroupindia.com could lead to lethargy in the company’s functioning.
3) The OTC drug space could see active competition in coming days given
Phone: +91- 11- 25586624
the size of the market.
 Piramal Healthcare Ltd.
Retail Research Desk Company Note 21st June 2010

Overview:
PHL has sold off its main healthcare solutions business at an amazing price. Keeping faith with management that
has delivered a CAGR of 26% in the last 10 years and has provided above 20% ROE consistently since the last 3
years, one could be bullish with all the money coming in. The company has already started looking for acquiring
small biotech research companies to integrate into a new model. The strong portfolio of OTC drugs along with an
aggressive management could lead to good free cash flows in the future. Piramal Health is looking good for gains
from this level.
 Piramal Healthcare Ltd.
Retail Research Desk Company Note 21st June 2010
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Disclosure of Interest Statement

1. Analyst ownership of the stock - No
2. Group/Directors ownership of the stock – No
3. Broking relationship with company covered – No

Sumit Duseja Research Analyst sumit.duseja@spagroupindia.com

Ravinder Walia Research Analyst ravinder.walia@spagroupindia.com
Deepak Sharma Research Analyst deepak.sharma@spagroupindia.com
Mohit Rathi Research Analyst mohitrathi@spagroupindia.com

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