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Q2FY11: Board announces buyback
Announces open offer for 20% of equity at Rs 600/share
The Piramal board today announced approval of buyback of up to 20% of the cos.
equity through a proportional tender offer at Rs 600/share. We believe the tender
offer may not appeal to many investors given that the present value of net cash
itself is close to the Rs 565/share. On, the positive side, the promoter family will
subscribe to the tender offer in equal proportion to the tendering shareholders and
therefore the promoter group shareholding will not increase post the tender offer.
Q2FY11 PAT Rs 125.4 bn driven by sale of domestic formulation business
The co. received US$2.2bn from Abbott as upfront payment on sale of domestic
formulation business. The rest will be received in 4 annual tranches of US$400mn
over FY12-FY15. The co. also received Rs 3bn as upfront payment from sale of
diagnostics business during the quarter.
Await clarity on cash deployment
The management expects the co. business profile to look v. different in 2-3 years
time, as the co. will not be limited to healthcare sector. The co. has no timelines in
terms of spending this cash and will conservatively at potential acquisition
opportunities. We therefore revise down our estimates due to sale of key
businesses and include the interest income on the growing cash pile as the key
driver of earnings over the next few years.
Valuation: Maintain Neutral rating with PT of Rs 565
We value the cash post dividend tax at Rs 465 per share and the other businesses at
Rs 100 per share (based on 8x FY12 EBITDA est.) to get our 12-mth price target.
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