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Piramal Healthcare Ltd
Cash deployment remains a risk; Maintain SELL
Piramal Healthcare (PIHC), for the first time after the sell-off its domestic
formulations business to Abbott Laboratories (Abbott) and its pathlabs business
to Super Religare Laboratories (SRL), separately reported the numbers for its
remaining base businesses—which continue to suffer due to the ongoing
restructuring exercise. The management will present a detailed outlook on the
remaining businesses and its cash deployment plans at the beginning of the next
fiscal.
For Q3FY11, the OTC and critical care businesses reported strong growth.
While the pharma solutions business too posted a strong 20% plus growth, we
note that PIHC has excluded the sales generated from one contract (which it
sold to Abbott) from Q3FY10 numbers. Adjusting for this, its CRAMs business
has actually reported a decline. PIHC’s buyback programme is facing delays and
the company now expects to complete the process only by end of March ’11 (as
against its earlier target of Feb ’11). We believe the uncertainty over utilisation
of cash proceeds of the Abbott deal remains an overhang on the stock. We
therefore reiterate our SELL rating on the stock.
Adjusting for one contract, topline remains flat: For Q3FY11, PIHC’s
OTC/critical care businesses witnessed strong growth of 32%/28% YoY to
Rs 547mn/Rs 995mn. Its CRAMs business also reported a robust growth of 24%
YoY. However, we note that PIHC has stripped-off sales of Rs 807.9mn generated
from one contract from Q3FY10 numbers. Adjusting for this, revenues from the
CRAMs segment fell 13% YoY.
Margins remain under pressure: PIHC reported an EBITDA-level loss of
Rs 227mn in Q3FY11 (as against a loss of Rs 101mn in Q3FY10), primarily due
to higher advertising spend for its OTC business and increase in promotional
spending for its critical care business.
Cash deployment remains a major concern: While PIHC has built a strong
war-chest post the sale of its domestic formulations and pathlabs businesses, it is
yet to finalise its cash utilisation plans. Moreover, the company’s plans to look
for opportunities beyond healthcare, further adds to the uncertainty over cash
utilisation. The management has indicated that it would present an outlook on its
cash deployment plans only at the beginning of the next financial year.
Reiterate SELL: We remain cautious on the stock due to the risk associated with
the utilisation of cash proceeds from the Abbott deal. Therefore, while the NPV
of these cash proceeds (post buyback) is Rs 480, we ascribe a 25% discount to
this value; our risk adjusted NPV thus stands at Rs 360. The remaining businesses
have been valued at Rs 120. The total target price works out to Rs 480. We
reiterate a SELL on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Piramal Healthcare Ltd
Cash deployment remains a risk; Maintain SELL
Piramal Healthcare (PIHC), for the first time after the sell-off its domestic
formulations business to Abbott Laboratories (Abbott) and its pathlabs business
to Super Religare Laboratories (SRL), separately reported the numbers for its
remaining base businesses—which continue to suffer due to the ongoing
restructuring exercise. The management will present a detailed outlook on the
remaining businesses and its cash deployment plans at the beginning of the next
fiscal.
For Q3FY11, the OTC and critical care businesses reported strong growth.
While the pharma solutions business too posted a strong 20% plus growth, we
note that PIHC has excluded the sales generated from one contract (which it
sold to Abbott) from Q3FY10 numbers. Adjusting for this, its CRAMs business
has actually reported a decline. PIHC’s buyback programme is facing delays and
the company now expects to complete the process only by end of March ’11 (as
against its earlier target of Feb ’11). We believe the uncertainty over utilisation
of cash proceeds of the Abbott deal remains an overhang on the stock. We
therefore reiterate our SELL rating on the stock.
Adjusting for one contract, topline remains flat: For Q3FY11, PIHC’s
OTC/critical care businesses witnessed strong growth of 32%/28% YoY to
Rs 547mn/Rs 995mn. Its CRAMs business also reported a robust growth of 24%
YoY. However, we note that PIHC has stripped-off sales of Rs 807.9mn generated
from one contract from Q3FY10 numbers. Adjusting for this, revenues from the
CRAMs segment fell 13% YoY.
Margins remain under pressure: PIHC reported an EBITDA-level loss of
Rs 227mn in Q3FY11 (as against a loss of Rs 101mn in Q3FY10), primarily due
to higher advertising spend for its OTC business and increase in promotional
spending for its critical care business.
Cash deployment remains a major concern: While PIHC has built a strong
war-chest post the sale of its domestic formulations and pathlabs businesses, it is
yet to finalise its cash utilisation plans. Moreover, the company’s plans to look
for opportunities beyond healthcare, further adds to the uncertainty over cash
utilisation. The management has indicated that it would present an outlook on its
cash deployment plans only at the beginning of the next financial year.
Reiterate SELL: We remain cautious on the stock due to the risk associated with
the utilisation of cash proceeds from the Abbott deal. Therefore, while the NPV
of these cash proceeds (post buyback) is Rs 480, we ascribe a 25% discount to
this value; our risk adjusted NPV thus stands at Rs 360. The remaining businesses
have been valued at Rs 120. The total target price works out to Rs 480. We
reiterate a SELL on the stock.
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