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Piramal Health: Hit by domestic business sale
Feb 15, 2011

Piramal Healthcare has announced its 3QFY11 results. The company has reported 56% YoY decline in revenues and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues fall by 56% YoY in 3QFY11 largely due to the sale of the domestic formulations business.
  • Due to considerable rise in expenses, the company reports a loss at the operating level of Rs 326 m.
  • Substantial rise in other income ensures that the company reports a profit at the net level although the same declines by 56% YoY.

Financial snapshot (Consolidated)
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 9,077  4,027 -55.6% 27,293 19,969 -26.8%
Expenditure 7,303  4,353 -40.4% 22,187 19,134 -13.8%
Operating profit (EBDITA) 1,774   (326)   5,105  835 -83.7%
EBDITA margin (%) 19.5% -8.1%   18.7% 4.2%  
Other income   162  1,322 714.0% 704  2,058 192.3%
Interest (net)   379 129 -65.9% 1,428  834 -41.6%
Depreciation   434 240 -44.6% 1,194  939 -21.4%
Profit before tax 1,124 627 -44.2% 3,187  1,120 -64.9%
Extraordinary item   -        0      (4)    162,220  
Forex loss/(gain)    (33)   (145)   (93)    (108)  
Tax  (204) 169       2 36,634  
Minority interest  (1) -        (1)     (1)  
Profit after tax/(loss) 1,362 604 -55.6% 3,275 126,815  
Net profit margin (%) 15.0% 15.0%   12.0% 635.1%  
No. of shares (m)       209.0  209.0  
Diluted earnings per share (Rs)*#       12.2  
* based on trailing 12 months  # excluding extraordinary income and tax thereon

What has driven performance in 3QFY11?
  • The sale of the domestic formulations business to Abbott Laboratories largely impacted Piramal Healthcare's performance during the quarter. As a result, overall sales declined by 56% YoY. On a like-to-like basis, however, sales grew by 60% YoY. This was led by the growth in the OTC & Opthalmology, custom manufacturing and global critical care businesses. The custom manufacturing business reported a growth of 24% YoY during the quarter. This was largely led by the Indian assets, which registered a growth of 41% YoY on account of a ramp up in orders. The management is confident of the custom manufacturing business picking up going forward as the inventory rationalization exercise undertaken by global pharma majors on account of the global crisis seems to be over.

  • Sales from the global critical care business grew by 28% YoY during the quarter. This was largely due to strong sales of Minrad's product ‘Sevoflurane'. The OTC business recorded a growth of 32% YoY led by existing products and new product launches.

    Segmental snapshot of continuing businesses
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    OTC & Opthalmology 414 547 32.0%  1,236 1,283 3.8%
    Pharma solutions (CMG) 1,887 2,334 23.7%  6,858 6,713 -2.1%
    Global critical care 779 995 27.7%  2,393 2,717 13.6%
    Others 108 152 41.4% 420  254 -39.5%
    Total  3,187 4,027 26.4% 10,906 10,966 0.6%

  • Due to a significant rise in costs, the company recorded a loss at the operating level to the tune of Rs 326 m. Despite that, the company was able to register net profits of Rs 604 m due to a considerable rise in other income. Piramal had invested the proceeds from the sale which led to the increase in other income. For the nine-month period, profits were substantially higher on account of the proceeds (the first tranche) received from Abbott Laboratories. The company intends to pay the entire amount of tax (on the cash received and that to be received in 4 equal installments) by the end of this fiscal.

What to expect?
At the current price of Rs 424, the stock is trading at a price to earnings multiple of 30.8 times our estimated FY13 earnings (excluding the cash per share from the sales proceeds of the domestic formulations business). The company sold its domestic formulations business to Abbott Laboratories, in May 2010 and the first tranche of proceeds were received by the company in 2QFY11 after factoring in tax payments as well. The remaining proceeds of US$ 1.6 bn will be received in equal installments over the next four years starting 2011.

The buyback program is expected to be completed by the end of FY11 and will result in a cash outflow of Rs 25 bn. Part of the proceeds also go towards repayment of debt and investing in existing businesses. The company has yet to finalise its plans for utilization of the balance of these proceeds and a clearer picture is expected to emerge in April 2011. We shall soon update our research report on the company.

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