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Piramal Healthcare: Hit hard at the net level - Views on News from Equitymaster
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Piramal Healthcare: Hit hard at the net level
Apr 24, 2009

Performance summary
  • Revenues grow by 14% YoY in FY09 led by the domestic branded formulations, pathlabs and global critical care businesses.
  • Operating margins expand by 1.5% driven by considerable reduction in raw material and staff costs (as percentage of sales).
  • Net profits decline by 5% YoY during the year hampered by forex losses (as against forex gains in FY08) and extraordinary expenses. Excluding impact of the same during both the periods, the bottomline grows by 22% YoY.

Financial snapshot (Consolidated)
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 7,782 8,509 9.3% 28,675 32,811 14.4%
Expenditure 5,643 6,725 19.2% 23,312 26,176 12.3%
Operating profit (EBDITA) 2,139 1,784 -16.6% 5,363 6,635 23.7%
EBDITA margin (%) 27.5% 21.0% 18.7% 20.2%
Other income 0 72 61 74 21.6%
Interest (net) 119 286 140.2% 463 838 81.0%
Depreciation 166 343 106.8% 947 1,196 26.2%
Profit before tax 1,854 1,227 -33.8% 4,014 4,675 16.5%
Extraordinary item (253) (310) (339) (446)
Forex loss/(gain) 103 (169) (54) 821
Tax 155 (53) 377 219 -41.7%
Minority interest 15 (10) 14 26 89.6%
Profit after tax/(loss) 1,328 1,149 -13.5% 3,338 3,163 -5.3%
Net profit margin (%) 17.1% 13.5% 11.6% 9.6%
No. of shares (m) 209.0 209.0
Diluted earnings per share (Rs) 15.1
Price to earnings ratio (x) 14.3

What has driven performance in FY09?
  • Piramal Healthcare’s revenues grew by 14% YoY during FY09 and were driven by its domestic branded formulations, pathlabs and global critical care businesses. The strong 24% YoY growth in branded formulations was aided by the respiratory, gastro-intestinal, cardiovascular and anti-infective therapy segments. The top 10 brands of the company contributed around 24% to sales during FY09, while new product launches (in the past 2 years) accounted for 7.9% of total sales in FY09. Lifestyle products accounted for 31% of total sales. The company launched 42 new products during the year.

  • Revenues from the custom manufacturing business grew by a staid 5% YoY during the year. Out of this, sales from the custom manufacturing business outside India fell by 15% YoY, which could be attributed to the inventory rationalization exercise undertaken by global pharma in wake of the global economic slowdown. Custom manufacturing revenues relating to contracts from Indian facilities, however, witnessed significant traction reporting an impressive 74% YoY growth during the year.

  • The pathlabs business also clocked an impressive 42% YoY growth, which was due to a combination of organic as well as inorganic growth. Going forward, the company expects the growth from the pathlabs business to be largely acquisition driven. After the acquisition of Minrad in the Inhalation Anaesthetics (IA) segment, Piramal Healthcare formed a new division called ‘global critical care’. This business reported a 34% YoY growth during the year and partly included revenues of Minrad which was acquired in December 2008.

    Segmental snapshot
    (Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
    Branded formulations 3,092 3,949 27.7% 12,914 16,049 24.3%
    CMG 3,082 3,021 -2.0% 10,081 10,607 5.2%
    Pathlabs 316 406 28.6% 1,194 1,690 41.5%
    Global critical care 286 563 96.7% 985 1,316 33.7%
    Others 1,006 569 -43.4% 3,502 3,150 -10.1%
    Total 7,782 8,509 9.3% 28,675 32,811 14.4%

  • Operating margins improved by a significant 1.5% during the year to 20.2%. This was led by a substantial reduction in raw material and staff costs (as percentage of sales). Piramal Healthcare’s bottomline declined by 5% YoY during the year on account of forex losses to the tune of Rs 821 m (gain of Rs 54 m in FY08). Further, the company also incurred extraordinary expenses during the year, which included VRS to employees of the Huddersfield facility in the UK which was closed down. Thus, if we exclude the impact of the forex losses and extraordinary expenses during both the periods, then the growth in the bottomline stood at 22% YoY. Interest costs surged by 81% YoY during the quarter due to additional loans taken to fund capex and acquisitions.

What to expect?
At the current price of Rs 223, the stock is trading at a multiple of 7.6 times our estimated FY11 earnings. We believe that the custom manufacturing business will bolster the performance of the company going forward with revenues from the Indian assets and Morpeth facility being the key growth drivers. As far as Avecia is concerned, the focus is on shifting a large part of the business to India. While the current slowdown is impacting the company’s custom manufacturing business, the scenario is expected to improve going forward as the pressure on innovators to reduce costs increases. The company has closed down its manufacturing plant at Huddersfield, UK and while sales as a whole from the custom manufacturing business will decline in FY10, margins will be enhanced by 6-8%.

As regards Morpeth, the company is aiming to get more business besides the one from Pfizer and has successfully negotiated for the renewal of contracts. The company is also taking initiatives to boost growth in the domestic market by in-licensing new products and improving the productivity of its field force. The company’s performance in FY09 has been in line with our estimates. However, we shall have to factor in the acquisition of Minrad in our numbers going forward. Overall, we maintain our positive view on the stock.

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Feb 23, 2018 (Close)


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