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Piramal Health: India fails to deliver
Aug 10, 2010

Piramal Healthcare has announced its 1QFY11 results. The company has reported 2.5% YoY growth in revenues and a 5% YoY decline net profits. Here is our analysis of the results.

Performance summary
  • Revenues grow by 2.5% YoY in 1QFY11 largely driven by the pathlabs and global critical care businesses.
  • Revenues from the custom manufacturing business fall by 17% YoY during the quarter.
  • Operating margins fall marginally by 3.7% due to a rise in all costs (as percentage of sales).
  • The 5% decline in net profits is lower than the fall in operating profits due to lower interest costs and tax expenses.


Financial snapshot (Consolidated)
(Rs m) 1QFY10 1QFY11 Change
Net sales 8,215 8,424 2.5%
Expenditure 6,658 7,134 7.2%
Operating profit (EBDITA) 1,557 1,290 -17.2%
EBDITA margin (%) 19.0% 15.3%  
Other income 0 0  
Interest (net) 254 145 -42.8%
Depreciation 385 381 -1.1%
Profit before tax 919 764 -16.8%
Extraordinary item - (19)  
Forex loss/(gain) (45) (89)  
Tax 113 27 -76.4%
Minority interest (0) (0)  
Profit after tax/(loss) 851 807 -5.1%
Net profit margin (%) 10.4% 9.6%  
No. of shares (m) 209.0 209.0  
Diluted earnings per share (Rs)*   22.8  
Price to earnings ratio (x)   21.1  
* based on trailing 12 months

What has driven performance in 1QFY11?
  • Piramal Healthcare’s revenues grew by a subdued 2.5% YoY during the quarter. This was largely due to the large scale uncertainty surrounding the domestic formulations business which was sold to Abbott Laboratories. As a result, sales from the domestic formulations business grew by a lukewarm 5% YoY. The OTC business, which will be retained with Piramal Healthcare, also saw a decline in revenues for similar reasons.
  • Revenues from the custom manufacturing business declined by 17% YoY during the quarter. Out of this, sales from custom manufacturing outside India fell by 16% YoY. This was largely due to the 13% depreciation of the pound and lower offtake of orders. However, the management is seeing visibility in orders and the scenario is expected to improve in the forthcoming quarters. Custom manufacturing revenues relating to contracts from Indian facilities also declined by 18% YoY during the quarter. This was largely due to a large order which was present in 1QFY10 but not there during the current quarter.

  • After the acquisition of Minrad in the Inhalation Anaesthetics (IA) segment, Piramal Healthcare formed a new division called ‘Global Critical Care’. This business witnessed a 49% YoY growth during the quarter largely due to increased revenues from ‘Sevuflorane’ in the US. Further, in April 2010, the company acquired the Bharat Serum & Vaccines’ Anesthetic product business which is expected to further bolster the Global Critical Care business going forward.

    Segmental snapshot
    (Rs m) 1QFY10 1QFY11 Change
    Branded formulations 4,397 4,613 4.9%
    CMG 2,104 1,748 -16.9%
    Pathlabs (Diagnostics) 485 536 10.6%
    Global critical care 729 1,082 48.5%
    Others 501 445 -11.1%
    Total 8,215 8,424 2.5%

  • Operating margins fell by 3.7% during the quarter to 15.3% largely due to a rise in raw material and staff costs (as percentage of sales). While Piramal Healthcare’s bottomline declined by 5% YoY during the quarter, the same was lower than the 17% YoY decline in operating profits. This was largely due to reduction in interest costs and tax expenses.

What to expect?
At the current price of Rs 482, the stock is trading at a price to earnings multiple of 21 times its trailing twelve months earnings. The company has sold its domestic formulations business to Abbott Laboratories, the proceeds for which are expected to come in by the end of September 2010. Part of this money will go towards payment of tax, repayment of debt and rewarding shareholders in the form of dividends. The balance will go towards investing in existing businesses. Plans on the anvil also include looking at areas beyond healthcare, although the management has not divulged specific details with respect to the same. The management is expected to give a clearer picture regarding its overall business towards the end of the second quarter of this fiscal.

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