Piramal Enterprises Ltd - Research Report

 
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Private Client Research

Rating

Buy

Sector

Pharmaceuticals & Drugs

Company

Piramal Enterprises Ltd

Reco Price
Rs. 1047.00
Price Target (1 Year)
Rs. 1255.00
Upside
19.87%

Date

April 01, 2016
Sensex
25269.64
CNX Nifty
7713.05

Exchange

Code

NSE
PEL
BSE
500302

Strong Conglomerate with improved financial performance.

Formidable player in the healthcare industry:
After exiting the domestic formulation business in 2010 by selling its business to Abbott for $3.8 Bn, Piramal Enterprises Ltd. (PEL) once again strengthened its presence in the healthcare space with operations across >100 international markets including US, UK and Canada. Currently, it operates in four segments – (a) Pharma Solutions; (b) Critical Care; (c) Consumer Products; and (d) Imaging. All these pharma businesses have been growing both organically and inorganically and have demonstrated a consistent track record for growth. Also, the company is well positioned with (a) a strong contract manufacturing relationship with leading pharma companies; (b) niche products and unparalleled global footprint in the critical care segment; (c) strong brands and one of the largest India distribution networks in the consumer product segment; and (d) a game changing product in the Imaging segment.

Financial Services business:
This segment is company’s fastest growing arm of Piramal Enterprises. It has a unique collection of niche businesses and strategic investments in category leaders with a total portfolio size of Rs. 24,200 Cr (at the end of Q3FY16). It has an immense potential to grow further by increasing its leverage in

  • Wholesale lending: the company has created a niche within the Developer Financing segment with a loan book of Rs. 11,070 Cr (at end Q3FY16). It has invested in projects which have actual end user demand in Tier 1 cites – Mumbai, Pune, Bengaluru, Chennai, NCR and Ahmedabad.
  • Alternative AUM: the company currently manages 12 funds and the AUM stood at Rs. 8640 Cr in Q3Y16. The parent of Piramal group, which has a history of strong project developmental capabilities, has been of immense help in this segment. With a total investment of Rs. 4583 Cr in Shriram Group (10% stake in Shriram Transport Finance and Shriram City Union Finance each and 20% stake in Shriram Capital), the company has an exposure to retail financing segments in India
  • Used and new commercial vehicles, small and medium enterprises, consumer and gold loans: These investments provide Piramal Enterprises a strong foothold into 3000+ branches with 76000+ of manpower and a 10.5 mn customer base.

Information Management business:
Piramal provides healthcare data, analytics & insights to a large (almost all top 50 Pharma companies) and diverse set of clients which provides a high revenue visibility. The Information Management business is poised for further growth and profitability given the significant market opportunity and several organic and inorganic initiatives taken by PEL. This business segment contributes 20% to total revenue with a 24% share of the total capital employed.

Experienced Management:
The Piramal Board comprises of a blend of high profile, highly qualified and well experienced professionals. Each one of the Board members has been leading thinkers and leaders in their respective departments. The company has set a very high standard of corporate governance, which indeed is a very promising sign. All the businesses are viewed as virtual companies and have their own Business Boards/Investment Committees. It’s the high standard of corporate governance and robust review mechanism that makes PEL one of the preferred partners in India.

Stock Data

CMP (Rs)
1048.25
Face value (Rs)
2
52 Week Range (Rs)
1067.95 - 804.00
Market cap (Rs Crores)
18049.24
Price To Book Value (x)
1.44
P/E Ratio (x)
20.85
EV/EBIDTA (x)
13.28

One Year indexed Stock Performance

Piramal Enterprises LtdSensex
Piramal Enterprises Ltd
Return (%)
1m
6m
12m
36m
Absolute
18.12
17.63
19.19
72.77
Sensex
6.27
-3.63
-10.58
33.95

Shareholders

(in %)
31-Dec
Promoter
52.76
Public
47.24
Others
0.00
Total
100

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Industry

In the US, national health expenditures increased from USD 1.4 trillion in 2000 to USD 2.6 trillion in 2010, and are expected to grow at the rate of 6% to reach USD 4.6 trillion in 2020 (Source: Centers for Medicare & Medicaid Services). Regulations such as ‘The Patient Protection and Affordable Care Act’ (PPACA) of 2010 are expected to expand coverage to 32 million uninsured individuals (Source: Congressional Budget Office). In the wake of the PPACA and the resulting higher healthcare spending trends, the primary constituents in healthcare will change the way healthcare costs are reimbursed, shifting from a focus on volume to value. This, as well as the increasing cost to bring drugs and devices to market and greater regulatory scrutiny have resulted in an increase in demand for high quality information and analytical decision support tools and need for third-party insight from experts to navigate the increasing sector and regulatory complexity.

Profile

Piramal Enterprises Limited, an Indian-based company is focused on pharmaceutical business, financial services and information management. The pharmaceutical segment includes Pharma Solutions, Critical Care, OTC and Ophthalmology, and Life Sciences. Pharma Solutions cover the entire drug-cycle, from development and manufacturing to off-patent supplies of Active Pharmaceutical Ingredients (APIs) and formulations. The Critical Care division offers inhalation anesthetics, such as Sevoflurane and Desflurane. OTC and Ophthalmology division includes products, such as Caladryl, Equal and Saridon. The Life Sciences division discovers and optimizes compounds in the areas, including Imaging, New Chemical Entity Research and Bio-orthopaedics. The financial services segment offers fund raising, deployment, monitoring and exit of real estate loans and investments services. The information management segment is a provider of syndicated research, information and analytics to the healthcare industry.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17E
Mar-18E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBIDTA
  • EBIDTA Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Profit Before Tax
  • Provision for Tax
  • Profit After Tax
  • Adjusted EPS
  • 3520.19
  • -
  • 3105.38
  • 414.81
  • 11.78
  • 196.17
  • 610.98
  • 575.01
  • 35.97
  • 209.56
  • -173.59
  • -19.13
  • -192.72
  • 24.76
  • -217.48
  • -13.17
  • 4502.74
  • 27.91
  • 3867.83
  • 634.91
  • 14.10
  • 225.43
  • 860.34
  • 1049.58
  • -189.24
  • 246.90
  • -436.14
  • 1.37
  • -434.77
  • 62.75
  • -497.52
  • -29.06
  • 5122.61
  • 13.77
  • 4237.46
  • 885.15
  • 17.28
  • 254.52
  • 1139.67
  • 510.60
  • 629.07
  • 289.87
  • 339.20
  • 2696.15
  • 3035.35
  • 344.96
  • 2690.39
  • 165.17
  • 6550.00
  • 27.86
  • 5250.00
  • 1300.00
  • 19.85
  • 275.00
  • 1575.00
  • 500.00
  • 1075.00
  • 332.00
  • 743.00
  • -30.50
  • 773.50
  • 87.91
  • 685.59
  • 42.09
  • 8330.00
  • 27.18
  • 6550.00
  • 1780.00
  • 21.37
  • 275.00
  • 2055.00
  • 450.00
  • 1605.00
  • 375.00
  • 1230.00
  • 0.00
  • 1230.00
  • 139.79
  • 1090.21
  • 66.93
  • 10550.00
  • 26.65
  • 8300.00
  • 2250.00
  • 21.33
  • 275.00
  • 2525.00
  • 400.00
  • 2125.00
  • 415.00
  • 1710.00
  • 0.00
  • 1710.00
  • 194.34
  • 1515.66
  • 93.05
Source: Stockaxis Research, Company Data

Valuation

The company has evolved from being a textile-centric business to a diversified conglomerate with business operations in three broad categories – healthcare, financial services and information management. All its businesses have a leadership position with significant market potential, strong revenue growth and profitability. With strong parent group and established management we see very good opportunity at current levels.

We assign valuation of 13.48x for FY2018E indicating target price of Rs 1255.

 

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