Piramal Enterprises Ltd

Piramal Enterprises acquires baby care brand Little’s

http://www.livemint.com/Companies/nywQbFoVjj2vHId9gLRFoJ/Piramal-Enterprises-acquires-baby-care-brand-Littles.html

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Interesting article about Ajay Piramal’s heir apparent, Anand Piramal who is running Piramal’s realty arm :

http://economictimes.indiatimes.com/news/company/corporate-trends/anand-piramal-four-men-deepak-parekh-nitin-nohria-robert-booth-subbu-narayansamy-behind-grooming-of-a-scion/articleshow/49545317.cms

Lot of pharma companies have started paying attention to OTC brands. This adds another revenue stream to their portfolio of products which is out price control regime and not affected by US FDA/UK MHRA inspection scares. This also helps them to migrate from pure “pharma” to quasi FMCG-pharma company. Piramal has been making conscious effort by acquiring brands like Saridon, Lacto Calamine, I-pill etc. Recent acquisition seems to in line with their OTC strategy.

Please see the article in Outlook Business about OTC brands

http://www.outlookbusiness.com/strategy/feature/if-youve-got-it-flaunt-it-1970

Disc : invested

They have entered the baby-care market now with acquisition of more OTC brands :

http://www.livemint.com/Companies/nywQbFoVjj2vHId9gLRFoJ/Piramal-Enterprises-acquires-baby-care-brand-Littles.html

Further acquisitions in the area of OTC brands continues. Please see the news below

Came across very good interview of Ajay Piramal. Link attached below

Discussion summary-

  • Follows Contrarian Strategy , interested in brands, invest in areas which he understand fully
  • DRG - Healthcare analytics based in US - converting data into wisdom - acquired when 1USD=Rs 45, will continue growing at 12-15% with organic/inorganic route
  • Financial Services - Play on GDP growth - 1. Retail - Shriram group investment. Operationally involved. 2. Wholesale - Real Estate and Special Situation Lending. Only to high quality developers with multiple projects. Can raise debt if required, easy access to debt capital. Expected to reatil and wholesale to merge in future. No plan for inorganic growth
  • Healthcare - Products business- Critical care (mainly outside India) and OTC (in India). - Inorganic and organic growth to continue. Service Business - Contract manufacturing and service - No US FDA issues. Ability to develop, manufacture and distribute products.
  • Highly conservative when it comes to raise equity. Good for Minority shareholders.
  • Plan to list these businesses in future, once they reach size and at right time.

In nutshell, impressed with vision and strategy of the promoter with impeccable integrity. Execution should improve as things starts falling in place as can be seen from last quarter results.

Disc - invested for last one year and will be adding more after watching this interview

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@Marathondreams

Thanks for sharing the video. I too had watched this. You have summarized key points very nicely. He has given some very important clarification which was hitherto was in realms of uncertainty

  • PEL will eventually demerge the businesses and list it thus will no longer remain a conglomerate. This is one of the major concern for many investors I know as conglomerates are valued at discounts most of the times by market. Thus, there is a good chance of value unlocking when such demerger happens
  • DRG will also go public in medium term which in Mr.Piramal’s opinion unlock lot of value. This is significant in my opinion. Also, for the first time they indicated the margins which is around 25-30%. So a niche business with strong entry barriers, good margins and decent growth will surely command good valuation.
  • He also cursorily mentioned about retail and wholesale lending businesses coming together. Though, I am not sure what it means one of the possibility can be operating control in Shriram group?
  • His view of not diluting equity even after fast scale up that he sees in FS business is also significant. FS businesses which do not dilute equity and grow are typically in sweet spot and are valued richly. This may point to two things
  • FS business is generating good ROE thus sustaining a good portion of growth without dilution
  • There is enough room to increase leverage (which he indicated)
  • He almost rubbished media reports of IL&FS acquisition. Instead he told that it does not make sense to grow inorganically in FS business because of you don’t get what you see and hence difficult to determine value

In nut shell, I feel he is well on his way to achieve his articulated grand vision for PEL and create wealth for its shareholders in sustained manner.

Discl: Invested @ average price of 450 and have significant allocation in portfolio

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Piramal Enterprises in talks to sell 20% stake in over-the-counter drugs business

Read more at:
http://economictimes.indiatimes.com/articleshow/50568820.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Please see the attached sales break-up of the company (from the Analyst Presentation). Is “Consumer Products” same as OTC drugs business? This seems like a small division (2nd quarter sales of 86cr ) and commanding $1 billion valuation. This is ~18 -20 times FY2016 sales.

Discl: Started accumulating at ~ 970. Planning to increase the exposure to 10-20% of PF.

PEL has come out with excellent results.

For Q3 FY 16, topline growth of 33% and bottom line growth of 50% (post exceptional item adjustment)
EBIDTA margin stood at 34% for the quarter vs. 23% in Q3 FY 15

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=4ee15e2a-e135-4f41-99ed-01ee41e75be8

For me highlights of the results

  • All three verticals showed growth while financial service business showed very strong momentum
  • Financial service business strong growth is not coming at the expense of quality, GNPA remains at 1%
  • Debt:Equity is still 1.1 which clearly indicates very good headroom for growth in financial service business
  • For the first time, investor presentation talks about unlocking value (demerger of businesses) in future

Here is their Investor presentation
Piramal_Enterprises_Limited_Q3_FY2016_Results_presentation_20160208021046.pdf (1.2 MB)

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Interesting development in Piramal.

http://m.economictimes.com/industry/healthcare/biotech/pharmaceuticals/piramal-to-demerge-healthcare-financial-services-business/articleshow/50924237.cms

Demerger looks like a good value unlocking catalyst for the stock but I am surprised why the stock has not reacted positively to the news. Is it because of general market encironment?

Also, does anyone has any rough idea on how much upside this de merger can generate?

You discuss your opinion on the ‘value unlocking catalyst’ if you have any.
Please do not look for any short term recommendation. This is not the right forum.

Note: Please take this in right spirit. I don’t mean to hurt you.

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@desaidhwanil Piramal seems to be at an interesting juncture now. I’d love to get your updated views on valuation given the revenues and new segments. The stock seems attractive qualitatively right now… Would be great to get an updated view of fair value and how it decomposes across segments.

@myprasanna

Considering the SEBI guidelines, I am not sure how prudent it will be to discuss numbers/fair value estimate. However following are the few pointers based on my sense of PEL valuation

  • Revenue & margin growth for all businesses has been very smart and does not seem to be discounted in the current price
  • DRG listing, if it happens, does not seem to be priced in, as it may unlock decent value.
  • In addition, it definitely suffers from conglomerate discount.

So overall, the price seems to be discounting over and above conglomerate discount that is typically applied to a Conglomerate.

In terms of numbers, one can easily arrive at the numbers by applying applicable benchmarks to each business (as it is available in listed space for all the businesses) and arrive at the valuation by sum of the parts model. I do not think, it is appropriate to use P/E based valuation or DCF valuation for valuing PEL.

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Another acquisition from Piramal in healthcare software area, in line with their strategy.

What I like about this acquisition is the payment is based on achieving performance targets.

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Looks like run of mill company http://www.adaptivesoftware.com

Looking at the revenue, this run of the mill company seems to be growing well, valuation at USD 24.5 million seems to be too expensive though.

Disc. Invested

Yes. Small companies will have a decent growth.

Even DRG was acquired for premium. Rationale was that it does high end work for pharma companies. But look at DRG acquiring Adpative.

Only customer testimonial on Adpative website is for a customer called VBS another small company doing web site development and database admin work.

Succession planning is going well at Piramals as next gen getting ready to take over

The more I read about Ajay Piramal , the more I am getting impressed with his vision and his working methods. Recent 825% Dividend is another big plus for me…