PPL published draft letter for rights issues. It is a good read about the company. Some of the snippets from the draft.
Getting meaningful information from management other than what they publish is very difficult. The below data shows what causes the sudden drop in profitability.
Few observations:
API capacities are underutilised- only 52% utilisation. Other dosages form also underutilised, but API seems to be a big daddy impacting profit.
ICH
This is a high ROCE business as PPL does not invest in manufacturing facilities, instead uses third-party suppliers to manufacture and focus on brand building and distribution. In 3 to 4 years time, this business could be a high ROCE business.
“Further, for our ICH business, our key products like baby diapers, baby wipes, medicated soap, lacto lotions and antacid liquids are manufactured by third parties.”
Employees
Most of the R&D is based out of India (95%), which augurs well from a cost point of view. The same is the story with Sales/Business Development. Looking at this, most of the employees are based in India, and 25% of employees are based outside India. Management said they faced increased employees cost abroad and faced difficulty in hiring. Not sure which job function they is related to. This is “This was primarily due to the impact of increments, higher average headcount and weakening of the INR versus key currencies.”
PPL has huge exposure to variable rate borrowing, as 89% of lending as on March 2022 is variable. This would have increased in 9 months to Dec 2022. Also, every 25-point increase impact PBT by 9 cr. The higher interest rate environment has severely impacted PPL. This has caused a 70 % increase in the interest cost in 9M.
…this is due to exposure to variable interest rate
Number and location of manufacturing facilities across the globe
Purpose of issue is to repay debt. However Q3 con-call, management said it is rights issues is mainly for funding growth capex.
… last is PPL pays 0.75% as a brand royalty to Piramal for using their brand.
