Piramal Healthcare

Investors with a long-term perspective can consider accumulating the stock of Piramal Healthcare on declines related to the broad markets. A well-entrenched presence in the domestic formulations business helped by a dedicated field force of over 4,000 and the strengthening position of its Indian custom manufacturing division lend stability to Piramal’s prospects, even as its overseas CRAMS assets may lower contributions.

At current market price of Rs 253, the stock trades at about 11 times it likely FY10 per share earnings. This appears reasonable, considering the company’s growth rate and its strong footing in the domestic market.
Growth stability

For the year-ended March 09, Piramal’s contract manufacturing business clocked a growth of 5 per cent, of which revenues from its global assets fell by over 15 per cent. Slowed investments by big pharma companies, de-stocking of inventories and drying up of funding for smaller biotech firms pushed down the revenues from the global CRAMS business.

To offset that and to streamline its production, Piramal recently announced the closure of its Huddersfield facility and moved those contracts to its low-cost Indian facility. While in the near-term this may dent the segment’s revenues, it is likely to lift overall margins.
Domestic presence

For the year, the segment’s revenues from facilities in India have grown by over 74 per cent. That said, it is the contribution from the company’s healthcare solutions (domestic formulations) that will lend stability to its overall growth.

Piramal reported a net sales growth of over 14 per cent last year, driven primarily by the strong performance put in by the domestic formulations business. Its revenues grew by about 24 per cent, outperforming even the market growth rate of 10.1 per cent.

That the company expanded its market share to 4 per cent this year from 3.6 per cent earlier (ORG IMS MATMarch 2009) also points to the strengthening position of Piramal in the domestic market.

This business is likely to be the key growth driver for the company, given its focus on volumes and product launches. The management looks towards a growth of 14-16 per cent for this segment.

It, however, has lowered its revenue guidance for the global critical care segment (GCC) for the current fiscal to $55-60 million, as Minrad International Inc, which Piramal acquired recently, may not be able to launch Desflurane this year (Baxter has sued the company’s bottle closure system). The launch of Desflurane would, therefore, be a key trigger for this segment.