October 27, 2013

Annual Report Highlights FY 12-13 : Piramal Enterprises

As per Chairman company is now committed to focus in three sectors: Pharmaceuticals, Financials and Information Management with substantial investment in each.  Company acquired Decision Resource Group (DRG).  DRG caters to the healthcare industry to provide research, information and analytics solutions.  Company also acquired Bayer’s imaging business and they have submitted the imaging agent (Florbetaben) for approval to USFDA and EMA.  Company also grew the NBFC business to invest in real estate and education sector.  They also made investments into infra-structure sector with investments of 925 cr.

Company has had revenue growth of 51% overall.  In the Pharma line of business, the contract manufacturing business continued to grow its revenues (1553 Cr).  The critical care business continued to grow (616 Cr)  helped by Servoflurane growth in US.  Launch of this into Europe and Desflurance in the future augurs well for sustaining the growth.  They have infrastructure to sell hospitals in 100 countries. OTC and Opthalmology grew (271 Cr) above industry growth rates and their JV with Allergen continue to dominate in marketshare in Opthalmology products .
NCE unit had a pipeline of 13 drugs with 11 of them in clinical trial phase.  R&D spend this year has been around 287 Cr.  Couples of molecule development were discontinued this year due to safety and discouraging results.
In Financial Services, loan book as of Mar 13 stood at 1591 Cr.  India REIT had 4257 Cr as Assets Under Management as of Mar 13.   (Are they earning anything??)
Company paid around 3871 Cr for acquiring DRG.   This company generated revenues of around 650 cr this year and EBIT of 99cr.  So they seem to have paid around 5 times the sales of this year and around 35 EBIT which seems to be on higher side.  DRG had also acquired Abacus International in Dec 2012 as part of inorganic growth strategy Rs153 Cr.  Both these figure are based on Goodwill. 
Most of the subsidiaries are making losses with the exception of few.  It is not very clear about the debt structure of these subsidiaries.  Based on the segment results, the losses from pharma mfg and services has come down compared to last year and currently stand at 154 cr.  Hopefully they break even next year if everything goes well and the growth in top line is achieved.  Financial services have shown some profit of around 262 cr, but it was lesser than last year.  Information Mgmt made a profit of 99Cr.  All these figures are before Interest and Taxes.  Overall after interest and taxes, they have a loss of 211 cr.
In summary, on a consolidated level , while the topline has grown, due to high interest payments (due to debts) they have made losses.  If one sees in the past 2 years, the net worth has reduced by 1114 cr due to losses from various businesses and dividend payments.  The debt levels of the company has sky rocketed and DE is currently around 0.72 due acquisitions and NBFC business.

EBITDA margins of the company have contracted compared to last year.  Overall it is very confusing to discern information.  For example nowhere have they mentioned how much they paid for Bayer’s acquisition.  Figures do not match in some cases.  While the company says they have acquired DRG for around 3400cr, the goodwill is shown as 3871cr.  I do not think the company management has been candid and transparent in their reporting of each business.  While they have said about profits made, they never made a mention of losses or what they think about future for these businesses.  This does not give me any confidence and there seems to be too many speculative bet taken by the management by almost behaving like a holding company.  I will look to exit this business very soon.

No comments: