Aggressive Treatment
Pharma is a sector that can safeguard your portfolio. Piramal Healthcare is a looker with its expansion plans
It has clocked compounded annual net profit growth of over 27 per cent in the last decade to become one of the largest names in the Indian pharma space.
The company is present in acute (anti-infection, respiratory, gastro-intestinal), chronic (cardiovascular, central nervous system, anti-diabetic) and specialty (nutritionals, dermatology) segments of the formulations business. It also custom manufactures drugs in three segments. They are: (i) Pharmaceutical Development Services (PDS), which includes process development service for active pharmaceutical ingredients (APIs) and formulations; (ii) Pharmaceutical Manufacturing Services (PMS), which offers commercial-scale custom manufacturing contracts for API and formulations; and (iii) Marketable Molecules and Building Blocks (MMBB).
Piramal Healthcare has spun off its innovation and R&D operations to form Piramal Life Sciences. It will focus on discovering and developing new drugs. The new company got listed on 28 May 2008. This will reduce the R&D expenses from Piramal Healthcare’s books. It will license new products from Piramal Life Sciences and have the first right of refusal at market price.
Financials. In the first quarter of FY09, the company posted net sales growth of 16.5 per cent, to Rs 708.32 crore, aided by Healthcare Solutions (Domestic Formulations) division reporting a growth of 20.4 per cent, or Rs 350 crore.
The custom manufacturing division saw revenue growth of 14.2 per cent, while the pharma solutions business revenue went up by 115 per cent, taking the consolidated net profit growth to 57 per cent. The operating margin went up by 305 basis points due to higher revenues and lower R&D expenses.
During the quarter ended June 2008, the company made a provision of Rs 20.8 crore towards mark-to-market unrealised loss on outstanding foreign currency borrowings, and booked a loss of Rs 2.14 crore. The company has forex loans of $90 million payable from the second half of FY10. Profits were also affected by higher expenditure of Rs 4 crore on exceptional items (restructuring and VRS offers). Restructuring in Avecia and Morpeth facilities, which the company acquired in the UK, to improve profitability, will cost it Rs 8 crore-10 crore in the next two quarters.
Investment rationale. The company is moving ahead on its expansion plan. In July, it completed an agreement with PlasmaSelect AG to acquire the German company’s blood plasma products marketed in over 38 countries. With this, Piramal Healthcare intends to acquire leadership position in the polygeline-based blood plasma products. Earlier, in April, it entered into a long-term strategic alliance with DxTech LLC, UK, which is a product development and licensing and distribution agreement and entails establishment of a joint venture sales and marketing company.
The current expansion and restructuring should add to both turnover and profits because of the expansion of its product portfolio and reduction in cost. Plus, the growth in the domestic formulations and custom manufacturing business will continue to drive revenues. With the demerger of its R&D operations, the company will be able to sharpen its focus and improve the bottomline
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