A Pharma Pick - Piramal Healthcare

1.  I have rarely analysed a pharma company. However this is a defnsive sector in times of uncertainity- " We all fall sick after all and take medicines regularly ". This week, I have analysed a pharma pick. Why I chose this company is for the following reasons:-

(a)  This company sold a part (the most promising of course) of its  business    earlier last year at 17000 crores. For an equity of 40 crores , it translates into a cash equivalent of 400 - 500 Rs. the stock is available at 470. The company has other profitable businesses to, in fact, it was ranked number 1 in profitable sales from new launches in 2009 - 2010. So what can I see in this .....I am getting the balance business of the company virtually for free... bcos if it received a cash of 450 Rs per share for its one business, and its CMP is app 470, what does it mean????

(b)   The company has offered a buy back at Rs 600 per share(20 % premium) from shareholders , details of whcih are as follows - 
Total Outstanding shares before buyback - 20.9 Crs
Maximum shares to be bought back - 4.18 Crs
Total Outstanding shares if buyback is successful - 16.72 Crs.

The record date for the buyback offer is Jan 08th 2011. The Buyback opens on Jan 17th 2011, and closes on Feb 7th 2011.

(c)The past performance analysis of the company is as follows_

PIRAMAL HEALTH CARE  - PAST PERFORMANCE  (CMP: 469)
Piramal is a 20 PLUS  year old pharma company, which is one of the earliest players of the Indian Pharma Sector. In the initial years , inorganic expansion through  strategic acquisitions has enabled this well run firm to move up . Their formulations  and most prosperous business was purchased by Abbott at 9 or 10 times annual sales  whereas their Diagnostics business was purchased by SRL at a few multiples of annual sales . It has a proven  management which has made it in the top 5 of Indian Pharma
	2006	2007	%	2008	%	2009	%	2010	%	REMARKS
EQUITY	41.8	41.8		41.8		41.8		41.8		Absolutely no dilution. Great indicator in itself abt mgmt
SALES	1418	1637	15	1930	18	2333	21	2666	14	In line with industry
PROFIT	170	188	11	301	60	275	-9	443	61	Consistent growth in profits
DIV	150	175	17	210	20	210	0	270	29	Consistent but at CMP  a mere 1.15
EPS	8.15	9.01		14.42	60	13.17	-9	21.21	61	Growth
DEBT	193	396		504		976		660		Absolutely no cause of concern
RES	874	976		974	0	1147	18	1458	27	High reserves.
BOOK VAL	43	48	12	48	0	57	19	71	25	Consistently increasing Book value.
DEBT/PR	1	2		2		4		1		Absolutely no cause of concern
O MARGIN	12.0	11.5		15.6		11.8		16.6		Clearly improved efficiencies yoy
CASH FLOW - OPS	157	167		133		-91		564		Consistently increasing
ROIC		13.3		19.8		12.7		20.5		Exceptionally High ROIC
OBSERVATIONS AND CONCLUSIONS
Summary	1. This is an example of a very good company , with excellent management - no dilution, regular dividend and available at a PE of 24 in an industry where PE is around 27.
Negative	The company sold its formulation business to Abbott for app 17K crores . This was the major revenue garner and growth engine (57% and near 35 % growth) . The future will be challenging, debt levels will be down, company is not cash strapped P
Dividend	Yield is measely. Not a div stock
Conclusion	If the company manages to post a healthy EPS ahead, it will be rerated.
Target	No target over this stock. Needs to ve viewed in the light of new diversifications. At 450 it is  agood buy.

4.  So even if one does not participate in the buyback, the management confidence is good. With such a top management, this is a growth stock. Keep buying in dips.