Is Piramal Pharma a special situation play? Scenarios & Valuations.
A Thread ๐งต๐
A Thread ๐งต๐
1/ Piramal Pharma is the soon-to-be demerged vertical of Piramal Enterprises: 4 shares of Piramal Pharma for 1 share of the listed entity
2/ Current Mcap of the group (listed Piramal Enterprises): 65Kcrs
which encompasses the financial services entity & 80% of the Pharma business (Sold 20% to Carlyle in Oct 2020)
So, One needs to value the pharmaceutical business accordingly.
which encompasses the financial services entity & 80% of the Pharma business (Sold 20% to Carlyle in Oct 2020)
So, One needs to value the pharmaceutical business accordingly.
3/ Piramal Pharma's TTM Rev: 6K crs
CDMO: 3.7K crs
Complex Hospital Generics: 1.8K crs
Indian Consumer Healthcare: 0.6K crs
JV with Allergen: 0.4K crs (49% stake)
TTM EBITDA of Piramal Pharma: 1.3K crs
CDMO: 3.7K crs
Complex Hospital Generics: 1.8K crs
Indian Consumer Healthcare: 0.6K crs
JV with Allergen: 0.4K crs (49% stake)
TTM EBITDA of Piramal Pharma: 1.3K crs
4/ At the time of the demerger:
Pharma business is projected to have an equity of 6.8-7K crs at the time of the merger with 3-3.2Kcrs of debt.
That leaves the financial services business at 29-30K crores of equity (book value of the business)
Pharma business is projected to have an equity of 6.8-7K crs at the time of the merger with 3-3.2Kcrs of debt.
That leaves the financial services business at 29-30K crores of equity (book value of the business)
5/ Scenario 1:
If I take in a Price to book of 0.75x for Financial services (expecting more stress from DHFL book)
Value of 80% of Piramal Pharma at 42.5K crores - Total Mcap of 53K crores & EV of 56K crores
Valuations:
EV/EBITDA- 43x
EV/Sales- 9.3x
If I take in a Price to book of 0.75x for Financial services (expecting more stress from DHFL book)
Value of 80% of Piramal Pharma at 42.5K crores - Total Mcap of 53K crores & EV of 56K crores
Valuations:
EV/EBITDA- 43x
EV/Sales- 9.3x
6/ Scenario 2:
If I take in a Price to book of 1x for Financial services
Value of 80% of Piramal Pharma at 35K crores - Total Mcap of 44K crores & EV of 47K crores
Valuations:
EV/EBITDA- 36x
EV/Sales- 7.7x
If I take in a Price to book of 1x for Financial services
Value of 80% of Piramal Pharma at 35K crores - Total Mcap of 44K crores & EV of 47K crores
Valuations:
EV/EBITDA- 36x
EV/Sales- 7.7x
7/ Scenario 3:
If I take in a Price to book of 1.5x for Financial services
Value of 80% of Piramal Pharma at 20K crores - Total Mcap of 25K crores & EV of 28K crores
Valuations:
EV/EBITDA- 21.5x
EV/Sales- 4.7x
If I take in a Price to book of 1.5x for Financial services
Value of 80% of Piramal Pharma at 20K crores - Total Mcap of 25K crores & EV of 28K crores
Valuations:
EV/EBITDA- 21.5x
EV/Sales- 4.7x
8/ Scenario 4:
If I take in a Price to book of 2x for Financial services (Bull market & credit upcycle)
Value of 80% of Piramal Pharma at 5K crores - Total Mcap of 6.3K crores & EV of 9.5K crores
Valuations:
EV/EBITDA- 7.3x
EV/Sales- 1.6x
If I take in a Price to book of 2x for Financial services (Bull market & credit upcycle)
Value of 80% of Piramal Pharma at 5K crores - Total Mcap of 6.3K crores & EV of 9.5K crores
Valuations:
EV/EBITDA- 7.3x
EV/Sales- 1.6x
9/ What valuation is comfortable?
As per its high entry barrier business segments, we have observed that similar global assets trade anywhere b/w 15-20x EBITDA
Note that they sold 20% of the business to Carlyle at less than 4x EV/Sales & 20x EV/EBITDA.
As per its high entry barrier business segments, we have observed that similar global assets trade anywhere b/w 15-20x EBITDA
Note that they sold 20% of the business to Carlyle at less than 4x EV/Sales & 20x EV/EBITDA.
10/ Their Financial services biz has gone through a major downturn since IL&FS, so we stand to see how swiftly are they able to convert the wholesale business to retail in the upcoming years.
The Scenario (1-4) that will play out is dependent on management's execution.
The Scenario (1-4) that will play out is dependent on management's execution.
11/ Positive business optionalities for Piramal Pharma
CDMO: 3x increase in phase III molecules from 10 in FY17 to 30 in FY21 & Significant growth in commercial products under patent from 11 in FY19 to 19 in FY21 with 500+ customers
The potential scale-up ๐ฅ๐
CDMO: 3x increase in phase III molecules from 10 in FY17 to 30 in FY21 & Significant growth in commercial products under patent from 11 in FY19 to 19 in FY21 with 500+ customers
The potential scale-up ๐ฅ๐
12/ Expertise in niche, complex, and high margin areas like HPAPI, ADCs, sterile injectables, hormones & peptide API
13th largest CDMO in the world & present across all phases of the drug lifecycle (for example, even Syngene isn't till now, it is trying to enter manufacturing)
13th largest CDMO in the world & present across all phases of the drug lifecycle (for example, even Syngene isn't till now, it is trying to enter manufacturing)
13/ Complex Hospital generics: Strong distribution to 100+ countries & 5,500+ hospitals in the US which will be capitalized with new launches (pipeline of 30+ products)
Similarly with the OTC portfolio where they are present in 250,000+ outlets in ๐ฎ๐ณ
Similarly with the OTC portfolio where they are present in 250,000+ outlets in ๐ฎ๐ณ
14/ Potential Re-entry into Domestic Formulations (Had sold their Indian formulations business for $3.7B to Abbott in 2010)
The clause that stopped them from entering has expired this year & they are actively looking for acquisitions in the space.
The clause that stopped them from entering has expired this year & they are actively looking for acquisitions in the space.
15/ Risks:
- Net debt to EBITDA of 2x: Lower the better
- Acquisitions focused strategy: can back-fire once in a while: Made 15 acquisitions over the last 10 years for which they have paid over 4000crs; 3 just in FY21.
- No Biologics capability investment till now.
- Net debt to EBITDA of 2x: Lower the better
- Acquisitions focused strategy: can back-fire once in a while: Made 15 acquisitions over the last 10 years for which they have paid over 4000crs; 3 just in FY21.
- No Biologics capability investment till now.
16/
- Adverse action from regulators (USFDA, MHRA, etc): At this point, 200+ Regulatory Inspections with no OAI
- High Capex: Major capacities are outside India, which have much lower asset turns (1x) vs Indian ones (2-3x); hurting steady-state ROCEs. | H/T @unseenvalue
- Adverse action from regulators (USFDA, MHRA, etc): At this point, 200+ Regulatory Inspections with no OAI
- High Capex: Major capacities are outside India, which have much lower asset turns (1x) vs Indian ones (2-3x); hurting steady-state ROCEs. | H/T @unseenvalue
17/ Conclusion:
Piramal Pharma as a standalone is a grade-A asset with sticky customers & has the potential to scale up multifold in many years to come, works if one gets in at a reasonable valuation.
The management furthermore has a victorious track record.
End of Thread.
Piramal Pharma as a standalone is a grade-A asset with sticky customers & has the potential to scale up multifold in many years to come, works if one gets in at a reasonable valuation.
The management furthermore has a victorious track record.
End of Thread.
If you found the thread to be of help, please do retweet the 1st tweet ๐ & help us educate more investors.
Loading suggestions...