Results

Piramal Healthcare announced Q2 results and they’ve made about Rs. 53 cr. in profits in the quarter.

Click for a larger image. All amounts in Lakhs except EPS and Face Value.

I know, hardly anyone gives you eight or nine quarters but honestly that’s how you need to look at a business (quarterly) or longer term (yearly – many years).

The Cash

In Q2 last year they got a fantastic payout of 16,000 cr. for the business they sold to Abbott, so we can’t easily compare results.The operational profit was 51 cr, versus a 57 cr. loss last year. They have a net interest earning of 30 cr. and nearly 33% tax rate. Interest seems awfully small for a portfolio of over 10,000 cr. now – but it could be deployed in debt funds (rather than fixed deposits) which means they get it as a lumpsum if they exit. Of concern is the balance sheet though, which shows:

a) Investments: 3,917 cr.
b) Other current assets: 6110 cr.
c) Cash and bank: 735 cr.

This is scary because all that money needs to either be in Fixed Deposits (FDs) – which one might call “other current assets”. But in that case interest income should be huge: At 9% rates, the minimum they’ll earn in a quarter is Rs. 130 cr. – they earned just 50 cr. And if it’s in short term debt funds, the figure should show in “investments”. This needs further investigation.

Update: I was mistaken about 10,000 cr. in cash. They are getting about 1850 cr. per year, but they got an upfront amount of 10,000 cr. Since they've got one tranche, the amounts they have is:

Upfront: 10,000 cr.
1st Tranche: 1850 cr.
Vodafone deal: (2900 cr)
Buyback: (2500 cr.)
Taxes: (3700 cr.)
Indiareit buy + dividend payout : (400 cr.)

That should leave 2,500 cr. or whereabouts with them, for which the quarterly interest will be just Rs. 50 cr or so, at 9% an annum. So that bit has been clarified.

Thanks to sharp reader Jagadees for the heads up!

On the business front

They grew pharma solutions (CRAMS) to 305 cr. from 230 cr., (32%) the critical care business to 92 cr. from 64 cr. (64%), and OTC/Opth products to 57 cr from 36 (59%)  Overall

But most of the profit is from forex gains, which is a gain of Rs. 103 cr.in the quarter, due to receivables from Abbott. Abbott is paying them around 1,900 cr. per year (they’ve got one). That means the operational business is largely loss making to the extent of about 50 cr.

Taxes are 33% – the highest in 8 or 9 quarters. They’ll buy losses soon, so that will taper down. But they’ve taken on more debt (why?) scaling up to 1090 cr. from March’s 757 cr.

Prospects

They will soon merge the R&D division of Piramal Life Sciences, which is also loss making, but should improve prospects for deploying cash in the future. They’ve bought about 5% in Vodafone and are making forays into financial services, on which I don’t currently have an opinion. They have received approval to sell Sevoflurane (which is for general anaesthesia in surgeries) in Europe – note that this may not be a huge market.

With that they still have a EPS of 3.1 and a TTM EPS of about Rs. 20 – putting the share at Rs. 355 at a P/E of about 18. But remember they own cash of around 10,000 cr. which is more than Rs. 500 per share, apart from the business itself.

Disclosure: I own shares. The share’s at 350 (my purchase price is around 400) and I was hoping to buy more, but I’m not too impressed with these results. There are areas where I am concerned about transparency and figures don’t match between their own presentations and what they send to exchanges.