Piramal Healthcare: Buy

Investors with a long-term perspective can consider accumulating the stock of Piramal Healthcare on declines related to the broader market. A well-entrenched presence in the domestic formulations business helped by a dedicated field force of over 5,000 and the strengthening position of its Indian custom manufacturing division lend stability to Piramal’s prospects, even as its overseas CRAMS assets may lower contributions.

At current market price of Rs 250, the stock trades at about 12 times it likely FY10 per share earnings. This appears reasonable, considering the company’s growth rate and its strong foothold in the domestic market.

For the year-ended March 09, Piramal’s contract manufacturing business clocked a growth of 5.5 per cent, of which revenues from its global assets fell by over 14 per cent. Slowed investments by big pharma companies, de-stocking of inventories and drying up of funding for smaller biotech firms pushed down the revenues from the global CRAMS business.

For the year, the segment’s revenues from facilities in India have grown by over 75 per cent. That said, it is the contribution from the company’s healthcare solutions (domestic formulations) that will lend stability in its overall growth.

Piramal reported a net sales growth of over 15 per cent last year, driven primarily by the strong performance put in by the domestic formulations business. Its revenues grew by about 23 per cent, outperforming even the market growth rate of 10.4 per cent.

That the company expanded its market share to 5 per cent this year from 3.2 per cent earlier also points to the strengthening position of Piramal in the domestic market.

The management looks towards a growth of 14-18 per cent for this segment.It, however, has lowered its revenue guidance for the global critical care segment (GCC) for the current fiscal to $55-65 million, as Minrad International Inc, which Piramal acquired recently, may not be able to launch Desflurane this year.