Piramal Healthcare’s 11% Vodafone Stake – Definitely worth it!

A little over 2 years ago I had written an article talking about Piramal's acquisition of an 11% stake in Vodafone India titled "Piramal Healthcare’s 11% Vodafone Stake – Is it worth it?". With the final conclusion of the sale of Vodafone, we can definitely say "Definitely Worth It".

But what does this mean to the stock price of Piramal? It has already risen 5% for two consecutive days since the announcement. So is the valuation just about right? Or is there an more room for growth? These are the questions a wannabe investor of Piramal must be asking himself.

In my opinion, Piramal is again at the same stage it was 2 years back. They have made a capital gain of around 2000 crores after tax on the transaction and further bolstered their coffers. They are again poised in investing these funds in their existing business or a new venture and get a decent ROE. All that we can know probably during their next analyst presentation/call.

But the Book Value of the company keeps increasing. The market cap is still INR 10,000 crore whereas their Vodafone investment itself was worth INR 8900 crore. Hence in my opinion, this still remains a BUY!

Piramal Healthcare acquisition of Decision Resources Group - An attempt to value DRG

With Piramal Healthcare stock slowly and steadily marching northwards (Disclaimer: It has been my favorite stock for almost a year, so this post may be a little biased ) following a slew of acquisitions (and a Rs17.5 dividend per share coming up), I once again pause to take a look at the latest acquisition – Decision Resources Group for a sum of approximately $635 million. All the reasons given in their investor presentation indicate the attractiveness of holding this company in the portfolio. But again the question arises (as earlier with Vodafone India’s stake), have they paid an appropriate value for this? So, I make an attempt to value DRG, but the same being a privately held company a lot of assumptions need to be made.

Analysis of Navin Flourine International Ltd

A company giving Rs66.5 per share dividend in form of (final + special) dividend always attracts attention. Since its announcement it has risen from 330 to 430 and post ex-date, it now trades at 305. Its P/E multiple shows 1.xx and it reported a fantastic result as follows:

Navin Fluorine International Limited, a part of reputed industrial house of Arvind Mafatlal Group, today reported a consolidated net profit of Rs. 217.58 crore for the year ended March 31, 2012 as against Rs. 71.34 crore in corresponding period of last fiscal year, registering an increase of 205 %.
Net Revenue for the year stood at Rs. 7.24bn, registering a growth of 68.23 % as compared to Rs. 4.30bn posted the last fiscal year. Earnings per share (EPS) increased by 214 % to Rs. 222.91 as compared to Rs. 70.81  of the last fiscal year.
(source: http://www.indiainfoline.com/Markets/News/Navin-Fluorine-FY12-net-profit-jumps-68-percent/5407635849)

The big question coming to my mind is: “Why then is this stock not catching the imagination of the prudent investors?” The answer becomes apparent on looking at its annual report.

Piramal Healthcare’s 11% Vodafone Stake – Is it worth it?

Piramal Healthcare on Friday added 5.5% stake to Vodafone India to take its total shareholding in the telecom major to 11%. Now, Piramal’s total investment in Vodafone i.e. telecom business stands at Rs5870 crore. Considering this to be almost equivalent to a third of the sale proceeds to Abbot, I wanted to estimate how much is Vodafone actually worth (Neglecting the effect Supreme court ruling cancelling 2G licenses issued in 2008 could have on its value). 

Data used for the relative valuation is taken from Vodafone Plc’s half yearly numbers, wherein Sales and EBITDA of India operations was given. As for comparison, MarketCapitalization/Sales and EV/EBITDA are considered. The comparable companies which have been taken for this are Airtel, Idea, RComm and Tata Teleservices (TTML). The values for the multiples as on 25^th Jan 2012 were:

	EV/EBITDA	Mkt Cap/Sales
Airtel	11.13	3.57
Idea	10.79	1.45
Rcomm	31.54	1.67
Tata Tele	6.78	1.44
Average	9.57*	2.03

Mahindra Satyam Ltd Results – What to expect tomorrow?

Satyam came out with their Q3 results after the end of trading today. The salient points in their result are:

1. Consolidated Revenue up 34% YoY and 9% QoQ at Rs1718 Crore
2. Consolidated PAT stood at Rs 308 Crore, a rise of 29% QoQ and 424% YoY

A major point to be noted is that the pre-tax “Other Income” surged by 56.4% to Rs 151.3 crore. The EBITDA stood at increased by a relatively modest 15.1%. The EPS for Q3 was reported at Rs 2.62. The nine month EPS stood at Rs 6.56. In absence of Q4 guidance, for a back-of-the-envelope calculation, if we annualise this EPS, we get an EPS of Rs 8.75. But on the other hand, if a performance equivalent to this quarter were to come (flat QoQ growth), then the EPS for the year ending March 2012 would stand at Rs 9.18. 

Now, the IT industry average P/E multiple is around 20, while at the present annualised P/E multiple, Satyam trades at 8.7. Considering the P/E multiple based upon the H1 EPS which stood at 2.52 (Annualised value of Rs 5.04), the stock was trading at a multiple of 15. With the better results for the company in the last quarter (EPS for Q3 was greater than that of H1 combined) the stock would be trading at a far lower multiple of 9 if it does not grow tomorrow.

Hence, I would buy Satyam and set a target of Rs 100-110 (When a current P/E multiple of 12-13 would be achieved).

Infosys Q3 FY12 Results – Is the 8.4% fall justified?

Consolidated results for the quarter ended December 31, 2011 were reported by Infosys today. The highlights of the same are:

1) Revenues were Rs 9,298 crore for the quarter ended December 31, 2011; QoQ growth was 14.8%; YoY growth was 30.8%

2) Net profit after tax was Rs 2,372 crore for the quarter ended December 31, 2011; QoQ growth was 24.4%; YoY growth was 33.3%

3) Earnings per share (EPS) was Rs 41.51 for the quarter ended December 31, 2011; QoQ growth was 24.4%; YoY growth was 33.3%

The results beat most of the market expectation. But the flat earnings projection (QoQ) for the last quarter of the year owing to volatile economic environment especially in the Euro zone dampened the mood and the stock of the company fell 8.4% by the end of the trading session. Now the question is: Is this fall justified?

Let us take a look at the Q4 guidance given by Infosys:

1)     Revenues are expected to be in the range of Rs 9,391 crore and Rs 9,412 crore

2)     Earnings per share (EPS) is expected to be Rs 42.12

Although this is almost flat QoQ, but if we consider the YoY implications of this guidance, revenues are expected to grow by 29.5% to 29.8% and EPS by 32.4%. This is a rather impressive YoY growth which was last seen during FY2008-09 for Infosys. For the past two years, the EPS growth was rather sluggish as compared to this. But is this stock fall owing to a drastic reduction in value of the company?

Analysis of Piramal Healthcare Ltd

Piramal Healthcare, in their Analyst presentation came out with their future strategy of utilizing their cash. As mentioned in my earlier post, they are sitting on almost Rs 10,000 crore cash/cash equivalent. With the sale of the Domestic Formulations business, there was some anxiety as to which business would Mr Piramal decide to invest the money in.

The major focus of the investments lies in four areas as follows:

1) Pharma Solutions
Investment: Rs 2,700 Crore
Current Sales: Rs 1020 Crore
Sales Target: Rs 5,000 Crore by 2016 (CAGR of 37%)

They aim to be among the top-3 contract manufacturing organizations globally.

Analysis of L&T Finance IPO

L&T Finance has generated quite a bit of hype for its IPO. Due to lack of time, I have not been able to make a better study of the same and hence valuation. Hence, I will restrict myself to a relative valuation this time around.

For this purpose, I shall use the companies that they have mentioned in the RHP. The various figures for them is mentioned below.

	EPS	Price (as on 27/07/11)	P/E	RONW	Book Value(BV) Per Share	P/BV
Shriram Trans. Fin.	53.92	665.90	12.35	24.87%	216.37	3.08
M&M Financial Serv.	50.92	689.95	13.55	19.36%	244.70	2.82
IDFC	8.77	133.70	15.25	11.39%	76.97	1.74
Rural Elect. Co	26.18	213.60	8.16	20.15%	129.90	1.64
PFC	23.06	192.50	8.35	17.37%	132.79	1.45
Sundaram Finance	70.01	570.05	8.14	21.53%	325.22	1.75
L&T Finance	2.87	59	20.56	13.58%	20.4	2.89

Analysis of Great Offshore Ltd Results

I was pleasantly surprised when Great Offshore came out with the results today stating their net profit was up from Rs 26.73 Cr to Rs 54.90 Cr, a whopping 105% growth Y-o-Y. Amidst the relatively poor showing by the industry in the recent past, this seemed a silver lining. But on closer inspection, these clouds of delight evaporated.

Their income from operations was down from Rs 235.9 Cr to Rs 218.59 Cr. But the contributor to their bottom line was not their operations, but profit from sales of vessels, which amounted to Rs 47.85 Cr before tax. Now if we remove this figure from the PBT, the amount goes down from Rs 92.9 Cr to Rs 45.05 Cr. And this is excluding the taxes. If we consider 40% corporate tax (the amount by which they deducted their tax), the PAT comes down to Rs 27.03 Cr.

Thus, the actual growth of the company was by a marginal 1.12%. Considering this, their EPS for Q1 was 7.26. The stock of the company was down by 1.05% at 211.85, trading at a current PE multiple of 7.29, which considering the lack of significant operational growth can be justified.

For the moment, I would rather stay away from this stock.

Analysis of Opto Circuits India Ltd Results

Opto Circuits India Ltd is a medical equipment manufacturer with presence in India and Abroad. The Q1 results for the same were exceedingly good. On a Y-o-Y standalone basis, net profit increased marginally from Rs 56.95 Cr to Rs 57.13 Cr. But the more attractive figures come from the consolidated results. The net profit has increased from Rs 83.09 Cr to Rs 116.38 Cr (Y-o-Y). This has led to an EPS increase from Rs 4.46 to Rs 6.24.

Opto Circuits India Ltd, in itself has not grown much and is itself purely in healthcare segment. But the subsidiaries are more attractive with interests in IT as well. The most important information out of the results is the exceedingly good performance by the subsidiaries. The profit from the subsidiaries has increased from Rs 26.14 Cr to Rs 59.25 Cr, indicating a whopping growth of 126%. The International Health care business has reported a significant gain in revenues by almost 51%. 

The most significant concern for the company could be exchange rate risk, as the majority of the sales as well as the profits come from the international business. Profits from domestic segment as well as the margins here are very small.

The current EPS (I assume it to be 4 times latest EPS) is 24.96. This means that the stock is currently trading at a PE multiple of around 11, which is very low as compared to the industry (20.8). Moreover, for such a growth rate that they are experiencing, Opto Circuits may be considered a value buy.

I will post a better analysis as soon as I get their annual report for FY2010-11 and have a look at their balance sheet.