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.

Analysis of Biocon Ltd Results

When I first saw the FY11 Q1 results of Biocon, I was really disappointed. But on taking a closer look, there were some positives as well. Although the standalone net profit was down from Rs 72.3 crores to Rs 60.4 crores, their consolidated net profit from continuing operations (their subsidiary had sold its subsidiary) was marginally up by 7% from Rs 65.22 crore to Rs 70.05 crore. These figures indicate two important things:

1)    The domestic profitability has taken a hit
2)    The subsidiaries, many of whom are foreign, have turned profitable

Analysis of Piramal Healthcare Ltd

When I decided to value Piramal Healthcare (PHL), a question came to my mind: "How do you value a company that is sitting on a cash pile of Rs 596 per share, when it is trading at Rs 403 per share?"

With such a strong cash position and the current EPS (of the business remaining after the Abbott sale) being 39.2 (4xEPS of Q4), the current P/E ratio of the company is 10.3. Such a P/E ratio for a company, with a proven track record is significantly lower than its peers (with equivalent track record). Such a low P/E multiple indicates that the 'market' does not expect the company to grow significantly in the future, which is unlikely considering their management track record.

Valuation of Biocon Ltd

Valuation of a company is not a straightforward task. There is no particular formula that will give a fixed value for the share of the company. I have tried using DCF (Discounted Cash Flow) method for valuing Biocon Ltd.

In the process of arriving at a particular value, several assumptions are required to be taken. I have tried to keep those assumptions as conservative as possible. The assumption for the same are as follows:

1) CAGR of Sales for the next 5 yrs: 25% (The past 5 yr average for Biocon is 28%, with growth touching 40% in the yr before last)

2) Target Operating Profit Margin of 20% (Past 5 yr avg for Biocon is over 25%. Most of the global players have the same closer to 30%)

3) Sales to capital ratio: 1.16 (Past 5 yr average for Biocon)

4) As the debt ratio of Biocon is very low (less than 0.1), for simplicity, I have taken the cost of capital as the cost of equity, which I obtained using the CAPM model.

5) The terminal value of the return on capital is assumed to be 15.5%. This is much lower than current ROIC of Biocon which is 22%

6) I have considered tax rate as 34% [as Biocon is a domestic company. This rate is supposed to further go down after implementation of the Direct Tax Code]

Considering the above mentioned assumptions, the final value I obtained for Biocon Share was Rs 435. The valuation depends a lot on the assumptions, but I believe the assumption that I have considered for the valuation of Biocon are conservative.

Excel sheet containing the calculation:  Biocon Valuation

If you have any comments, please shoot :)

Analysis of Compact Disc India Ltd

The uncertainty in the delisting of Compact Disc Ensues. Last month, HSBC Bank, bankers to the firm brought a stay order to the proposed voluntary delisting. This may mean several things, the first of which comes to my mind (i am speculating here) is the fact that the bankers may have lost faith in ability of the company to pay back and they feel that the money is being unnecessarily used to buy-back shares instead of doing something productive.

It is always tough for a company, if their banker, a reputed name in the industry shows such signs. This may hinder further raising of finances for the company. On a long run this may harm the growth of the company.

Moreover the resignation of key personnel from the board sends the wrong message. As mentioned in my previous post, the target of 60 (based upon the past 26 week avg) had been passed. Now if the delisting does not come about, any appreciation of price may not come up.

Despite of the good figures in the book of the company i shall recommend not to go in for the shares of the company.

News on Compact Disc India Ltd

Delisting
Compact Disc India Ltd has informed BSE that the Board of Directors of the Company at its meeting held on January 28, 2011, inter alia, approved and adopted the following:

1. Board has approved the delisting of its equity from the Stock Exchanges where the securities of the company are listed. The Board convened an Extraordinary General Meeting on March 22, 2011 for approval from the esteemed shareholders. The reason for delisting shall be specified in the EGM notice.

I would like to remind the readers that for delisting, the company has to give a buy-back offer to the public as an exit opportunity as per a SEBI regulation.  CDI has sufficient Reserves to accomplish this successfully. The minimum floor price of the offer is the 26-week average of the stock price, which in this case is around Rs58-59.

News on Compact Disc India Ltd

Board Meeting on Jan 28, 2011 | 20/01/11 18:02

Compact Disc India Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on January 28, 2011, inter alia, to consider the following matters:

1. To consider and approve unaudited financial results of the Company for the quarter ended December 31, 2010.

2. To consider and approve the delisting of the securities of the Company from Bombay Stock Exchange and other stock exchanges where the securities of the company are listed.

3. To consider and convene the Extra Ordinary General Meeting of the members of the Company.
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My Analysis:
If the "Delisting of the shares is approved by the board on 28th, as per SEBI rules, they will have to give a Buy Back offer as an Exit opportunity for the shareholders.

The price of the buy back offer is decided by the book building process, where the floor price is the past 26 week average. Now, for Compact Discs India Ltd, the 26 week average is around Rs 60. So hold on to shares till they reach 60.

Happy Investing!!

News on Lupin Ltd

Lupin receives FDA Approval for Nabumetone tablets  | 14/01/11
[Source: www.bseindia.com ]

Lupin Limited announced today that its U.S subsidiary, Lupin Pharmaceuticals, Inc. (LPI) has been granted final approval for its Nabumetone tablets, 500 mg and 750 mg strengths from the U.S. Food and Drug Administration.

Lupin’s Nabumetone is the AB-rated generic equivalent of GlaxoSmithKline’s RELAFEN tablets indicated for acute and chronic treatment of the signs and sympto of osteoarthritis and rheumatoid arthritis.  Annual sales for the Nabumetone market in the US was $66.8 mn for the twelve months ended September 2010, based on I Health sales data.

November 2010 IIP Figures

The Ministry Of Statistics and Program Implementation has released the IIP estimates for November 2010. The Press Note is as follows:

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The Quick Estimates of Index of Industrial Production (IIP) with base 1993-94 for the month of November 2010 have been released by the Central Statistics Office of the Ministry of Statistics and Programme Implementation. The General Index stands at 317.9, which is 2.7% higher as compared to the level in the month of November 2009. The cumulative growth for the period April- November, 2010-11 stands at 9.5% over the corresponding period of the previous year.

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of November 2010 stand at 205.8, 343.9, and 230.5 respectively, with the corresponding growth rates of 6.0%, 2.3% and 4.6% as compared to November 2009. The cumulative growth during April-November, 2010-11 over the corresponding period of 2009-10 in these three sectors have been 8.0%, 10.0% and 4.5% respectively, which moved the overall growth in the General Index to 9.5%.
 

In terms of industries, nine (9) out of the seventeen (17) industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of November 2010 as compared to the corresponding month of the previous year. 

The industry group ‘Transport Equipment and Parts’ have shown the highest growth of 15.6%, followed by 12.6% in ‘Leather and Leather & Fur Products’ and 9.6% in ‘Other Manufacturing Industries’. 

On the other hand, the industry group ‘Wood and Wood Products; Furniture and Fixtures’ have shown a negative growth of 27.4% followed by 17.5% in ‘Jute and other vegetable fiber Textiles (except cotton)’.
 

 As per Use-based classification, the Sectoral growth rates in November 2010 over November 2009 are 4.5% in Basic goods, 12.6% in Capital goods and 2.4% in Intermediate goods. The Consumer durables and Consumer non-durables have recorded growth of 4.3% and (-) 6.0% respectively, with the overall growth in Consumer goods being (-) 3.1%.

5. During the current month, low growth has been observed in Intermediate goods and Consumer non-durable goods. Important items registering highly negative growth include ‘Spun pipes’ [(-) 38.2%], ‘Railway/concrete sleeper’ [(-) 34.9%] and ‘Particle board’ [(-) 29.6%] in case of Intermediate goods and
‘Rice bran oil’ [(-) 57.9%] and ‘Hair oil/ayurvedic hair oil’ [(-) 42.5%] in case of Consumer non-durable goods. Moreover ‘Agricultural implements’ [(-) 55.6%] and ‘Industrial machinery’ [(-) 46.7%] of Capital goods are also showing highly negative growth.

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News on Lanco Infratech Ltd

Lanco Infratech's successful Bid | 30/12/10

Lanco Infratech Ltd has informed BSE that:
"Lanco Infratech Limited (LITL), has emerged as successful Bidder for 2 Laning with paved shoulders of Aligarh to Kanpur Section of NH-91 from KM 140.000 to KM 418.162 in the State of Uttar Pradesh on Design, Build, Finance, Operate and Transfer (DBFOT) on Toll Basis of National Highways Authority of India (NHAI).

The Scope of Work involves 2 Laning with paved shoulders of existing road, repair, widening and reconstruction of 3 major & 29 minor bridges, construction of 5 new Rail-over-Bridges, 4 toll plazas and other wayside amenities.

The Project involves an investment of around Rs. 1,000 Crores. The Grant from NHAI would be Rs. 287.91 Crores. The concession period for the Project is 12 Years including a Construction Period of 18 Months. The concessionaire will have the right to collect toll over the entire concession period starting from the Commercial Operations Date of the Project."

News on Lupin Ltd

Lupin signs strategic agreement with FARMANGUINHOS, Brazil | 05/01/11
[Source: www.bseindia.com ]

Lupin Ltd announced that it has entered into an agreement with Farmanguinhos, Brazil's largest PSU in health care for the supply of its 4 in 1 combination drug of Rifampicin, Isoniazide, Ethambutol and Pyrazinamide for tuberculosis. Lupin will supply the product for the next five years and also provide Farmanguinhos with the desired support for the set up of its local manufacturing in future.

With this agreement between Lupin and Farmanguinhos in place, Farmanguinhos has entered into a commitment to produce and supply the 4 in 1 combination drug to the Department of Health (Brazil), which will result in substantial savings for the government.

The 4 in 1 combination reduces the pill burden on the patient drastically, particularly as the treatment lasts for at least six months. As per WHO, the treatment abandonment rate has fallen from 8 per cent to only 5 per cent due to this reduced pill burden provided by the combination drug. WHO estimates indicate that globally there are 9.2 million new cases each year resulting in 1.7 million deaths.

News on Parabolic Drugs Ltd

Completion of First Phase of Expansion Programme with the commissioning of MP-II Plant at Derabassi, Punjab | 05/01/11 [Source: www.bseindia.com]

Parabolic Drugs Ltd has informed BSE that the Company has successfully completed the first phase of its expansion programme initiated in 2008 with the commissioning of Multi-Purpose Plant II comprising of 5 manufacturing blocks for parallel production in Derabassi, Punjab. With the commissioning of MP II, the Company has added 325 TPA capacities at its Cephalosporin campus at Derabassi, resulting in a total production capacity of 773 TPA.

Analysis of Lanco Infratech Ltd

Introduction

[From Company Website]
Lanco Infratech has subsidiaries and divisions across a synergistic span of verticals. These include Construction, Power, EPC, Infrastructure, Property Development, and Renewables. Lanco Infratech’s projects, operational and underway, are spread across India.

A member of the UN Global Compact, Lanco Infratech is recognized for its Good Corporate Governance and Corporate Social Responsibility initiatives led by the Lanco Foundation.

[Analysed]
Lanco Power
Lanco has 2092 MW of operational Power Plants. A further 7148 MW plants are under construction at various locations, out of which around 650 MW is of renewable energy including Hydro Power and Solar Power. They are also engaged in Power Trading.

The increasing Power requirement of a developing India augurs well for the company.