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?