A Rs.10,000-crore company, Piramal Healthcare is among the leaders in the Indian pharma scene. Established in 1988, PHL recently sold off its generic pharma business to Abbott for a consideration of $3.78 billion. They also sold their diagnostics business to Super Religare at Rs. 600 crore. Both these businesses have received premium valuations which have unlocked a lot of value for PHL shareholders. The generic pharma business was sold at lox FY10 sales whereas the diagnostics business was sold at 3x FY10 sales.
PHL is now left with its Pharma Solutions (custom research and manufacturing business), Piramal Critical Care (anesthetics portfolio) & their OTC products (iPill, Superactive, Lacto Calamine, etc.) along with a cash balance of Rs.11,000 crore. The remaining business is worth Rs.1,400 crore as per FY10 numbers.With a debt on the books of about Rs.65O crore, PHL has a huge responsibility to deploy this cash widely over the years to come. As of date, the company has Rs,6000 crore in cash after paying Rs.350 crore in taxes. It is still due to receive Rs7,2O0 crore in the form of deferred payments.
Recently, the company announced a buyback offer at Rs.600 per share for 20 per cent of their stake. The offer will go through after shareholders approve it. There will be long-term shareholders who can benefit from this offer by tendering their 20 per cent holding at Rs.600 a share and a tax outgo of just low per cent. Whereas, short-term shareholders face the highest tax rate of 30 per cent.
This method of sharing wealth with the shareholders is usually not favored when the buyback price is too close to the current price. In case of PHL, when the offer was announced, the price was in the range of Rs.540 a share. Although on a three month average price, there is still a 19 per cent return to be made. This mode of repaying the shareholders is most tax effective since the company has to pay no tax.
As for the long-term value of the firm, having too much cash is not favorable. The management of PHL has a history of buying businesses at distressed prices and turning those around into one of the top five pharma companies in India.
After the deal, the promoters received a consideration of Rs.350 crore as a non compete fee (to not enter into the branded generics space for at least eight years). The promoters spent Rs.250 crore buying shares of PHL at Rs.500 a share from the open market. All the above factors make PHL a very enticing investment opportunity to look forward to.
No comments:
Post a Comment