Instead of a little footnote at the bottom of my post saying that i’m an interested party, I’d like to begin by saying that i’m totally interested in Piramal Enterprises and an ardent admirer of Ajay.G.Piramal. I bought into the company at Rs 360 when a back of the envelope calculation reveiled cash per share of Rs 600. Two years and quite a few acquisitions later the company still trades at Rs 520. Still at a throwaway price considering that the company is trading at below book value.

After selling his stake to Abbot and selling the Diagnostics Business to Religare, Piramal was sitting on a pre-tax kitty of 19,000 crores, from which he paid tax, a whooping dividend of 2,325cr and bought back 20% of the company by paying out 2,500 cr.

As on 30.09.2013 Here is what he did with his pile of cash

  1. Buy back 2,508 cr
  2. Dividend 2,325 cr
  3. NCE – Equity allotted
  4. IndiaREIT – 230 cr
  5. DRG – 4000 cr
  6. Abacus – 150 cr
  7. Bayer – unknown
  8. CSR activity earmarked – 200 cr
  9. BST – Cargel – 30 cr
  10. Oxygen Bioresearch – 62 cr
  11. Equipment in Pharma Manufacturing – 150 cr
  12. Critical Care expenditure – 156 cr
  13. Vodaphone Stake  11% – 5,864 cr
  14. Caladryl – Unknown
  15. Shriram Transport Finance 10% – 1,652 cr
  16. TOTAL – 17,353 cr ++

Piramal is focused on only the following businesses:

  1. Pharma + OTC + CAMS
  2. Financial Services
  3. Information Management
  4. Special Situations

His capacity in growing the pharma business has been well demonstrated earlier and even during the regulatory crackdown on Wockhardt and Ranbaxy, Piramal was untouched. With a major push towards OTC, with the belief that educated consumers will self medicate to larger extent in the future and with research in major areas such as inflammation, oncology and diabetes, looks like the pharma business will be self sufficing and even finance its R & D expenditure within the next 2-3 years.

IndiaREIT has just proved itself as a worthy and capable business by raising 1000cr in record time for its Fund 5. Infrastructure and education financing have not made any exits yet and thus would be hard to comment on. However, purchase of the stake in Shriram Transport is laudable, as it has been made at a time when the transport industry has been consistently bleeding for the last 3 years. With a change of govt around the corner, revival is within sight.

Information has and always will be the most sacred weapon in ones arsenal and controlling a key aggregator and creator of intelligence has far reaching benefits. With DRG, the CRAMS business and API business will have a greater edge over competitors. Also DRG is a cash positive business and is a worthy investment by itself. Piramal has recognised 4,590 cr as goodwill, which if depreciated will reduce the tax burden. Also, by bringing in the R & D piramal is availing the 200% tax deduction that the IT dept allows for R & D.

Piramal has already proven his prowess in making the most of special situations by investing 5900cr  into vodafone and getting out of it at 8,900 cr. His logic is clear, if he can borrow at 12% and make investments with a 2-3 year horizon yielding upwards of 18% he will go ahead and do it.

Therefore by buying this one stock you are literally buying a PE fund. Whats more, the owners own 53% of it.

Simplifying the Q22013 balance sheet with the risk of over simplifying brings out this.

CMV of investments    =   11,700 cr

Add Fixed Assets        =      2,218 cr

Add Current Assets     =      5,275 cr

Total                             =     19,160 cr ( excluding goodwill of 4,590 cr )

Less All liabilities         =      10,982 cr

Tangible Assets          =        8,178 cr , M.Cap @ 520 = 9,000 cr

Tangible Assets + Goodwill      =       12,768 cr > M.Cap pf 9,000 cr

Tangible Assets + 800 cr = M.cap

Goodwill and the Management are almost free. Do you really need a better reason to jump aboard ?

So my dear Excel Heros, pick up two sheets of A4 paper, a calculator an open mind and a cup of tea…… and get going.

Tomorrow are the Q3 results, im assuming that the pharma losses will narrow and the information management and financial services income will bring the company back into the BLACK.

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