Why Ajay Piramal does not want you to read the Standalone Statements. (and other updates from the 2015 AGM)

I was suddenly taken aback when Ajay Piramal said this, ” Please do not read the standalone statements and read only the consolidated statements. If you do so you will only be wasting your time.”  While my CA instincts kicked in all i wanted to do was hold up a red flag, but then this statement was made by Ajay Piramal, so i went back and looked up the Q1 results and understood why he said this.

The company is now like a big business family with Ajay as the Karta and each one of his sons, the business head of his 3 businesses. Any such family will call itself a group and would not like to be dissected and analysed as each of the businesses could be at a different stage of its lifecycle.  And then again, there is also a huge corporate cost, which cannot be effectively apportioned at the this level. Instead, look at the Consolidated results along with the Segment Results for a better understanding.

AGM Comments

Pharma and CRAMS

• Last year the company spent and lost 300 cr on basic discovery research and has now shut down the business.
• 
• Pharma has a lot of fixed overheads and we lost about 70 cr in the pharma division, however in the current year there is no loss in pharma.
• CRAMS will generate a minimum of 15% EBITDA and we have already achieved that.
• Advertising Spend
  • 112 cr in OTC
  • 30 cr in the pharma business
• Critical Care
  • Now has +ve EBITA &
  • Global Market share in excess of 12%
• OTC has just about broken even, but it is unlikely to see major cash inflows as OTC is on an acquisition spree.
• Imaging
  • Will be a big business unit in the future.
  • Investments into this space as well as marketing of Florbetaben will continue to show negative cash for a while longer.
• Research
  • The company has not fared exceedingly well with the molecules it picked up for research. It is planning on doing a little more research and is looking at avenues to monetise them soon.

• JV with Navin Fluorine
  • Flourine is a raw material used for Sevoflurane ( HFMOP) and this JV is simply backward integration.
  • Fluorine is extremely reactive and very few people know how to handle fluorine. This JV is strategic as it back ward integrates the supply for Sevoflurane for which Piralmal is a global market leader.
  • Watch this to see how reactive fluorine is –  https://www.youtube.com/watch?v=vtWp45Eewtw
  • Trial production at Navin Fluorine has begun and sales should begin in Q4.
  • By the way Navin Fluorine doesnot look like too bad an investment itself 🙂     https://www.google.com/finance?q=NSE%3ANAVINFLUOR&ei=7ZLIVcGWN5amugTE2qiYDA

DRG – Information Management

• DRG will continue to achieve a revenue growth of 15 %, 7 % organic and about 8% inorganic.
• Losses that you see today are also largely due to the amortisation of the acquisition price.
  • Spent 20 cr on advertisements.

Real Estate and Special Situation Finance

• Leverage of the company will only be taken to lend.
• The regular operations of the company do not require any loans.
• As and when opportunity and need arise the company can leverage upto 4:1 as the balance sheet supports it without compromising on the rate of borrowing.
• Finance the following currently
  • Real Estate
  • Infrastructure
  • Special Situations
• Not looking at any investment of money into the Shriram Group. However, a lot of investment into the group in terms of time will be made.
• The Regulatory Bill as well as the FII investment allowance are both positive for Piramal Capital.

I tried to simplify the Q1 results.

Q1 results in Crores	Pharma	Capital Mgmt	Information Mgmt	Total
Capital Employed	3,700	9,900	4,400	12,000
Revenue	850	370	250	1500
Operating Profit	26	221	9	256
Finance Cost	26	70	30	127
Results	0	151	-21	130
Other income				70
Group results				200

*All figures are approximate and have been rounded off to increase understanding despite giving up on accuracy. The figures will also not tally completely with the Q1 results as the segment revenues do not fully take into consideration the corporate expenses, which from this quarter have been excluded from the segment results.

It is not difficult to decipher the following:

It is not difficult to decipher the following from these numbers

• CRAMS (15%+ EBITDA) is already bringing in profit, OTC expansion and imagine will continue to burn cash, but since the inflection point has been reached, the net cash brought in should continually increase over the years.
• Capital management is performing well.
• Information management is gaining traction.

All in all, the AGM was the closest knockoff of Berkshire in India. I’m glad i went there as i ran into other Value Investors.

I am staying put and waiting for this :

 

 

 

 

Previous blog posts on Piramal can be accessed from here :

http://biginvestorblog.com/?s=piramal&submit=Search