Piramal Healthcare, India's fourth-largest pharmaceutical company by revenue, has seen its contract research and manufacturing services (CRAMS) business fare badly in the past year or so. Going by the company's guidance, revenues from the segment, which accounted for about a quarter of its revenues in the first half of this fiscal, could decline through the full fiscal year.
Analysts, however, feel the segment has bottomed out and should see stable growth going forward.
"India is fast emerging as a CRAMS hub and Piramal is well-positioned to exploit this opportunity. We expect stable, though modest, growth ahead in revenues and profits from CRAMS assets," Dr Bino Pathiparampil of IIFL wrote in a note to clients on December 15.
The company intends to raise funds worth Rs 1,000 crore through equity/ equity-linked securities to reduce its debt burden. The company's debt-equity ratio had increased to around 9:10 as of end-September from 7:10 in FY2008. A decline in debt levels would put it in a better position for growth, whether organic or inorganic.
The domestic formulations business is expected to post double-digit growth. In FY2010, Piramal plans to launch about 26 drugs of which 18 have already been launched in the first half of the fiscal.
The company's September quarter numbers were in line with expectations. Operating profit margins dropped 280 basis points (100 basis points make one percentage point) year on year to 17.7% due to higher staff and raw material cost, particularly given the low-margin operations of Minrad and RxElite integration. Revenues increased 12%, driven by a 16.2% increase in domestic formulations, particularly from its anti-infective, anti-diabetic and dermatology therapy segments. CRAMs business revenues fell 2% due to continuing issues of global slowdown in pharma outsourcing operations. However, net profit increased 45%, helped by forex gains.
At Rs 396.50, the stock trades at 18.7 times its estimated earnings for 2010. Most analysts are positive on the stock and investors could consider it on declines.