ICICI Securities Limited

Result Update
May 20, 2011
Rating matrix
Rating Target Target Period Potential Upside : : : : Under Review NA NA NA

Piramal Healthcare (NICPIR)

| 391

Key Financials
| crore Net sales EBITDA Net Profit FY08 2848 517 334 FY09 3281 581 316 FY10 3671 741 481 FY11 2510 227 12883

Financial foray, negative surprise

Piramal Healthcares (PHL) Q4FY11 results are not comparable on YoY basis as it sold its domestic Pharma business and diagnostic business to Abbott and SRL respectively. On like to like basis, the continue business posted a sales growth of 38% YoY driven by strong growth in CRAMS and Critical care segments. Net profit stood at | 201.8 crore as against |0.2 crore in Q4FY11.PHL has decided to enter the financial services business. The company is planning to set up an NBFC for lending infrastructure and to other sectors. Beside this, it is also entering into Fund Management for real estate & Infrastructure sector. Since it is entering into new domain, we are keeping our recommendation under review. Demerge NCE division from PLSL to merge with it The boards of Piramal Healthcare and Piramal Life Sciences considered and approved the scheme of arrangement between PLSL and PHL. Under the propose demerger scheme, the new chemical entity (NCE) division of PLSL would be demergered and merge to PHL from April with effect from April 1, 2011. Each shareholder of PLSL will be entitled to 1 fully paid up equity share of | 2 of PHL for every 4 equity shares of | 10 each held in PLSL. All assets and liabilities of the NCE division will be transferred to PHL at book value. The entire process is expected to complete in 6 months. Total of 24 molecules are in the development pipeline. Foray into financial service sector Piramal has decided to enter into the financial services business. To begin with PHL will be setting up an NBFC for lending to Infrastructure sector and to other sectors. It will also get into Fund Management for real estate & infrastructure. As an initial investment, It is planning to invest | 1000 crore in the Financial services business. Piramal acquired Indiareit Fund Advisors (FA) and Indiareit Investment Management company (IIMC) for | 225 crore. Total funds under management for these funds are | 3800 crore.

Valuation summary
EPS(|) PE(x) EV to EBITDA (x) Price to Book (x) RoNW (x) RoCE (x) FY08 16.0 24.5 10.8 6.5 30.7 24.6 FY09 15.1 25.9 9.6 5.4 24 17.7 FY10 23.1 16.9 7.6 4.1 28.3 18.8 FY11 767.3 0.5 24.6 0.6 108.6 3.7

Stock data
Market Capitalisation Debt (FY11) Cash (FY11) EV (| crore) 52 week H/L Equity Capital Face Value (|) MF Holding (%) FII Holding (%) | 6610 crore | 756 crore | 1770 crore | 7158 crore 599/411 | 33.6 crore |2 5.7 20

Price movement
600 550 500 450 400 Jun-10 Aug-10 Nov-10 Feb-11 Nifty (RHS) Piramal Healthcare 6,500 6,000 5,500 5,000 4,500 May-11

View
We believe the continuing businesses, i.e. Pharma solution business, Critical care and OTC business are expected to grow at healthy growth rates. Even the R&D pipeline also holds some potential. What has surprised us (negatively) is the decision to enter into the financial foray. As there is no clarity on financial services business at this point of time, we are not rating the stock.
Exhibit 1: Financial Performance
(| Crore) Net sales EBIDTA EBIDTA Margin (%) Depreciation Interest Reported PAT EPS (|) Q4FY11 559.1 133.1 23.8 26.0 17.0 201.9 12.0 Q4FY10 404.0 36.7 9.1 7.6 35.2 0.2 0.0 Q3FY11 402.7 -18.0 -4.5 24.0 12.9 60.3 3.6 YoY Gr. (%) 38 263 244 -52 100825 QoQ Gr. (%) 39 -838 8 31 235

Analysts name
Siddhant Khandekar siddhant.khandekar@icicisecurities.com Krishna Kiran Konduri krishna.konduris@icicisecurities.com

Source: Company, ICICIdirect.com Research

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Result update

Like to like sales up 31% YoY

Piramal Healthcares (PHL) Q4FY11 results are not comparable on YoY basis as it sold its domestic Pharma business and diagnostic business to Abbott and SRL. The total income from operations declined by 41% to | 559.05 crore and net profit increased by 31% to |201.8 crore. On like to like basis, the continuing businesses posted a sales growth of 38% YoY driven by strong growth in CRAMS and Critical care segments. Net profit stood at | 201.8 crore as against |0.2 crore in Q4FY11
Exhibit 2: Business verticals
(| crore) Pharma Solutions From Assets in India From Assets outside India Critical Care OTC+Ophthalmology Other Total Q4FY11 190.7 158.7 116.0 67.6 26.1 559.0 Q4FY10 119.4 134.2 88.4 53.4 8.5 404.0 Q3FY11 132.6 100.8 99.5 54.7 15.2 402.7
YoY Gr. (%) QoQ Gr. (%)

60 18 31 27 206 38

44 57 17 24 72 39

Source: Company, ICICIdirect.com Research

Pharma solution (CRAMS) business witnessed strong growth of 38% YoY to | 349.3 crore mainly driven by 59.7% YoY growth from assets in India to | 190.6 crore. Sales from assets outside India were increased by 18.2% YoY to |158.6 crore. The company expects facility at Grangemouth, UK to be audited by USFDA in June 2011. It is also planning to expand capacity at Digwal. During the quarter, Piramal acquired 76% stake in Ahmedabad based Oxygen Healthcare (O2h). The company provides medical chemistry (synthetic chemistry) and in-vitro biology services. Piramal expects Pharma solution business to grow at a CAGR of 20-25% in FY1214. Revenues from Piramal Critical Care business increased by 31.2% to | 116 crore. The market share for Sevoflurane (general anesthesia) in US market increased from 14% as on March 2010 to 20% in March 2011. Piramal has registered Sevoflurane in 26 countries and so far received approval from 4 countries. The company expect to launch Sevoflurane in EU markets in the current fiscal. It is also in the process of registering Sevoflurane in Japan & Asia and Desflurane across the globe. Piramal expects Critical care business to grow at a CAGR of 25-30% between FY12-14. The OTC& Ophthalmology businesses witnessed a growth of 26.5% YoY to 67.6 crore. It added 660 field force during FY11 taking total count to 900. It is currently covering 2.4 lakh outlets. It is planning to buy brands and expand inorganically in this segment.

Market share of Sevoflurane in US market increased from 14% as on March 2010 to 20% as on March 2011

Demerger of NCE division from PLSL & merger with PHL

The boards of Piramal Healthcare and Piramal Life Sciences considered and approved the scheme of arrangement between PLSL and PHL. Under the propose demerger scheme, the new chemical entity (NCE) division of PLSL would be demergered and merge into PHL l with effect from April 1, 2011. Each shareholder of PLSL will be entitled to 1 fully paid up equity share of | 2 of PHL for every 4 equity shares of | 10 each held in PLSL. All assets and liabilities of the NCE division will be transferred to PHL at book value. The entire process is expected to complete in 6 months. Total of 24 molecules are in the development pipeline.

24 molecules are in the development pipeline

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Foray into Financial Services Sector
Plans to invest | 1000 crore in Financial Service business

Piramal has decided to enter the financial services business. To begin with PHL will be setting up an NBFC for lending to Infrastructure sector and to other sectors. It will also enter into Fund Management for real estate & infrastructure sector. It is planning to invest | 1000 crore in financial services business to start with.

Acquired Indiareit Fund Advisors & Indiareit investment Management

Piramal acquired Indiareit Fund Advisors (FA) and Indiareit Investment Management company (IIMC) for | 225 crore. IFA is advisor to the Indiareit Fund which is a domestic real estate Private Equity fund focused on the Indian markets. IIMC manages offshore Real Estate Private Equity funds investing in India through the FDI route. Total funds under management for these funds are | 3800 crore. Indiareit has presence through developmental projects in 5 top tier cities through 8 local partners. It is currently working on 23 projects and has currently 53.7 million sq.ft. of saleable area currently under management.

Indiareit managing |3800 crore currently

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ICICIdirect.com coverage universe (Pharma)
Elder Pharma Idirect Code Mcap (|crore) Biocon Idirect Code Mcap (|crore) Dishman Idirect Code Mcap (|crore) IPCA Labs Idirect Code Mcap (|crore) Sun Pharma Idirect Code Mcap (|crore) Glenmark Idirect Code Mcap (|crore) Lupin Idirect Code Mcap (|crore) Unichem Labs Idirect Code Mcap (|crore) Indoco Remedies Idirect Code Mcap (|crore) Opto Circuits Idirect Code Mcap (|crore) ELDPHA 745.0 CMP Target Upside (%) 358 405 13 FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E FY09 FY10 FY11E FY12E FY10 FY11E FY12E FY13E FY09 FY10 FY11E FY12E FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E FY10 FY11 FY12E FY13E FY10 FY11E FY12E FY13E FY09 FY10 FY11E FY12E Sales (| Cr) 720.9 959.2 1312.1 1500.7 2367.8 2770.5 2284.3 2656.9 1062.4 915.4 903.1 961.2 1559.6 1832.7 2171.8 2595.8 4271.4 4019.8 5808.6 6844.1 2500.7 2949.1 3608.2 3966.8 4740.5 5695.9 6873.6 8207.6 747.4 824.0 942.1 1077.4 398.3 478.4 578.1 712.6 1077.6 1585.6 2260.7 2567.8 EPS (|) 26.2 30.9 46.0 57.8 14.7 18.4 19.8 24.0 18.2 14.6 9.6 11.0 16.4 19.9 21.4 29.5 17.6 13.0 16.7 17.7 12.2 16.9 24.9 23.3 15.3 19.3 23.6 27.9 13.6 10.5 14.1 17.7 34.4 41.3 47.8 63.9 14.0 19.7 22.5 28.1 PE(x) 13.6 11.6 7.8 6.2 25.2 20.1 18.7 15.4 6.6 8.2 12.5 10.8 18.9 15.6 14.5 10.5 24.8 33.4 26.1 24.7 25.0 18.1 12.3 13.1 28.8 22.8 18.7 15.8 12.8 16.5 12.3 9.8 13.2 11.0 9.5 7.1 19.8 14.1 12.3 9.9 EV/E (x) 10.1 7.8 6.0 5.4 16.5 12.5 10.4 8.9 6.3 8.3 11.5 8.6 13.4 11.6 9.6 7.2 23.2 31.0 22.2 20.3 16.2 17.1 10.0 10.7 20.9 17.0 13.8 11.2 9.3 10.7 7.9 6.1 11.0 8.5 6.5 5.4 14.4 13.0 10.2 7.8 RoNW (%) 9.9 9.9 12.9 14.4 16.7 18.0 16.8 17.5 20.9 15.0 9.2 10.0 23.7 23.2 20.6 22.6 25.7 17.7 19.0 17.3 14.1 22.5 25.9 20.4 27.3 26.5 25.5 24.0 21.9 15.4 18.4 20.2 13.6 14.5 14.7 16.8 24.9 26.5 24.5 24.9 RoCE (%) 10.3 11.1 14.3 15.4 15.6 19.2 20.2 21.2 13.6 9.1 4.9 6.8 20.5 20.3 22.1 24.8 28.3 19.5 20.3 18.1 14.8 16.7 22.1 20.2 22.4 22.7 23.6 24.9 24.4 18.1 22.0 24.5 11.5 12.6 15.4 18.0 26.3 17.2 18.8 21.0

BIOCON 7400.0

CMP Target Upside (%)

370 432 17

DISHPHA 964.3

CMP Target Upside (%)

119 99 -17

IPCLAB 3896.0

CMP Target Upside (%)

310 325 5

SUNPHA 44758.6

CMP Target Upside (%)

436 416 -5

GLEPHA 8271.0

CMP Target Upside (%)

306 396 29

LUPIN 19597.0

CMP Target Upside (%)

440 530 20

UNILAB 1570

CMP Target Upside (%)

174 194 11

INDREM 559.0

CMP Target Upside (%)

455 511 12

OPTCIR 5163.3

CMP Target % Upside

277 309 12%

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ICICI Securities Limited

ICICIdirect.com coverage universe (Pharma)
Cadila Healthcare Idirect Code CADHEA Mcap (|crore) Torrent Pharma Idirect Code Mcap (|crore) 18467.5 CMP Target % Upside 902 933 3% FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E FY10 FY11E FY12E FY13E Strides Arcolab Idirect Code Mcap (|crore) STRARC 2281.9 CMP Target % Upside 395 426 8% CY09 CY10 CY11E CY12E 1328.3 1761.1 2213.2 2618.3 18.3 20.5 31.9 47.4 21.6 19.3 12.4 8.3 17.8 10.4 9.4 6.2 13.2 9.5 12.8 9.5 6.3 9.2 9.8 13.0 Sales (| cr) 3686.8 4630.2 5416.4 6417.5 1904.0 2248.9 2666.1 3154.7 3575.4 4381.5 5037.2 5727.9 EPS (|) 24.7 34.7 41.1 51.8 27.3 34.8 42.2 50.5 19.4 19.4 22.3 28.5 PE(x) 36.5 26.0 22.0 17.4 21.6 17.0 14.0 11.7 10.0 10.0 8.7 6.8 EV/E (x) 23.9 19.7 15.1 12.2 6.0 4.7 3.7 3.0 9.4 8.1 6.5 5.4 RoNW (%) 37.0 37.5 33.6 32.8 31.2 31.1 29.7 28.3 30.8 23.2 23.9 24.0 RoCE (%) 25.8 28.1 30.9 32.4 29.1 26.7 29.1 29.4 16.9 16.2 20.5 22.1

TORPHA 5003.0

CMP Target % Upside

591 656 11%

Aurobindo Pharma Idirect Code AURPHA Mcap (|crore) 5619.0

CMP Target % Upside

182 257 41%

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is 2 years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: 20% or more; Buy: Between 10% and 20%; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 7th Floor , Akruti Centre Point, MIDC Main Road, Marol Naka, Andheri (East) Mumbai 400 093 research@icicidirect.com ANALYST CERTIFICATION
We /I, Siddhant Khandekar CA INTER Krishna Kiran Konduri MBA FINANCE research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

pankaj.pandey@icicisecurities.com

Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. 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