Add Piramal Enterprises, target price Rs 1,420: ICICI Securities

ICICI Securities has given an add rating to Piramal Enterprises with a target price of Rs 1,420. The share price moved down by -1.67 per cent from its previous close of Rs 1387.00. The stock’s last traded price is Rs 1363.80.

Piramal Enterprises has announced the sale of 20 per cent stake in Piramal Pharma Limited (PPL) to global investment firm, The Carlyle Group, for an equity investment of $490 million. The EV of PPL would be $2,775 million, in line with I-Sec EV estimate of the pharma business, with an upside component of up to $360 million, contingent on pharma performance in FY21). According to the brokerage, this pegs the valuation at 15.2 times FY20E EV/EBITDA and 12.9 times FY22E EV/EBITDA.

The transaction factors-in a net debt of $325 million on PPL’s balance sheet on the closure of the transaction. The brokerage remains positive on Piramal Enterprises’ unique positioning in the pharma business with its CDMO services and critical care products. In the immediate term, it will be using the proceeds of the stake sale in PPL to further deleverage its balance sheet.

Investment Rationale

The brokerage expects the company to continue to de risk its financial services business by running down its wholesale exposures and through accelerated sell-downs. The brokerage maintains an add rating with an SoTP-based target price of Rs 1,420. It has increased the target multiple on the financial services business from 0.3 times to 0.8 times given improved visibility on its leverage and liquidity position).

The stock is currently trading at 1.0 times FY22E P/BV. ICICI Securities continues to conservatively model credit costs at 3 per cent in FY21E. Its SoTP-based target price has increased to Rs 1,420 from Rs 1,050 while maintaining the add rating.

SoTP Valuation


Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 3341.00 crore, down -12.21 per cent from last quarter sales of Rs 3805.67 crore and down -9.20 per cent from last year same quarter’s sales of Rs 3679.67 crore. The company reported net profit after tax of Rs -1897.28 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 46.06 per cent stake in the company as of March 31, 2020, while FIIs held 29.45 per cent, DIIs 9.32 per cent and public & others 14.83 per cent.