With Vodafone estimated at the lower ranges, DRG written down, Abbott Labs A/R's discounted, and the Pharma business estimated very very conservatively with the entire R&D unit and the financial services unit written down to zero, we have can calculate that the sum of the parts is 106% of the enterprise value of Piramal.
There are not many things that need to go right with this scrip in order to make money. Given the track record for Mr. Ajay Piramal over the last twenty five years, it is not improbable to assume that some things will go right for the company. It is important to understand that this management has grown sales at 28% CAGR over the last twenty five years and profit at 31% CAGR. A leopard does not change its spots overnight. We are strong believers in the current management.
Nor has the company been a one hit wonder over the last 25 years. All the areas that the company is dabbling right now -- real estate, pharma is something this company has forayed successfully in the past.
What are the risks we see with the scrip?
1. I asked a question to the investor relations whether the board had ever discussed a succession plan for Ajay Piramal? The answer was no. We hope Ajay Piramal lives long but we would like to see a plan.
2. The company may be perceived as a holding company and trade forever at a discount. The key to understand is that most of the controlling companies of Piramal do not trade separately on the market. At the parent company level, Piramal can control where the cash flows are going to be deployed (unlike a normal holding company that does not have access to all the cash flows)
3. De-worsification as against diversification. Piramal has indicated that they do not plan to get into any other new fields.
We are comfortable with these risks as these are covered by the strength in the balance sheet.
What are the catalysts for the stock
1. Vodafone IPO or payment back to Piramal.
2. New Molecule out of the R&D sector
3. Payments of debt from the proceeds from Vodafone and Abbott A/R's
4. CRAMS start making more money
5. More buybacks given the inflow expected in the next couple of years.
We expect to see the Income statement and Balance Sheet strengthen over the next 24 months. We will be watching closely the next eight quarters. We have selected this time frame to watch whether this is a value trap or a diamond in the rough.
Given the strength in the balance sheet, we think the risk would be limited to opportunity cost. We will collect the 4% dividend yield and whatever appreciation the scrip sees. However, this does provide an unique opportunity to participate along with one of the shrewder and ethical user of capital.
We do not expect to see miracles in the next quarter or two but do expect to see strengthening in the next 8 quarters.
We will review the latest news to see how the thesis is playing out over the next few quarters.
There are not many things that need to go right with this scrip in order to make money. Given the track record for Mr. Ajay Piramal over the last twenty five years, it is not improbable to assume that some things will go right for the company. It is important to understand that this management has grown sales at 28% CAGR over the last twenty five years and profit at 31% CAGR. A leopard does not change its spots overnight. We are strong believers in the current management.
Nor has the company been a one hit wonder over the last 25 years. All the areas that the company is dabbling right now -- real estate, pharma is something this company has forayed successfully in the past.
What are the risks we see with the scrip?
1. I asked a question to the investor relations whether the board had ever discussed a succession plan for Ajay Piramal? The answer was no. We hope Ajay Piramal lives long but we would like to see a plan.
2. The company may be perceived as a holding company and trade forever at a discount. The key to understand is that most of the controlling companies of Piramal do not trade separately on the market. At the parent company level, Piramal can control where the cash flows are going to be deployed (unlike a normal holding company that does not have access to all the cash flows)
3. De-worsification as against diversification. Piramal has indicated that they do not plan to get into any other new fields.
We are comfortable with these risks as these are covered by the strength in the balance sheet.
What are the catalysts for the stock
1. Vodafone IPO or payment back to Piramal.
2. New Molecule out of the R&D sector
3. Payments of debt from the proceeds from Vodafone and Abbott A/R's
4. CRAMS start making more money
5. More buybacks given the inflow expected in the next couple of years.
We expect to see the Income statement and Balance Sheet strengthen over the next 24 months. We will be watching closely the next eight quarters. We have selected this time frame to watch whether this is a value trap or a diamond in the rough.
Given the strength in the balance sheet, we think the risk would be limited to opportunity cost. We will collect the 4% dividend yield and whatever appreciation the scrip sees. However, this does provide an unique opportunity to participate along with one of the shrewder and ethical user of capital.
We do not expect to see miracles in the next quarter or two but do expect to see strengthening in the next 8 quarters.
We will review the latest news to see how the thesis is playing out over the next few quarters.
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