Piramal Pharma Limited

I know right.

I cannot give this management the benefit of the doubt or any credit for potential capital allocation skills (or business operator skills either for that matter)

The concall was honestly painful – no direct questions answered straight. It felt like the no forward guidance was an excuse to give investors no visibility (because the management doesn’t have any?)

Honestly, the investors had very silly questions as well – e.g. why are Ajay and Swati Piramal not on the board. Like they’ll somehow magically increase margins and sales by attending board meetings.

That said the stock is at 3x EV/Sales (not fond of the metric but there’s no sustainable profits/cash flows to speak of)

They were at 25% EBITDA Margins in 2020.

If you double sales in 5yrs while getting back to 20% margin levels by 2028 – you get 2000cr EBITDA against 15000cr in EV today.

So 7.5x EV/EBITDA and 1.5x EV/Sales on 2028 numbers, hopefully they cut the debt in half and you have 1x debt/EBITDA.

Maybe the combination is worth 15x EBITDA, so you get 2028 EV of 30000cr. Reduce balance debt of 2500 and you get a market cap 27500, current market cap is around 11000k. So you get 20% IRR

But you get diluted with a right issue at silly valuations – so maybe 15-17% IRR (conservatively)

That looks inexpensive and not unachievable (assuming management executes differently from how they’ve behaved so far)

That said I’m not keen to average down just yet.
I think the private sector banks get you that IRR with better certainty. Even ITC probably gets you closer to 15% IRR with 10% sales growth + op leverage+ dividends. Maybe some of the better managements in the pharma space get you that IRR.

FYI – Peter DeYoung(CEO) is married to Nandini Piramal (Chair)