Primal Healthcare Q4 Result Update

Net sales in Q4FY10 have grown by 11 % to INR 9418 mn vs INR 8509 mn.This subdued growth was witnessed as the CRAMS business played a laggard. This was below Unicon’s estimate of INR 10084 mnIncrease in net sales have been on account of a 37% growthi domestic formulation business vs the industry growth of 18%.This was due to a better penetration in tier II and tier III cities coupled with new product launces.CRAMS business is expected to pick up in the coming yearPiramal has renew its Pfizer contract for a longer tenure andincreased number of products and acquired some new contracts at its Indian facilities.Contribution from Minrad is expected to increase on back ofincreased volumes ofSevoflurane - targeting veterinary segment and has started filing for products set to be launchedin Europe during FY11. Desflurane is expected to belaunched in the next 12-18 months in the US which has a market size of USD 250mn . Sevoflurane’s US market share has increased to 18% from 5% earlier. EBIDTA stood at INR 2212 mn in Q4FY10 vs INR 1953 mn , a growth of 13% above Unicon’s estimate of INR 2001 mn Margins were at 23.5%, an increase by 50 bps on account of reduction in raw material cost and better contribution from its domestic formulation business PAT grew by 34% to INR 1543 mn in Q4FY10 vs INR 1149 mn inline with Unicon’s estimate of INR 1498mn and margins at 17% an increase 290 bps on back of reduced interest charges

Valuation and outlook

At CMP of INR 502 the stock trades at 21.7x annualized earnings of INR 23.1.Going forward we expect Piramal to improve its earnings on account of better performance of the domestic formulation business through newer product launches, better tier II and tier III penetration and margins to improve through better cost containment measures. Better contribution

from Minrad and CRAMS business is expected to improve its revenue stream in the next couple of quarters. We maintain Hold on the stock with a target price of INR 451