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Piramal Enterprises Ltd

BSE: 500302 | NSE: PEL ISIN: INE140A01024
Market Cap: [Rs.Cr.] 16,909.90 Face Value: [Rs.] 2
Industry: Pharmaceuticals - Indian - Bulk Drugs & Formln

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Management Discussions


1.1. Business-wise Revenue Performance

The break-up of total revenues is as under:

INR crores or as stated
Revenues break-up % Sales FY2015 FY2014 % Change
Healthcare 60.9% 3,121.2 2,819.7 10.7%
Pharma Solutions 2,007.7 1,786.0 12.4%
Critical Care 756.8 720.3 5.1%
Consumer Products* 356.7 313.3 13.8%
Financial Services 18.3% 937.1 726.2 29.0%
Information Management 19.9% 1,019.6 899.3 13.4%
Others 0.9% 44.8 57.5 (22.2%)
Total 100% 5,122.6 4,502.7 13.8%

*Including Opthalmology

PEL’s consolidated revenues grew by 13.8% to INR 5,122.6 crores in FY2015 ascompared with INR 4,502.7 crores in FY2014, driven by growth across business segments(Exhibit 1). Piramal Pharma Solutions business grew by 12.4% to INR 2,007.7 crores ascompared with INR 1,786.0 crores in FY2014, on account of higher offtake from ongoingcontracts and good traction in the development business. Revenue from the Critical Carebusiness grew by 5.1% to INR 756.8 crores as compared with INR 720.3 crores in FY2014,primarily driven by continued gain in the Company’s share in existing markets andentry into new markets. Sales from the Consumer Products business was at INR 356.7 croresas compared with INR 313.3 crores in FY2014, registering growth of 13.8% for the year,driven by improved marketing strategy for existing brands and effective launch of newbrands.

1.2. Consolidated Financial Performance

1.2.1 Income Statement

(INR crores or as stated)
Particulars FY2015 FY2014 % Change
Total Revenues 5,122.6 4,502.7 13.8%
R&D expenses 266.7 295.7 (9.8%)
Other operating expenses 3,970.4 3,568.0 11.3%
OPBITDA 885.5 639.1 38.6%
OPBITDA margin % 17.3% 14.2%
Non-operating other income 254.2 221.3 14.9%
Interest expenses 510.6 1,049.6 (51.4%)
Depreciation 289.9 246.9 17.4%
Profit before tax & exceptional items 339.2 (436.1)
Exceptional items - Expenses/(Income) (2,696.2) (1.4)
Income tax 345.0 62.8
Profit after tax (before minority interest & prior period items) 2,690.4 (497.5)
Minority interest (0.3) 0.8
Share of profit/(loss) of associates 159.3 (3.1)
Net profit after tax 2,850.0 (501.4)
EPS (INR/share) 165.2 (29.1)

Income from the Financial Services, grew by 29.0% to INR 937.1 crores this year ascompared with INR 726.2 crores for FY2014, on account of increase in the size of loan bookand Assets under Management. Revenue from the Information Management business grew by13.4% to INR 1,019.6 crores this year as compared with INR 899.3 crores in FY2014, drivenby growth across entire range of products and services.

Total Revenues

During FY2015, each of the business segments have grown, contributing to the overallgrowth of 13.8% in the Company’s total operating income. 68% of PEL’s FY2015revenues were generated in foreign currencies.

Operating profit

Operating profit for the year grew by 38.6% to INR 885.5 crores as compared with INR639.1 crores in FY2014. Growth in operating profit for FY2015 was driven by strong revenueperformance across most of the businesses and fall in R&D expenses. R&D expenseswere lower, on account of scaling back of the Company’s investments in NCE research.

Operating profit margin (OPBITDA)

OPBITDA margin was higher at 17.3% in FY2015 as compared with 14.2% in FY2014.

Finance Costs

Finance costs for the year were lower by 51.4% at INR 510.6 crores as compared with INR1,049.6 crores in FY2014. This was on account of the reduction in debt, using the cashproceeds from the sale of the Company’s stake in Vodafone India. Finance costs forFY2014 also included one-time charges of INR 178.3 crores, on account of discounting ofAbbott receivables, for investing in lending operations.


Depreciation for FY2015 was higher at INR 289.9 crores as compared with INR 246.9crores in FY2014. This was primarily on account of capitalization of intangible assets ofFlorbetaben and increase in fixed assets under Pharma Solutions (including acquisition ofColdstream), Critical Care and Information Management businesses.


Tax expenses increased to INR 345.0 crores in FY2015, from INR 62.8 crores in FY2014.This was primarily on account of INR 267 crores of taxes paid on the profit made on thesale of the Company’s stake in Vodafone India.

Net profit after tax (excluding exceptional items)

Net profit after tax (excluding exceptional items) for FY2015 was higher at INR 420.8crores as compared with a net loss of INR 502.8 crores for FY2014. The increase in netprofit was on account of significant improvement in sustainable factors, including strongperformance across businesses, de-leveraging and associate income from strategicinvestments in Shriram Group.

Exceptional items

Exceptional gain for FY2015 includes profit on sale of 11% stake in Vodafone India forINR 8,900 crores (an investment of INR 5,864 crores made in FY2012), partly offset by theamount written down on account of scaling back of investments in NCE research.

1.2.2 Balance Sheet (In INR crores)
Particulars As at Mar 31, FY2015 As at Mar 31, FY2014
Shareholders' Funds
(A) Share Capital 34.5 34.5
(B) Reserves & Surplus 11,701.4 9,286.6
Minority Interest 29.1 -
Loan Funds 7,306.1 9,551.9
Deferred Tax Liability 2.6 9.3
T O T A L 19,073.8 18,882.2
Fixed Assets 7,342.4 6,682.1
Investments 7,767.9 9,445.8
Deferred Tax Asset 29.5 50.1
Current Assets, Loans and Advances
Inventories 674.9 652.3
Sundry Debtors 831.7 719.8
Cash and Bank Balances 460.1 333.6
Other Current Assets 354.5 1,050.4
Loans and Advances 3,474.8 2,570.5
Less: Current Liabilities and Provisions
Current Liabilities 1,228.8 1,427.9
Provisions 633.2 1,194.4
T O T A L 19,073.8 18,882.2

Net profit and Earning Per Share (EPS)

Net profit for the year was INR 2,850 crores as against a loss of INR 501.4 crores inFY2014. The significant increase in net profit was primarily on account of higheroperating profits, reduction in interest cost and gain from sale of stake in VodafoneIndia. EPS for the year was at INR 165.2 per share.


The Board has recommended Equity Dividend of INR 20 per share. The total cash outflowwill be INR 415.4 crores on account of dividend payments, including dividend distributiontax.

Loan Funds

Total debt as on March 31, 2015 was INR 7,306.1 crores, as compared with INR 9,551.9crores as on March 31, 2014. Reduction in debt during the year was primarily on account ofrepayment of debt, using cash proceeds from sale of the Company’s stake in VodafoneIndia, partially offset by increase in debt due to higher investments in FinancialServices segment.

Fixed Assets

During the year, PEL’s fixed assets increased by INR 660.3 crores, primarily onaccount of acquisitions, capitalization of intangible assets of Florbetaben and increasein fixed assets under Pharma Solutions (including acquisition of Coldstream), CriticalCare and Information Management businesses.


Book Value of Investments as on March 31, 2015 was lower at INR 7,767.9 crores,compared to INR 9,445.8 crores as on March 31, 2014. The decrease was primarily on theaccount of sale of the Company’s stake in Vodafone India (an investment of INR 5,864crores made in FY2012), partially offset by the acquisition of 20% equity stake in ShriramCapital Limited (SCL), ~10% equity stake in Shriram City Union Finance Limited (SCUF) andincrease in investments under Financial Services business. As on March 31, 2015, the totalamount invested in SCL and SCUF stands at INR 2,146 crores and INR 801 crores,respectively.

2. Operational Review

The Company’s business structure is broadly categorized in three segments (Exhibit2):


2.1. Healthcare Businesses

PEL ventured into the healthcare sector in 1988. Over the last 27 years, the Companyhas established itself as one of the most recognised and respected names in the healthcareindustry. The Company has its manufacturing units located across India, Europe, US andCanada. Its strength lies in its culturally diversified team of over 4,000 members, from20 nationalities. The Company has reported a strong trend of revenue growth over the yearsacross all Healthcare businesses. The Healthcare revenues have grown at a CAGR of 16% inlast three years and reached to INR 3,121.2 crores during FY2015.

The Healthcare segment broadly operates in four businesses:

1. Pharma Solutions

The Pharma Solutions business featured among the world’s top 10 ContractDevelopment and Manufacturing Organisations (CDMOs) (Source: UN Conference on Trade andDevelopment). It continued to serve five of the top seven global pharma firms for the pasttwo decades. It also has long-term partnerships with several leading mid-size, small,virtual pharma firms in the West and in Japan, from pre-clinical through clinicaldevelopment and from commercialization through life cycle management.

2. Critical Care

PEL’s Critical Care business is the third largest player in the global InhalationAnaesthesia (IA) market. It is the only company in the world with a complete productportfolio of inhalation anaesthetics drugs. The Company has product availability in over100 countries and is globally renowned in the domain of anaesthesia and critical care.

3. Consumer Products

The Company’s OTC business is an India-centric consumer healthcare business.It has a strong brand portfolio, with most of its brands featuring among the top two intheir respective representative market and product categories.

The business has a significant distribution footprint covering over 481 towns (withpopulation of over one lakh) across the country. This gives an access to over 231,000retail outlets (including 140,000 chemist stores) across India. Allergan India, theCompany’s JV with Allergan, continues to remain India’s leader in Ophthalmology.

4. Imaging

The Company’s Imaging business has a comprehensive pipeline with strongR&D and Marketing & Sales infrastructure in PET imaging. It is well positioned tobecome a market leader in molecular imaging. The potential size of the market could be inmulti-billion dollars. Its promising lead commercial stage product, NeuraCeq (INN:Florbetaben), which received approvals from the USFDA and European Commission in FY2014,has commenced its commercial sales during this financial year.

Focused capital allocation strategy

The Company continues to remain focused on its strategy of efficiently allocatingcapital to consistently generate higher profitability, while undertaking controlled risk,with an overall objective to deliver superior shareholder returns. The segment hasefficiently deployed the capital for its future growth through various organic andinorganic initiatives, during the year. Few of the key avenues include:

• Acquired Coldstream, a US based CDMO into injectables (a promising field)Carried out debottlenecking and capacity expansion at different locations of PharmaSolutions business In August 2014, the Company entered into a Joint Venture andShareholders’ agreement with Navin Fluorine International Limited (an Arvind MafatlalGroup Company) to form a Joint Venture Company named Convergence Chemicals PrivateLimited.

• This Company will develop, manufacture and sell speciality Fluorochemicals to beused for Healthcare business. PEL holds 51% of the equity share capital of the JointVenture Company.

• Expanded global presence and increased market share in Critical Care businessImproved marketing strategy for existing brands and effective launch of new brands inConsumer Products business

Further, in line with PEL’s strategy and to rationalize the overall businessstructure, it decided to sell/discontinue few of its businesses, which were eithernon-strategic/non-core in nature or required investments for a longer time horizon,involving higher risk. During August 2014, the Company scaled down the R&D activitiesof its New Chemical Entity (NCE) division based in Mumbai, India. In September 2014, theCompany sold its diagnostic solutions business, ‘Lab Diagnostics and Point ofCare’ (LDPOC) to DiaSys Diagnostics India Private Limited. In April 2015, the Companysold its clinical research division known as ‘Piramal Clinical Research’ toIndoco Remedies, as it was not considered strategic in nature and formed a relativelysmall portion of PEL’s consolidated business.

2.1.1. Pharma Solutions

Market scenario and our positioning

The pharmaceutical industry is facing a dual set of challenges. On one hand, patentexpiry of blockbuster drugs, leaner drug pipeline, increasing drug development costs andreducing exclusivity period due to aggressive generic penetration have impacted revenuegrowth and profitability of various pharma companies. On the other hand, increasedregulatory scrutiny has driven compliance and quality assurance costs northward, whileincreasing the time it takes to bring a New Chemical Entity (NCE) into the market. Thecombined impact of these factors has led the industry to embrace strategies that optimizecosts, while increasing efficiency, including increased outsourcing (in functions likeresearch, manufacturing and clinical trial management), adoption of novel R&D modelsand migrating non-core business functions to lower cost countries (in China and India),among others.

Among these trends, the global pharmaceutical outsourcing market, which is currentlyabout USD 131 billion, is expected to grow at a CAGR of 8.7% between 2015-2020, to reachas much as USD 215 billion by 2020 (Source: Research and Markets). With high qualitydevelopment and manufacturing assets (that are located, both in eastern and western partsof the world), strong scientific talent, solid client relationships, a brand that istrusted by innovators and an excellent regulatory track record, PEL is well placed to gainfrom this growing outsourcing trend.

Excellent reputation in global market

The Piramal Pharma Solutions (PPS) business of PEL, is among the leading ContractDevelopment & Manufacturing Organizations (CDMO) with an excellent reputation in theglobal market, and has been the recipient of numerous recognitions and awards. The Companyfeatured among the top 10 global contract drug manufacturers (Source: UN Conference onTrade and Development). In January 2015, PPS was recognized by the industry as a topperformer in Quality, Regulatory, and Reliability. This prestigious award is a criticalbarometer of performance as it is voted on by clients that PPS serves. Recently, theCompany was also voted as the No.1 CDMO in the world of ADCs. These awards validatePPS’s approach that revolves around the pillars of customer centricity, investment ininnovation, infrastructure leadership and nurturing strong scientific talent.

The key differentiators

Strong customer relationships:

PPS has continued to serve five of the top seven global pharma firms for the past twodecades. In addition, the Company has long-term partnerships with several leadingmid-size, small, virtual pharma firms in the West and in Japan, from pre-clinical throughclinical development and from commercialization through life cycle management.

End-to-end service offering: The business has a seamless global network ofquality, contract development and manufacturing facilities in North America, Europe andAsia (Exhibit 3). It offers an impressive array of services that cover the entiredrug-cycle, from development and commercial manufacturing, to off-patent supplies ofActive Pharmaceutical Ingredients (APIs) and Formulations (Exhibit 4). The Company isuniquely positioned and is among the select few CDMOs that offer services in both earlydevelopment and late phase commercialization. Its capability as an integrated serviceprovider and experience with various technologies has enabled it to serve innovator andgeneric companies worldwide.

World leader in ADC Manufacturing, a promising field: Antibody Drug Conjugates(ADCs) are targeted therapies designed to deliver a drug payload to cancer cells, whileminimizing the adverse effects on normal healthy cells and reducing the dose of toxins.Targeted therapies have been a major focus of research in Oncology. ADC has emerged as thebest option among various options available globally. The ADC CMO Market in 2014 was USD85 million and is expected to reach USD 1.1 billion in 2024 (CAGR of 29%) (Source: RootsAnalysis Business Research published in 2014).

PPS offers integrated services of Conjugate Manufacturing and ADC Fill Finish. It isthe only player with this kind of integration, giving it an unprecedented advantage overthe competition. Currently, the Company has over 30% market share in the conjugatesmanufacturing. It has also won a World ADC 2014 Award – ‘World leader in ADCconjugation services’.

A brand known for its Quality, Reliability and Compliance: Most of thedevelopment centres and manufacturing sites have accreditations from regulatory bodies inthe US, Europe and Japan. All manufacturing sites of Pharma Solutions continue tosuccessfully clear regulatory audits, conducted by various leading global regulatoryagencies. ‘CMO Leadership Awards 2015’ re-rated the Company among best globalCDMOs in areas of Quality, Regulatory and Reliability.

FY2015 operating performance

During the year, business delivered a record revenue performance, crossing INR 2,000crores mark for the first time, primarily on account of higher offtake from ongoingcontracts and good traction in the development business (Exhibit 5). During the year, theCompany successfully completed USFDA audit in Pithampur, Morpeth and Canada sites.

Growing organically and inorganically

Debottlenecking and capacity expansions

As PPS clients continue to look for new molecules to augment their lean pipeline, theirinvestment in the discovery process is expected to increase. Due to the availability ofstrong scientific talent in Asia, it is expected that this research will be carried out atcentres in countries, such as India and China. Recognizing this need, PEL invested inincreasing the capacity at its Discovery Services facility in India, to carry outmedicinal chemistry related services that support both biotech and large pharma clients.Additionally, PPS has also invested in capacity expansion at Grangemouth that enables thesite to handle larger batch sizes for ADC manufacturing.

A value accretive acquisition to enter into injectables, a promising field

PPS acquired Kentucky based Specialty Pharmaceutical CDMO, Coldstream Laboratories Inc.in January 2015 for USD 30.65 million. Coldstream is focused on the development andmanufacturing of sterile injectable products. Coldstream has developed differentiatedexpertise to formulate and manufacture high potency and cytotoxic compounds, includingADCs. This acquisition will expand PPS’s offerings and reach to new customers andbring significant synergies with existing operations. Coldstream operates from a FDAapproved facility located in Lexington, Kentucky, USA. It is a high quality operation andhas built significant customer relationships and a track record for sterile products. Thisacquisition allows PEL to move further into the injectable market segment and complementswell with its sterile injectable development capability at

Mumbai. It offers fill and finish options to its ADC customers.

Way forward

The business will continue to operate across the life-cycle, with a focus on latephase/off patent opportunities. Also, the focus will be on growing organically andinorganically in areas that offer growth opportunities, and are synergistic with theexisting offering. It will further strive to expand its customer base and target newersegments/geographies.

2.1.2. Critical Care

Market scenario and our positioning

PCC is a leading player in the global anaesthesia market. With a varied range ofanaesthesia solutions, primarily inhalation anaesthetic products, PCC provides customerswith superior access to high quality critical care drugs across the world.

The global inhalation anaesthesia market is estimated at USD 1.2 billion. Currently,the Company is one of the top three global players in inhaled anaesthetics.

Evolution of business

PEL entered the field of inhalation anaesthetics in 2002 with the acquisition of ICIIndia Ltd. Since then, PCC has established itself as a global anaesthetic company. TheCompany made five more value accretive acquisitions up through 2009 and subsequently grownorganically (Exhibit 6). These acquisitions were critical in shaping the Company’soffering, providing access to global markets and integrating state-of-the-artmanufacturing capabilities. PCC had a market share of 3% in 2009. The organic growth sincethen has enabled the Company to take its market share to 12% globally (Exhibit 7).


PEL’s increasing global market share (%)

The key differentiators

End-to-end product coverage:

PCC’s product portfolio includes inhalation anaesthetics, such as Halothane,Isoflurane and Sevoflurane. Other critical care products, such as Propofol and plasmavolume expanders also form a part of offerings. PCC is the market leader in Halothane(~90% of market share) and Isoflurane (~60% of market share) globally. As a firm, itcontinues to remain dedicated to the field of anaesthesia. With the addition ofDesflurane, PCC will be the only company to offer a complete product portfolio ofInhalation Anesthetics (Exhibit 8).

Global reach:

The Company sells products across 100+ countries and is globally renowned in the domainof anaesthesia and critical care. It has a strong presence across major regulated marketsincluding the US, Europe and Japan and over 50% market share in emerging markets (Exhibit9).

Trusted customer relationships:

PCC has strong relationships and high credibility among the hospitals, doctors andend-customers, which it serves. It serves over 6,000 hospitals through a combination of adirect sales force (the US and select EU markets) and elsewhere with marketing partners.The Company works collaboratively with over 150 marketing partners in countries where itdoes not have direct capabilities. The Company’s customers and partners depend on itto reliably provide them with high quality life-saving products.

Strong team:

The Company leadership has deep industry experience in the critical care and genericsbusiness. Its nimble and focused team acts collaboratively and entrepreneurially to adaptto meet the customer and partner expectations. The business strength also lies in itsculturally diversified team of ~350 members from 20 nationalities, based out of 15countries, with major operations in the US.

Manufacturing and supply chain excellence: The Company’s focus onmanufacturing and supply chain excellence and its strategic decision to verticallyintegrate key inputs, enable it to profitably gain share in a market, with decliningprices. Simultaneously, it ensures regular high quality product supply.

Established track record: PCC’s revenue has grown at a robust rate in last10 years, exceeding the market. The Company’s growth until 2009 was driven primarilyby successful M&As. Its more recent growth was organic as it integrated andcapitalized on the products and capabilities it had acquired.

Increasing strong presence in Sevoflurane - product capturing around 70% of the market

Sevoflurane, the current generation product, accounts for more than 70% of the globalinhalation anaesthesia market (Exhibit 10). The US and Europe are the largest markets forcritical care segment.

PCC has a large share in the US Sevoflurane market and is gaining traction in keyEuropean and emerging markets. Over the years, the Company’s Sevoflurane marketshare, in terms of volume has grown tremendously in the Sevoflurane accounts for over 70%of the global inhalation anaesthesia market US. New Sevoflurane contracts were wonfollowing the registrations and launches done in FY2015 in several new markets, includingthe UK, Australia, Saudi Arabia, Germany and the Netherlands.

Manufacturing facilities

PCC operates state-of-the-art manufacturing facilities in the US (Bethlehem, PA) andIndia (Digwal). It ensures adherence to world-class standards. The strategic location ofthese facilities enables PCC to produce high quality products at market-leading costs. TheCompany is able to supply all major markets from these facilities. It also ensuressupplying throughout the length and breadth of the world with great amount of flexibilityand commitment towards uninterrupted delivery. PCC’s commitment for quality isresonated in global regulatory approvals (including USFDA approval) that are accredited toits manufacturing facilities. A strong team, global practices and appropriate use oftechnology ensure that its products are in accordance with the international standards.

FY2015 operating performance

Revenues from Critical Care business grew by 5% YoY to INR 757 crores in FY2015 fromINR 720 crores in FY2014, primarily driven by continued gain in its share in existingmarkets and entry into new markets, despite high global currency volatility during theyear. Recent policy changes in Japan opened the market to generics and PCC was able toexploit this opportunity. PCC’s market share in Japan reached 51% for the month ofMarch 2015. During the year, Sevoflurane was launched in new markets including the UK,Australia, Saudi Arabia, Germany and the Netherlands. Also, Sevoflurane’s marketshare increased in the US and other emerging markets. The focus on manufacturing andoperational excellence has enabled the Company to maintain its cost leadership throughproductivity improvements and volume growth.

Way forward

PCC is in the process of registering and launching its next generation productDesflurane. Desflurane has untapped market potential with only one competitor. PCC’scustomer relationships, global reach and cost competitiveness are likely to make

Desflurane another success story for PEL’s Critical Care business. Apart fromlaunching the first generic its core focus areas going forward will include:

• Increase market share in the inhalation anaesthesia markets where it is alreadypresent

• Register and launch existing products in new geographies

• In-organically and organically expand portfolio beyond inhalation anaesthetics -Injectable anaesthetics, analgesics, other hospit

Futures & Options Quote
Future Data Not present
Key Information

Key Executives:

Ajay G Piramal , Chairman

Keki Dadiseth , Director

Swati A Piramal , Vice Chairperson

Nandini Piramal , Executive Director

Company Head Office / Quarters:

Piramal Tower,
Ganpatrao Kadam Mg Lower Parel,
Phone : Maharashtra-91-22-30466666 / Maharashtra-
Fax : Maharashtra-91-22-30467855 / Maharashtra-
E-mail : complianceofficer.phl@piramal.com
Web : http://www.piramal.com


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