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>PIRAMAL HEALTHCARE (EMKAY)
Restructuring- Long term positive
In a bid to improve operating performance of its Pharma Solution (CMG) business, Piramal Healthcare is re-aligning its CMG assets by closing down its Huddersfield facility. Company will take one time hit of Sterling pound 10.1mn in FY09 itself. Company will be shifting these contracts to Digwal (India) and Morpeth (UK) facilities. Management has indicated that this restructuring will enable them to improve the operating margins of its Pharma Solution business by 6 to 8 ppt from FY10E itself. The improvement in the margins is driven by a) Close down of Huddersfield facility, b) Increase in early phase pipeline, c) Cost improvement & clinical packaging offerings at Morpeth and d) Strong commercial projects pipeline at Digwal. However, because of shifting of contracts and temporary slowdown in CMG space because of inventory rationalization and destocking at customers end (may last till H1FY10E), company has indicated that its revenue from Pharma Solution business will be lowered by 5% in FY10E over FY09.
We view the restructuring of its Pharma Solution business as long term positive for the company. We have revised our revenue and earning estimates downward because of these restructuring. We have downward our revenue estimates by 11% and 11% and earnings estimates by 9% and 8% for FY10E and FY11E respectively. On the back of downward revision in earnings, our target price has been revised downward by 13% to Rs261. At CMP of Rs194, the stock is trading at\ 8.6x FY10E EPS of Rs22.6.
Why Restructuring?
Piramal’s decision to discontinue its Huddersfield facility (FY09 revenue- Sterling pound 19mn and operating margins < 3%, 93 employees, 30-35% capacity utilization) was mainly aided by the change in the customer’s perspective and also it would be financially beneficiary for the company on the Operating level. The customers of Piramal now prefer to move manufacturing directly to Indian assets of the company without having to go to the European site. On the operating level the company expects anexpansion of 6-8 ppt on the margins mainly driven by a) Close down of Huddersfield facility, b) Increase in early phase pipeline, c) Cost improvement & clinical packaging offerings at Morpeth and d) Strong commercial projects pipeline at Digwal.
Impact of Discontinuation of Plant
Shutting down of the Huddersfield facility by the company will take one time hit of Sterling pound 10.1mn on account of redundancy payments, pension top ups, contract termination costs and other professional fees in FY09 itself. However the company will be shifting the contracts which were in the Huddersfield facility to Digwal (India) and Morpeth (UK) facilities. However, because of shifting of contracts from Huddersfield to other sites, which may take 6-9 months in validation and stability temporary slowdown in CMG space because of inventory rationalization and de-stocking at customers end (may last till H1FY10E), company has indicated that its revenue from Pharma Solution business will be lowered by 5% in FY10E over FY09.
To see full report: PIRAMAL HEALTHCARE
In a bid to improve operating performance of its Pharma Solution (CMG) business, Piramal Healthcare is re-aligning its CMG assets by closing down its Huddersfield facility. Company will take one time hit of Sterling pound 10.1mn in FY09 itself. Company will be shifting these contracts to Digwal (India) and Morpeth (UK) facilities. Management has indicated that this restructuring will enable them to improve the operating margins of its Pharma Solution business by 6 to 8 ppt from FY10E itself. The improvement in the margins is driven by a) Close down of Huddersfield facility, b) Increase in early phase pipeline, c) Cost improvement & clinical packaging offerings at Morpeth and d) Strong commercial projects pipeline at Digwal. However, because of shifting of contracts and temporary slowdown in CMG space because of inventory rationalization and destocking at customers end (may last till H1FY10E), company has indicated that its revenue from Pharma Solution business will be lowered by 5% in FY10E over FY09.
We view the restructuring of its Pharma Solution business as long term positive for the company. We have revised our revenue and earning estimates downward because of these restructuring. We have downward our revenue estimates by 11% and 11% and earnings estimates by 9% and 8% for FY10E and FY11E respectively. On the back of downward revision in earnings, our target price has been revised downward by 13% to Rs261. At CMP of Rs194, the stock is trading at\ 8.6x FY10E EPS of Rs22.6.
Why Restructuring?
Piramal’s decision to discontinue its Huddersfield facility (FY09 revenue- Sterling pound 19mn and operating margins < 3%, 93 employees, 30-35% capacity utilization) was mainly aided by the change in the customer’s perspective and also it would be financially beneficiary for the company on the Operating level. The customers of Piramal now prefer to move manufacturing directly to Indian assets of the company without having to go to the European site. On the operating level the company expects anexpansion of 6-8 ppt on the margins mainly driven by a) Close down of Huddersfield facility, b) Increase in early phase pipeline, c) Cost improvement & clinical packaging offerings at Morpeth and d) Strong commercial projects pipeline at Digwal.
Impact of Discontinuation of Plant
Shutting down of the Huddersfield facility by the company will take one time hit of Sterling pound 10.1mn on account of redundancy payments, pension top ups, contract termination costs and other professional fees in FY09 itself. However the company will be shifting the contracts which were in the Huddersfield facility to Digwal (India) and Morpeth (UK) facilities. However, because of shifting of contracts from Huddersfield to other sites, which may take 6-9 months in validation and stability temporary slowdown in CMG space because of inventory rationalization and de-stocking at customers end (may last till H1FY10E), company has indicated that its revenue from Pharma Solution business will be lowered by 5% in FY10E over FY09.
To see full report: PIRAMAL HEALTHCARE
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