The Curious Case of Piramal Enterprises

First Some data points

- 31st Aug, 2018
Mkt cap 70K Cr, Sh Price 3070.

- 24th Mar, 2020
Mkt Cap 14K Cr , Sh Price 610.

-26th June, 2020
Mkt Cap 30K Cr , Sh Price 1350

(1/n)

The Carlyle Group Inc is investing USD 490 Mn for 20% stake in pharma business of PEL.

Taking 75 as the USD/INR exch rate, that works out to be roughly 3675 Cr.

That means whole Pharma business being valued at around 18K Cr.

(2/n)

Based on the above deal and current Mkt Cap of PEL

Financial Business is valued at around 12 Cr.

Most of the problems of PEL in its finance business is out in the open.

Some may still take time to come out.

(3/n)

Some positives

- a successful INR 3650 Cr Right Issue at Rs 1300 per share just months before COVID hit

- Another investment of INR 3675 Cr even in this tough environment.

- Potential unlocking of value by separately listing the pharma business in due course

(4/n)

But the main problem lies in the financing business.

It may take a long time to revive.

However, at a certain price, as discussed above, the stock may become very attractive for long term investors if you want to back the promoter based on past track record.

(5/n)

However, PEL's vagaries in RE lending business reminds us of this quote from Buffett:

"When management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact."

End

(n/n)

Correction:
In (3/n) value of financial business is 12K Cr.