Initiating Coverage |17 February 2017
Sector: Financials
-
Pharmaceuticals
Piramal Enterprises
Winner's Edge
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +9122 39825415 /
Kumar Saurabh
(Kumar.Saurabh@MotilalOswal.com); +9122 39825584
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +9122 39825424 /
Piran Engineer
(Piran.Engineer@MotilalOswal.com); +9122 39804393
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Piramal Enterprises
Contents: Piramal Enterprises | Winner’s Edge
Winner’s Edge ...................................................................................................... 3
Financial services:
Key value driver ....................................................................... 5
Financials: Financial services business ................................................................. 16
Pharma:
Rebranding the business ....................................................................... 17
Global Pharma business (~89% of pharma revenue) ............................................ 19
Consumer products (OTC + opthalmology) .......................................................... 25
Information management:
Opening new avenues ............................................... 28
Valuation and view............................................................................................. 32
Financial and valuations ..................................................................................... 34
17 February 2017
2

Piramal Enterprises
Initiating Coverage | Sector: Financials - Pharmaceuticals
Piramal Enterprises
Buy
BSE Sensex
28,301
S&P CNX
8,778
CMP: INR1,844
TP: INR2,200 (+19%)
Winner’s Edge
Converting opportunities to success
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
PIEL IN
172.6
2095/835
-2/-2/69
303.2
4.5
251.0
48.6
2019E
138.7
40.3
28.4
164.7
30
958
35.0
11.2
2.6
3.2
Financial Snapshot (INR b)
Y/E Mar
2017E 2018E
Revenues
84.5 113.2
EBITDA
22.3
33.1
PAT
12.9
21.9
EPS (INR)
74.5 127.1
EPS Gr. (%)
35
71
BV/Sh. (INR)
768
851
Payout (%)
35.0
35.0
Valuations
P/E (x)
24.8
14.5
P/BV (x)
2.6
2.6
Div. Yield (%)
1.4
2.5
We initiate coverage on Piramal Enterprises (PIEL) with a Buy rating and SOTP-
based target price of INR2,200. The financial services business contributes ~75%
of our total SOTP value.
PIEL’s wholesale lending business is on a strong growth path, with new product
addition. Apart from financing for real estate, PIEL has started financing for other
sectors as well. The wholesale financing book is expected to double in FY17
(INR261b) and end FY19 with INR548b. The company has also applied to the NHB
for an HFC license – this will supplement real estate financing business.
Turnaround of healthcare business (we expect EBITDA margin to expand from
11% in FY16 to 20% by FY19, partially helped by recent acquisition) and strong
traction in private equity/assets under advisory business are other positives.
Merger with Shriram Group, demerger of financial services business and value
unlocking in information management business will provide upside to our SOTP.
Wholesale lending: Aggressively scaling up; key value driver
The NBFC business (largely real estate financing to developers) is expected to
remain on a robust growth path, with strong relationships, customized end-to-
end solutions, and new product additions. Over FY12-9MFY17, it has built
INR227b+ customer assets, which we expect to grow to INR548b by FY19. This
business has healthy RoA (pre-tax) of ~6% and RoE (assuming 35% tax rate) of
22%+. With the addition of low-yielding products, we expect RoA (pre-tax) to
decline to ~5%. However, increased leverage will keep RoE healthy at 25%+.
PIEL has applied for retail housing finance business license; this business could
scale up fast considering the strong relationships Piramal enjoys with
developers.
Shareholding pattern (%)
As On
Dec-16 Sep-16 Dec-15
Promoter
51.44 51.47 51.58
Public
47.44 47.39 47.22
Others
1.11
1.14
1.21
FII Includes depository receipts
Healthcare: Re-building the business; expect strong turnaround
We expect PIEL’s
healthcare
business to deliver robust mid-teens growth over
the next three years, driven by (1) recent acquisitions, (2) expansion into new
areas and ADC manufacturing capacity, and (3) debottlenecking/capacity
expansion at other facilities. Global pharma businesses (89% of revenue) enjoy
strong operating margins of 20%+; however, domestic business has margins of
low single digits. Imaging business, which was a key drag to profitability, is likely
to wind down by CY17, driving overall margins higher. Overall, we expect strong
turnaround in this business, with EBITDA margin expanding from the current
~11% to ~20% by FY19, with revenue CAGR of 17%.
Piramal Enterprises
Winner’s Edge
Building on DRG acquisition to scale healthcare information services
Alpesh Mehta
+
91 22 3982 5415
PIEL’s information management (PIM) business originated from the acquisition
of Decision Resources Group (DRG), a decision-support platform in the
healthcare information services space. It intends to scale up via product
innovation and geographical expansion, with active thrust on the inorganic
route. Its CY15 revenue was USD178m, implying 9% 5-year CAGR.
3
alpesh.mehta@motilaloswal.com
Please click here for Video Link
17 February 2017

Piramal Enterprises
Stock Performance (1-year)
Merger of Shriram Group entities would provide significant granularity
Apart from building its wholesale book organically, PIEL has acquired stakes in
Shriram Group companies, the MTM value of which is ~INR60b (~20% of PIEL’s
market cap). Merger with Shriram Group will lead to significant scale-up in lending
business, with AUM of INR1.2t+. Further, share of wholesale lending will decline to
~20%.
SOTP our preferred way to value PIEL
Best talent coupled with stringent underwriting and rigorous post-disbursal
monitoring has enabled PIEL to build a fast-growing, highly profitable franchise,
with robust asset quality. We expect this business to deliver 35%+ PAT CAGR
over FY16-19 and value the business at 2.7x FY19E BV (25%+ RoE and strong
growth of 45%).
PIEL’s fund management business has AUM of INR70b+ and the company has
seeded investments into each of the funds. We value this business at 7% AUM.
PIEL’s INR46b investment in the Shriram Group is valued at ~INR80b based on a
target multiple of 2x for SHTF and 2.5x for SCUF. We have excluded investment
in the Shriram Group from PIEL’s net worth.
Invested capital in healthcare and IT businesses stands at INR110b+. We have
allocated INR40b of net worth to these businesses, of which INR21b is towards
the IT business. We have valued the healthcare business based on EV/EBITDA
and the IT business based on EV/Sales. Due to limited disclosure on debt
allocation to each of the businesses, we have taken combined (healthcare and
IT) EV and deducted combined debt to arrive at the value in SOTP. Healthcare
and IT businesses contribute ~25% to SOTP.
Exhibit 1: SOTP (FY19E Based)
Value
(INR B)
202
80
6
91
380
318
19.3
Value
(USD B)
3.0
1.2
0.1
1.4
5.7
4.7
19.3
INR per
share
1,169
465
37
529
2,200
1,844
19.3
Source: MOSL, Company
% To Total
53
21
2
24
100
Rationale
2.7x PBV; ROE of ~25% - Loan CAGR of 45% FY17-19
Based on our Target price; Implied 1.75x of invested capital
7% AUM
Pharma EV/EBITDA 13x; IT EV/Sales of 3x
Implied 2.3x Consolidated BV
NBFC business
Shriram Investments
AMC
Pharma, IT and Others
Target Value
Current market cap.
Upside (%)
Exhibit 2: Total capital employed (FY16; INR b)
NBFC business
Shriram Investments
AMC
Pharma, IT and Others
Total
Net Worth
34
46
4
40
124
% of total
28
37
4
32
Borrowings
105
0
0
57
163
% of total
65
0
0
35
Capital Employed
140
46
4
97
287
% of total
49
16
2
34
Source: MOSL, Company
17 February 2017
4

Piramal Enterprises
Financial services:
Key value driver
One of the largest players in an underserved market
The NBFC business (largely real estate financing to developers) is expected to remain
on a robust growth path, with strong relationships, customized end-to-end solutions,
and new product additions.
Over FY12-9MFY17, it has built an INR227b+ loan book, which we expect will reach
INR548b by FY19.
Backed by higher margins, low cost to income ratio and negligible credit cost, business
has healthy RoA (pre-tax) of ~6% and RoE of 25%+. With the addition of low yielding
products, we expect RoA (pre-tax) to decline to 5%. However, increased leverage will
keep RoE healthy at 25%+.
In 2013, PIEL acquired 10% stake in Shriram Transport. It followed this up with the
acquisition of 20% stake in Shriram Capital and 10% stake in Shriram City Union
Finance in 2014. With these investments, PIEL has also diversified into retail financing.
Additionally, the company has recently applied to the NHB for an HFC license, which
could help drive growth over the long term (not factored in our estimates).
Significant scale in financial services business
The wholesale lending book
has grown significantly in
the past five years. PIEL is
now among the top 3 real
estate financiers in India.
In a span of just five years, PIEL has evolved to become one of the largest real
estate financiers in India with a loan book of over INR227b+. Given the lack of
availability of capital for real estate projects and one off opportunities in the
other sectors, we expect the loan book to continue to grow at a rapid pace over
the medium term.
Evolution of the financial services business
FY11-
Acquired
INDIAREIT
FY13-
Commenced
Special
Situations
Lending
FY15- Acquired
20% stake in
SCL and 10%
stake in SCUF
FY17- Applied for
HFC license;
Started flexi LRD
for completed
assets
FY12-
Commenced
Wholesale
Lending; Bought
Vodafone stake
FY14-
Acquired 10%
stake in STFC
FY16- Started
construction
finance
17 February 2017
5

Piramal Enterprises
Unlike most of its competitors that are engaged purely in construction finance,
PIEL offers a large suite of products across the entire real estate financing
spectrum. It has positioned itself as a one-stop shop for all capital needs of the
developer, ranging from preferred equity to senior debt.
In 2013, PIEL acquired 10% stake in Shriram Transport. It followed this up with
the acquisition of 20% stake in Shriram Capital and 10% stake in Shriram City
Union Finance in 2014. With these investments, PIEL has also diversified into
retail financing.
Financial Services Business - Snapshot
FINANCIAL
SERVICES
Wholesale
Business
Retail
Business
Lending
RE: INR170b
SS: INR22b
AMC
RE: INR65b
SS: INR8b
Lending
Applied for HFC
license
Investment in
Shriram Group
SCL: 20% stake
STFC: 10% stake
SCUF: 10% stake
Source: MOSL, Company; Note- RE: Real Estate, SS: Special Situations
NBFC business: On a strong growth path
New product additions
driving strong growth; RoE
best-in-class
With a diversified product suite targeting top tier developers, the real estate
financing loan book has grown at a CAGR of over 100% since FY12.
The business is largely concentrated in the top-six metro cities and focused
more on residential real estate projects in the mid-to-affordable market
segment in the early stage. PIEL has been adding new products/segments every
year, leading to strong growth. The company also focuses more on gaining large
share of the wallet of the developer.
This business delivers a healthy RoA of 6%+ and RoE of 25%+. We factor in loan
CAGR of 45%+ over FY17-19; as leverage increases, there would be a marginal
decline in RoA, but an improvement in RoE.
17 February 2017
6

Piramal Enterprises
Exhibit 3: Loan book trend (INR b)
227
Exhibit 4: Break-up of loan book as of 9MFY17 (INR227b)
Special
Situations,
11%
RE lending
(ex-
construction
finance),
39%
130
4
FY12
20
FY13
29
48
Construction
Finance,
50%
Source: MOSL, Company; Note: Others include equity and senior
debt offerings
FY14
FY15
FY16
9MFY17
Source: MOSL, Company
From a pure residential RE financier to diversified wholesale lending
PIEL offers wholesale loans
in six metros to over 80 real
estate developers; with its
foray into construction
finance, PIEL has become a
one-stop shop for all
financing needs of the
developer
In FY12, PIEL acquired teams from leading financial services companies to run its
NBFC business. It forayed into special-situations investing/lending (mezzanine
financing) in 2013. This product has high yield, low tenure (18-24 months) and
higher risk. Leveraging on its relationships PIEL started doing construction
finance from January 2015 (low risk and high maturity period of 4-5years).
PIEL forayed into commercial real estate financing in January 2016. Construction
finance (INR14.3b) and lease rental discounting (7-10 year tenure - recently
added) are the key products. Company has recently launched flexible LRD
product for completed commercial real estate projects. Management is bullish
on the prospects of lease rental discounting and expects this book to grow to
INR100b by end-FY18.
PIEL does not offer preferred equity finance, structured finance, etc, and does
not intend to diversify into those products anytime soon.
By March 2018, we expect PIEL to have a strong diversified residential and
commercial RE loan book. The company is looking at portfolios of other NBFCs
to make in-roads to strong projects and better developers.
PIEL intends to do more business with existing clients rather than acquiring new
clients. It is capitalizing on the opportunities available around existing
relationships; for example: refinancing, construction finance, etc.
Recently, the special investment group has merged with the RE financing
division. With this, PIEL is looking at wholesale lending across sectors.
Exhibit 5:
Comparison of non-retail housing loan portfolio with peers (INR b, 9MFY17)
832
202
HDFC
PEL
171
86
DHFL
39
PNBHF
IHFL
Source: MOSL, Company; PNBHF corporate loan portfolio is an estimate
17 February 2017
7

Piramal Enterprises
Exhaustive product suite, one team approach and strong relationships
PIEL has a single team
catering to every need of a
particular developer, right
from preferred equity
financing to construction
finance
Over the years, PIEL has lent to over 80 developers in most metropolitan cities.
Almost the entire real estate lending is from Mumbai, Pune, Bengaluru,
Hyderabad, Chennai, and NCR. Over 70% of its loans are to A-grade developers
for residential developments. PIEL does business with 3/5 of the top real estate
developers in any city.
Initially, PIEL focused on lending in the middle stage of development – post land
acquisition, but pre-approval. Now, it provides end-to-end solutions.
Incrementally, construction finance – both in the residential and commercial
space – has been the biggest growth driver.
Unlike other players, PIEL has a single team catering to the developer from start
to end and offers multiple financing solutions like private equity, structured
debt, senior lending, construction finance, etc. This business model of a single
team per developer for end-to-end financing solutions, coupled with preferred
financier approach has helped PIEL to win relationships from competitors.
The company also has a special situations lending arm to offer last mile
financing, promoter financing, acquisition financing, etc. While the focus is
primarily on real estate, it diversified into sectors such as cement, infrastructure,
renewables and transportation in FY16. Lending is done against a security cover
of 1.5-2x. Total loans outstanding in this segment are INR25.4b as of 9MFY17.
Exhibit 6: PIEL caters to the end-to-end capital needs of the developer
Source: MOSL, Company
17 February 2017
8

Piramal Enterprises
Construction finance driving incremental growth, but at lower yields
Construction finance, which
commenced in FY16, now
accounts for 56% of the
loan book; it will continue
to drive business growth
From a business model perspective, PIEL’s loans used to get refinanced by banks
(due to lower cost) post completion of certain milestones. However, by
introducing construction finance, PIEL is able to retain the relationship with the
developer till the end of the project life cycle. Yields (14-16%) in this segment
are ~400bp lower than senior secured debt/structured debt (18-20%). However,
the tenor is higher at 4-6 years v/s 3-5 years for other products.
With strong disbursements in construction finance during FY16 and 9MFY17,
this segment now accounts for 56% of the outstanding real estate loan book.
The management expects the construction finance segment to drive growth,
going forward. The total construction finance loan book as of 9MFY17 stood at
INR113b.
Entry into commercial real estate financing helps diversify loan book
PIEL forayed into
commercial real estate
financing in FY16; however,
it restricts itself to
construction finance
PIEL began commercial real estate financing in FY16. Due to risk aversion, a lot
of lenders have vacated the space and PIEL seized the opportunity to capitalize
on its strong relationships with developers in the residential space.
Risk is much higher than in the residential real estate segment, as the developer
earns money only at project completion. PIEL does not provide equity financing
(preferred or mezzanine) and does not intend to do so in the near term. In
addition, with few Greenfield commercial real estate projects coming up, there
isn’t much demand for equity/structured debt.
PIEL does not face competition from private equity (PE). PE players do not offer
construction finance; they directly buy out commercial real estate assets. In
commercial RE financing company has only two products: (a) construction
finance, and (b) Lease Rental Discounting (LRD).
Management expects to grow the LRD book to INR100b by FY18.
Exhibit 7: Product introduction timeline
Timeline Products introduced
2011
2013
2015
2016
Preferred/Mezzanine equity and structured debt for residential projects
Mezzanine lending for special situations
Construction finance for residential real estate projects. Also started LAS for special situations
Started construction finance for commercial real estate projects and senior lending in special situations
Started doing Lease Rental Financing
Source: MOSL, Company
Getting aggressive in non-RE wholesale financing business
Along with wholesale financing for real estate developers, PIEL also offers
financing for special situations (Structured Investment Group recently merged
with PIEL) – promoter financing, bridge funding for cash flow mismatches, and
financing for regulatory arbitrage opportunities.
The company used to do mezzanine financing earlier; post-merger, it also does
senior lending. The Group’s focus will expand beyond infrastructure financing.
Current outstanding total loans under this business are INR25.4b, up from
INR10.5b a year ago. Management commentary points to strong growth driven
by entry into multiple sectors (infrastructure, cement, renewables, etc).
Management expects to grow the book to INR40b+ by end-FY17.
9
17 February 2017

Piramal Enterprises
The business has healthy security and cash cover of 1.5-2x. Yields range from
13% to 20% depending on the product offering and the sector dynamics.
Strong risk management focus allays asset quality fears
PIEL has independent legal
and risk teams that can veto
any decision taken by the
investment committee
PIEL has a team of 150 investment professionals across six cities, responsible for
investments, asset monitoring, fund raising and other processes. Of the 140
people, 90 employees are responsible for continuous asset monitoring.
The Investment Committee comprises not only of senior professionals in the
company but also industry experts and independent directors. All proposals are
thoroughly reviewed on a case-by-case basis by the Investment Committee and
are then sent to the risk team, which has the right to veto.
PIEL also has a proprietary risk scoring model. Each transaction is uniquely
structured so as to address the specific risks of that project.
Since the Piramal Group is also involved in real estate development, PIEL has a
better understanding of the on-the-ground environment. After loans are
disbursed, local asset monitoring teams make monthly visits to the project sites
to ascertain the progress of the project, cost overruns, if any, etc.
The teams also ascertain if the cash covers are sufficient or if they need to be
topped up. The risk team is also responsible for managing risk at the portfolio
level – that is, to balance the exposure by city, region or project. PIEL enjoys
good relationships with several banks and is able to source loans at 9-10%.
PIEL maintains adequate security cover (1.5-2x) in the form of (a) value of
under-construction property as appraised by it, and (b) present value of the
developer’s receivables.
Exhibit 8: Strong review mechanism
Source: MOSL, Company
17 February 2017
10

Piramal Enterprises
Exhibit 9: PIEL also has external luminaries as part of the Investment Committee
Niraj Bhukhanwala
Ashish Dalal
Shitin Desai
Harish Engineer
Rajesh Khanna
Suhail Nathani
Deepak M. Satwalekar
Bharat D. Shah
R A Shah
Tara Subramaniam
N Vaghul
Worked with Mckinsey & Company and Intel, MBA from INSEAD, France
Ex-partner with PWC, Practicing in Mergers, Acquisition, & Valuations
Exceutive Vice Chairman of DSP Merrill Lynch; Member of SEBI and RBI Committees
Former ED & Head Wholesale Banking, HDFC Bank,; Worked for 26 years in Bank of America
Founder & CEO of Arka Capital Advisors; Ex. Managing Director at Warburg Pincus
Among panel of lawyers for SEBI, CCI and WTO Panel for the Government of India
Former MD & CEO, HDFC Standard Life; Ex-consultant to the World Bank and ADB
Chairman, HDFC Securities; Advisor HDFC Bank
Solicitor and senior partner at M/s Crawford Bayley & Co
Director - Sun Group; Past experience in HDFC Limited
Former Chairman, ICICI Bank
Source: MOSL, Company
Post-disbursal asset monitoring process key to robust asset quality
ASSET
SUPERVISION
Use proprietary
knowledge to identify
early warning signals
Preventive action
Monthly site visits to
monitor progress
Keep a tab on sales,
collections, cost,
adequacy of
collateral, etc.
Escrow and retention
mechanisms for
operational control
Quarterly Monitoring
Committee meetings
to discuss problems
Source: MOSL, Company
Competitive intensity and product mix change to drive spreads lower;
increase in leverage to drive RoE higher
Competition in construction finance and lending to top-tier developers is high.
With the shift in PIEL’s incremental business mix towards this space,
yields/spreads are likely to come under pressure. Our industry interactions
indicate that yields in this space (despite sluggish real estate activity) have
declined by 150-200bp over the last 12-18 months.
Currently, leverage is low in this business (based on internal net worth allocation
– although not exactly quantified) at 3.5x, which we believe could increase to 5-
6x. The NBFC borrows from PIEL’s balance sheet, where leverage is low at 2.5x.
Hence, there is enough scope to improve leverage and maintain RoE, despite fall
in RoA. It is looking at generating higher fee income to support profitability.
17 February 2017
11

Piramal Enterprises
Exhibit 10: Best-in-class financial metrics (%)
FY16
Loan Yield
C/I ratio
GNPA
RoA
RoE
Leverage
17%
7%
0.9%
7%
25%
3.5x
9MFY17
16%
7%
0.5%
6%
25%+
4.1x
NBFCs offer greater
flexibility at competitive
rates, which give them a
competitive advantage over
banks in real estate
financing
Inherent advantages over banks in RE financing
Banks require a formal date of completion for the project, beyond which it
would be classified as NPA. NBFCs don’t have such a requirement.
Banks require monthly interest payments and they also disburse loans in stages
as per the stage of development in case of construction finance. NBFCs can
adopt a more flexible model on this front.
Plans to enter into retail housing finance space
With strong reach of 250+ projects, relationships with 80%+ developers and
presence in large metros PIEL has decided to enter retail housing finance market
PIEL plans to utilize technology, analytics and world class process to use it as a
competitive advantage
Company plans to put INR10b initially into this business and planning to
achieve mid to high teens return ratios
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Risk management is of utmost importance. 85% of the projects have achieved
financial closure and are up and running. 90% of the portfolio financed in the
residential segment is towards affordable and mid-market segment
PIEL insists on cash cover along with security cover with a higher focus on cash
cover. Cash cover stands for expectation of net cash collection by the developer
from the project. The entire cash flow is escrowed with PEL.
Disbursements in construction finance are linked to sales. Payments are made
only after achieving a minimum amount of sales. A minimum selling price is
specified in the loan agreement with the developer.
PIEL does a sensitivity analysis while underwriting, assuming a ‘bear case’
scenario. The key assumptions are a) Delay sales by one year b) sales velocity is
calculated by the company rather than stated by developer c) Assume cost
increase of 20% and sales decline of 20%
Management does not see a significant impact on the asset quality and in fact
expects higher growth rates and benefit PIEL in the long term
Alternate asset management business – focus on higher returns
PIEL has recently launched
an INR60b ‘Piramal India
Resurgent Fund’ for
investment in stressed
assets
PIEL’s asset management business raises funds from third parties and deploys
these in pure/preferred/mezzanine equity products. PIEL has ~7.5% sponsor
commitment in all the funds. This is an asset-light business, and the company
earns income on 2%/20% fees/profit-sharing structure. Typical yields/IRRs in this
space are 20-24% and tenor is 4-6 years.
So far, the company has invested in 62 projects across 7 cities with 25 leading
developers. It has exited almost 100% of corpus in all three vintage funds.
12
17 February 2017

Piramal Enterprises
It intends to gradually move towards preferred/pure equity structures with Tier-
I developers. Recently, it has also launched India Resurgent Fund with a corpus
of INR60b focused on acquiring stressed loans.
Exhibit 11: Cumulative assets under management in various funds (INR b)
76
84
87
70
38
39
43
FY11
FY12
FY13
FY14
FY15
FY16
9MFY17
Source: MOSL, Company; Note: Decline in 9MFY17 as they completely exited two vintage funds
Other strategic alliances/investments
Finding opportunities for
shareholder value creation
PIEL has a strategic alliance with APG for the special situation fund business.
Total outstanding disbursements under this fund are INR8.5b as of December
2016.
Some of the successful financing deals under this business are: (a) acquisition of
~11% stake in Vodafone India in August 2011 for INR59b and monetizing it at
INR89b in April 2014, (b) mezzanine funding of INR9b to GMR (financed 50:50 by
PIEL and APG), and (c) mezzanine funding of INR2.75b to ReGen.
PIEL has entered into JV with Bain Capital credit to invest in restructuring cases
in India. Team has been on boarded and deal valuations being commenced.
Intital contribution of USD200m is contributed by both parties.
Shriram group stake acquisition helps in diversifying into retail financing
PIEL acquired 10% stake in
SHTF in 2013, followed by
20% stake in Shriram
Capital and 10% stake in
SCUF
PIEL prefers the M&A route to build long gestation businesses. It has entered
the retail financing business by acquiring stakes in Shriram Group companies. It
has acquired 10% each in Shriram Transport (for INR16.4b in 2013) and Shriram
City Union Finance (for INR8b in 2014). PIEL has also acquired 20% stake in these
two companies’ parent, Shriram Capital (for INR21.5b in 2014). Altogether, it
has invested INR45.8b (37% of FY16 net worth) in these companies.
Shriram Transport (SHTF), Shriram Group’s flagship company, is involved in
commercial vehicle financing. It is the only organized player that offers old
vehicle (8-10 years vintage) financing. With a turnaround in the CV industry,
SHTF is well poised for growth over the medium term.
Shriram City Union (SCUF) is a multi-line financier dealing in SME, two-wheeler
and gold loans. It offers smaller ticket size SME loans than its peers. It does not
rely on DSAs for customers; instead, it mines the large number of customers
Shriram Chits has. SCUF is a pioneer in 2W financing and is one of the largest 2W
financiers in the country.
SHTF and SCUF are listed entities, and based on our back-of-the-envelope
calculations for Shriram Capital, the total value of PIEL’s stake in these
companies works out to ~INR92b (2x its initial investment).
17 February 2017
13

Piramal Enterprises
In November 2014, Mr Ajay Piramal became the Chairman of Shriram Capital.
He is focused on developing a long-term strategy for the Group and has hired
external consultants to assist in developing the strategy.
Exhibit 12: SHTF – AUM trend
24
AUM (INR b)
23
growth %
11
7
402
FY12
497
FY13
531
FY14
11
8
591
FY15
728
FY16
785
FY17E
10
13
866
FY18E
975
FY19E
Source: MOSL, Company
Exhibit 13: SHTF – return ratios trending up
23.1
RoA %
20.6
4.0
16.3
3.1
14.1
2.5
12.2
2.1
12.3
2.2
14.7
2.7
16.1
2.9
RoE %
With a turnaround in the CV
industry, we expect a sharp
uptick in SHTF’s return
ratios
4.7
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: MOSL, Company
Exhibit 14: SCUF – AUM trend
While SCUF witnessed a
decline in return ratios due
to rural stress, we expect a
turnaround on the back of
good monsoons and
government thrust on
infrastructure
68
AUM (INR b)
growth %
18
(7)
134
FY12
158
FY13
147
FY14
14
17
18
19
20
167
FY15
196
FY16
231
FY17E
274
FY18E
330
FY19E
Source: MOSL, Company
17 February 2017
14

Piramal Enterprises
Exhibit 15: SCUF – return ratios trending up
23.2
RoA %
22.5
3.4
20.2
3.6
15.9
12.3
12.7
RoE %
3.6
2.9
3.0
16.1
17.6
3.8
3.2
3.1
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: MOSL, Company
Merger of Shriram Group entities would provide significant granularity
The Shriram Group has built expertise in the retail financing business and has
created a niche in SME, vehicle financing, two-wheeler financing, and gold loans.
PIEL has developed expertise in wholesale financing.
On a standalone basis, loan concentration risk is high for PIEL. However, post-
merger, it would have a diversified loan book, reducing concentration risk.
A profitable, diversified business would fetch higher valuations as compared to
the standalone RE financing business. Hence, the option value remains high.
Mr. Piramal quoted by media on possible Shriram Group acquisition
"As all of the initiatives for growth take shape, we are also increasing orientation
of employees towards performance because that is the right thing to do as
trustees to our stakeholders. As a consequence, there are some changes under
way at Shriram as one would make in the normal course of any business. This
implies placing the right people for the right roles given their capabilities and
strengths, recognizing and rewarding the good performers based on objective
criteria, and bringing in external talent in areas where we have capability gaps in
Shriram."
"We have hired McKinsey on some of the initiatives largely in SCUF for SME and
cross-selling.”
FY16 Loan Book
338
168
145
130
106
39
35
33
22
16
12
10
1,054
% share
32
16
14
12
10
4
3
3
2
2
1
1
Source: MOSL, Company
Exhibit 16: Pro-forma merged numbers (FY16) for PIEL, SHTF an SCUF
INR b
HCV
Passenger Vehicles
M&LCV
Real estate
MSME
Tractors
2 -Wheeler loans
Gold Loan
Others
SEF
Auto loan
Personal Loan
Total
17 February 2017
15

Piramal Enterprises
Financials: Financial services business
Income Statement
Y/E MARCH
Interest Income
Interest Expense
Net interest income
Change (%)
AMC Fees
Fee income
Other income
Net Income
Change (%)
Operating Expenses
Change (%)
Operating Profits
Change (%)
Total Provisions
% to operating income
PBT
Tax
Tax Rate (%)
PAT
Change (%)
BALANCE SHEET
Y/E MARCH
Networth
Borrowings
Change (%)
Other liabilities
Change (%)
Total Liabilities
Customer assets
Change (%)
Other assets
Change (%)
Total Assets
RATIOS
Y/E MARCH
Spreads Analysis (%)
Avg. Yield on loans
Avg. Cost of funds
Interest Spreads
Net Interest Margins
Profitability Ratios (%)
RoE
RoA
Cost to Income Ratio
2015
7,026
505
6,521
1,601
381
363
8,866
1,819
7,047
473
6.7
6,575
2,301
35.0
4,274
2016
15,578
5,940
9,638
47.8
1,716
891
454
12,699
43.2
1,662
-8.6
11,037
56.6
1,700
15.4
9,337
3,268
35.0
6,069
42.0
2017E
29,358
12,950
16,408
70.2
1,569
1,957
481
20,415
60.8
1,429
-14.0
18,986
72.0
4,110
21.6
14,876
5,206
35.0
9,669
59.3
2018E
45,668
21,660
24,008
46.3
1,499
3,262
638
29,407
44.0
2,059
44.0
27,349
44.0
6,198
22.7
21,151
7,403
35.0
13,748
42.2
(INR Million)
2019E
61,065
30,765
30,299
26.2
1,724
4,697
789
37,510
27.6
2,626
27.6
34,884
27.6
8,925
25.6
25,959
9,086
35.0
16,874
22.7
2015
28,336
28,722
0
57,058
47,660
9,398
57,058
2016
34,405
105,176
266.2
0
139,581
130,480
173.8
9,101
164.5
139,581
2017E
44,074
208,768
98.5
21,166
274,008
260,960
100.0
13,048
265.5
274,008
2018E
57,822
332,724
59.4
20,466
-3.3
411,012
391,440
50.0
19,572
428.3
411,012
2019E
74,696
482,254
44.9
18,467
-9.8
575,417
548,016
40.0
27,401
691.0
575,417
2015
2016
2017E
15.0
8.3
6.8
8.4
2018E
14.0
8.0
6.0
7.4
2019E
13.0
7.6
5.5
6.5
24.6
4.7
7.0
27.0
4.0
7.0
25.5
3.4
7.0
17 February 2017
16

Piramal Enterprises
Pharma:
Rebranding the business
Expect strong EBITDA CAGR of ~40% over FY16-19
PIEL operates under two broad divisions under healthcare currently 1) Global Pharma
which constitutes of Pharma solutions and Critical Care & 2) India consumer products.
Imaging is another division which the company plans to trim down over next few
months.
Pharma business for PIEL grew at a CAGR of 17% over the last five years (till FY16). The
company has invested ~INR30b in the last two years to acquire seven assets in the
Pharma space. We expect the pharma solutions business to deliver robust mid-teen
growth over the next three years on the back of (1) ramp-up of injectables business,
(2) expansion into new areas, including high potency APIs, (3) expansion of ADC
manufacturing capacity, (4) debottlenecking/capacity expansion at other facilities and
(5) growth driven by recent Inorganic expansion
Global pharma businesses like Pharma and Critical Care (80% of pharma revenue) has
the strong EBITDA margin of 20%+ whereas, EBITDA margin for consumer business
(domestic business) is low single digits (5-8%). On the domestic business PIEL is in a
significant investment mode hence margins will remain low but revenue growth is
expected to be strong. Imaging a drag to profitability is likely to wind down in CY17
hence improving overall profitability of Pharma division
PIEL has invested >INR60b in this business and we have valued this business on
EV/EBITDA of 13.5x (12x EV/EBITDA for Pharma and Critical Care; 3x EV/Sales for
Consumer Products). Our total EV for this business works out to INR124b.
Piramal Healthcare 2.0
Post the sale of its domestic formulations business to Abbott in FY11, PIEL has re-
built its healthcare business. Over the last five years, healthcare revenue has grown
at a CAGR of 17% to INR35.6b (~54% of total revenue) in FY16. PIEL operates under
two broad divisions in the healthcare segment: (1) Global Pharma which constitutes
of pharma solutions & critical care (~89% of pharma revenues) and (2) consumer
products (~11% of pharma revenues).
New capability additions
should drive growth in the
pharma solutions division
PIEL is one of the few large integrated contract development and manufacturing
organizations (CDMOs) in the world, offering both APIs and formulations through its
11 sites across North America, Europe and India. We expect this business to deliver
robust mid-teens growth over the next three years, driven by (1) ramp-up of
injectables business, (2) expansion into new areas, including high potency APIs, (3)
expansion of ADC manufacturing capacity, and (4) debottlenecking / capacity
expansion at other facilities.
PIEL is the third-largest player (after Abbott and Baxter) in the global inhalation
anesthesia space. It has 12% market share currently in this space, up from ~3% in
FY09, on the back of strong product portfolio, competitive pricing, consistent supply
of products and robust distribution network. Launch of Desflurane, cost reduction,
and entry into new markets should help achieve 17-18% CAGR over the next three
years. PIEL is actively looking at both organic and inorganic opportunities to add
other critical care products to its portfolio.
The company has expanded its OTC product portfolio. It now features among the
top-7 players in the OTC space; in 2007, it ranked 40th. PIEL has expanded its
distribution reach to 1,500 towns (~480 towns in FY15), with a field force of ~2,000
17
Desflurane launch is likely
to act as a catalyst for the
critical care division
Expect margins in the OTC
division to expand
17 February 2017

Piramal Enterprises
(~800 in FY15). We expect margins in this business to expand (achieved breakeven in
FY16) on positive operating leverage (distribution expansion largely done) and sales
force automation (to facilitate efficient productivity).
In the last two years, PIEL has invested heavily in the pharma business. It has spent
~INR30b to acquire seven assets across geographies in different areas. It acquired
two pharma businesses - Coldstream into Injectables and Ash Stevens into High
Potency API. Both of these are in the U.S. Two pharma product portfolios that
contain differentiated branded generic products from Janssen and the latest one
from Mallinckrodt. In the consumer products portfolio in India, it acquired four
brands from Pfizer, five brands from Organon India & MSD, and the Baby-care brand
‘Little’s’. Because of these acquisitions, proforma revenue for FY16 would go up to
INR43b from INR36b currently. Similarly, EBITDA margins of global pharma business
(Ex India) will jump to ~21% vs ~17% currently.
Exhibit 17: Invested ~INR30b to do seven acquisitions in Pharma space
Invested ~INR30b to do seven acquisitions in Pharma space
Source: MOSL, Company
Exhibit 18: Pro-forma revenue increase led by seven
acquisitions (INR b)
31.2
35.6
Exhibit 19: Pro-forma EBITDA margin increase led by seven
acquisitions
15%
16%
17%
43.2
9%
11%
14%
21%
16
19.9
24.4
28.2
Source: MOSL, Company
Source: MOSL, Company
17 February 2017
18

Piramal Enterprises
Global Pharma business (~89% of pharma revenue)
The global pharma solutions business has grown at a CAGR of 16% over FY12-16, on
the back of steady growth in CMO business and >20% growth in critical care space.
We forecast 15.5% CAGR in revenue over FY16-19, buoyed by entry into niche
segments (sterile injectables, ADCs, high potency APIs).
Exhibit 20: Global Pharma- the largest segment within healthcare (89% of FY16 revenue)
Pharma solutions (INR mn)
6,330
FY12
8,873
FY13
10,336
FY14
11,135
FY15
12,684
FY16
13,560
FY17E
15,983
FY18E
18,851
FY19E
Source: MOSL, Company
Adding strength across the value chain- product capabilities, manufacturing
facilities and distribution network
PIEL has end-to-end manufacturing and service delivering capabilities both for APIs
and formulation including niche capabilities in Injectables, High Potency API,
Antibody Drug Conjugates, Inhalation Anesthesia, etc. It also has a large global
distribution network reaching to over 100 countries through dedicated sales force
and distributors and a strong presence in key geographies of North America, Europe,
India, and Japan.
Exhibit 21: Global Pharma- Adding capabilities in niche areas
Product Portfolio
Inhalation Anaesthesia
Injectable Anaesthesia/
Pain Management
Intrathecal Severe Spasticity/
Pain Management
Other Products
Announced acquisition
from Ma l linckrodt LLC
i n Ja n 2017
To be launched in 2017
Acqui red from Ja nssen
Pha rma ceutica in Oct
2016
Differentiated
Branded
Hospital
Generics
* Controlled substances
Source: MOSL, Company
17 February 2017
19

Piramal Enterprises
Addressing customer needs across the drug life cycle
PIEL offers end-to-end
contract development and
manufacturing services
(CDMO) through
collaborative partnerships.
PIEL offers end-to-end contract development and manufacturing services (CDMO)
through collaborative partnerships. It works with customers throughout the life
cycle of the drug across APIs and formulations. It also offers differentiated services
in areas such as antibody drug conjugates (ADCs), bio-catalysis, continuous flow
chemistry, etc. This is quite different from the model adopted by most leading
Indian CRAMS players – Divis, Dishman, Neuland, etc – that focus only on APIs.
Exhibit 22: End-to-end CRAMS players for APIs and formulations
Strong customer relationships
PIEL has been working with five of the top seven global pharmaceutical companies.
Additionally, its long-term partnerships with several mid-sized, small and virtual
pharma firms in the regulated markets have also supported growth.
Regulatory compliance – a key focus area
PIEL has a strong global
footprint of manufacturing
assets at 14 sites, of which
nine are approved by the
USFDA.
PIEL has a strong global footprint of manufacturing assets at 14 sites, of which nine
are approved by the USFDA. Manufacturing facilities in India are primarily used to
cater to the API market, whereas facilities in the US and Europe are primarily used
for manufacturing formulations, as innovators typically want formulation
manufacturing for patents to be closer to the end-markets.
The company has successfully cleared more than 20 USFDA audits for its
manufacturing facilities over the past three years, with no major observations. Its
key facilities at Morpeth (UK), Pithampur (India) and Digwal (India) account for 60-
70% of Healthcare revenues. The company successfully cleared a USFDA audit at its
Digwal facility with no observation in 1QFY17.
17 February 2017
20

Piramal Enterprises
Exhibit 23: 14 manufacturing facilities spread across the world
Source: MOSL, Company
Niche capabilities across product segments
Grangemouth (ADC):
PIEL has a facility in Grangemouth (Scotland) for antibody
drug conjugates (ADC – delivery system where the drug attaches itself to dead
cancer cells and then bursts, thereby minimizing toxicity). It acquired this facility
5-6 years ago.
Coldstream Laboratories (sterile injectables):
In FY15, PIEL acquired US-based
Coldstream Laboratories, a specialty pharmaceutical CDMO focused on the
development and manufacturing of sterile injectable products. This acquisition
has strengthened its position in the injectables market, complementing its
sterile injectable development capability at Mumbai. There is significant traction
at Coldstream, with its order book running full. To cater to commercial demand
from existing and new projects, it is currently implementing a USD12million
capacity expansion project.
Ash Stevens:
PIEL is set to acquire US-based full-service CDMO, Ash Stevens. It
develops and manufactures high potency active pharmaceutical ingredients
(HPAPIs). This is one of the fastest growing segments in the pharmaceuticals
sector and over 50% of the HPAPIs are anti-cancer drugs.
NCE:
The company has scaled back NCE R&D and is now looking to divest these
assets to suitable buyers. All assets are in phase-1 trials.
17 February 2017
21

Piramal Enterprises
Inhalation is a three-player market – PIEL lowest cost producer
The inhalation anesthesia market is largely a three-player market, comprising of
Abbot, Baxter and PIEL. On an average, it takes four years to get approval for a drug.
PIEL is the lowest cost producer owing to the strategic location of its facilities (India).
Its cost advantage enables it to control prices and its market share has increased
from 3% to 12% over the past few years.
Exhibit 25: PIEL’s market share has increased significantly
owing to its disruptive pricing strategy
12
Exhibit 24: Global market share (FY15, %)
Abbott, 48
8
Baxter, 40
3
PCC, 12
Source: MOSL, Company
FY09
FY12
FY15
Source: MOSL, Company
Complete product portfolio in inhalation
PIEL’s product portfolio currently includes three inhalation anesthetics – Halothane
(animals), Isoflurane (developing/third-world countries) and Sevoflurane (developed
markets). With the launch of Desflurane in CY17, PIEL would be the only company to
offer a complete product portfolio of inhalation anesthetics.
With the launch of
Desflurane in CY17, PIEL
would be the only company
to offer a complete product
portfolio of inhalation
anesthetics.
Exhibit 26:
Sole company with a portfolio of all generations of inhalation anesthetics
Competitive intensity within the US inhalation industry
Source: Company, MOSL
Desflurane (gSuprane)
Baxter is the innovator
No generic substitute currently available in the US
PIEL expected to launch in CY17
Seroflurane (gUltane)
Accounts for 70% of global inhalation anesthesia market
Abbvie is the innovator
Five-player market; PIEL has captured ~30% market share in the US
22
17 February 2017

Piramal Enterprises
Isoflurane (gForane)
Baxter is the innovator
Four-player market including the innovator and three generics; however,
one manufacturer has exited recently, leading to better pricing
PIEL is the largest player in the US
Halothane
PIEL is the sole manufacturer in the US
Additionally, PIEL has gained significant traction within the Sevoflurane market in
the UK. The company captured ~42% market share after one year of its launch. It is
also gaining traction in Japan (Sevoflurane market share: 56%) and other markets of
Saudi Arabia, Germany and Malaysia.
Strong hospital network
PIEL has built strong relationships with hospitals and doctors. It serves over 6,000
hospitals through a combination of a direct sales force (the US and select European
markets) and marketing partners/distributors (rest of the world). It works
collaboratively with over 150 marketing partners in countries where it does not have
a direct sales force.
Exhibit 27: Wide hospital reach
Source: MOSL, Company
Key business drivers
1.
Desflurane launch in the US (USD200m market):
PIEL is expected to launch its
next generation product, Desflurane in the US in CY17. Currently, there is no
generic substitute for this product in the US. Besides the launch of the first
generic Desflurane in the US and other key geographies, growth would also be
aided by increasing share in inhalation anesthesia markets and launch of existing
products in new geographies.
17 February 2017
23

Piramal Enterprises
2.
JV with NavinFluorine:
PIEL would be collaborating with NavinFluorine to
manufacture APIs in India, which would further lower manufacturing costs
(procurement savings). It would be able to gain market share within the global
inhalation anesthesia market by further lowering its selling prices.
3.
Leveraging strong hospital network:
PIEL would be expanding its portfolio
beyond inhalation anesthetics to injectable anesthetics, pain management, and
other hospital and veterinary injectable products used in critical care. This
would enable it to push products to hospitals where its sales force has
relationships, and thus achieve higher sales and profitability.
In FY16, PIEL entered into a co-promotion agreement with Cumberland
Pharmaceuticals, a specialty pharmaceutical company focused on hospital acute
care and gastroenterology. As part of this agreement, PIEL started promoting two
branded hospital products,
Caldolor®
and
Vaprisol®
to top customers in the US.
17 February 2017
24

Piramal Enterprises
Consumer products (OTC + opthalmology)
Asset sweating + brand acquisitions to stimulate growth
PIEL’s consumer products business has grown at a CAGR of 16% over FY12-16,
outpacing the 12% CAGR in the domestic consumer products market.
We forecast >30% revenue CAGR over FY16-19, driven by leveraging of investments
made in distribution over the past few years and acquisition of powerful but
underleveraged consumer brands.
Profitability (EBITDA margin) could improve further, if PIEL is able to sweat its
resources efficiently. It achieved EBITDA breakeven in FY16 and targets 20% EBITDA
margin by FY20.
Exhibit 28: Consumer products – targeting INR10b revenue in 2020
Consumer products (INR m)
1,300
FY12
1,700
FY13
2,090
FY14
2,430
FY15
2,560
FY16
3,925
FY17E
4,710
FY18E
5,888
FY19E
Source: MOSL, Company
PIEL’s consumer product
business is the 7th largest
among all OTC companies in
India.
PIEL’s consumer product business is the 7th largest among all OTC companies in
India. It has a good portfolio of high-ranked brands –
Saridon
(analgesic),
Lacto
Calamine
(skincare),
i-pill
(oral contraceptive),
Polycrol
(antacid),
Tetmosol
(dermatology) and
Jungle Magic.
PIEL intends to be either number-1 or number-2 in
each category it is in. As at the end of FY16, six of PIEL’s 11 brands featured among
the top-100 Indian OTC brands.
Strong brand portfolio
Exhibit 29: Consumer products portfolio
Source: MOSL, Company
17 February 2017
25

Piramal Enterprises
One of the largest India distribution networks in consumer product
segment
PIEL’s biggest strength lies
in its strong distribution
reach to ~1,500 towns, with
350k retail outlets, of which
220k are chemist outlets.
PIEL’s biggest strength lies in its strong distribution reach to ~1,500 towns, with
350k retail outlets, of which 220k are chemist outlets. It has made strategic
investments over the years in the marketing of its brands to enable them to reach
their present position. Its field force has expanded from 80 people in FY08 to 2,000
people in FY16. Its wide distribution network is a key consideration for several
companies approaching it for distribution partnerships in India.
Exhibit 30: Large India-wide distribution network
Source: MOSL, Company
Key business drivers
1. Accrual of operating leverage benefits to boost profitability:
PIEL has made the
necessary investments in terms of ramping up its distribution network and
expanding its field force. These investments appear to be yielding results. The
business achieved EBITDA breakeven in FY16. Profitability (return ratios) could
improve further if the company is able to leverage the investments made in
distribution over the past few years and sweat its resources efficiently by
enhancing its product basket.
2.
Brand acquisitions:
PIEL’s non-compete agreement with Abbot expires in 2018.
Until then, it cannot enter the domestic prescription (Rx) market. Its medium-
term strategy is to drive growth through acquisition of Rx brands that have
strong legacy and brand recall and re-launch them as OTC products. The typical
acquisition cost paid by the company is ~3x sales. Another strategy PIEL employs
is to acquire strong regional brands and expand reach pan-India, leveraging its
strong distribution network. Some of its recent acquisitions are:
Baby care brand – Little’s:
In November 2015, PIEL acquired baby care
brand,
Little’s.
The
Little’s
range, which includes products across the non-
17 February 2017
26

Piramal Enterprises
food baby care category, is preferred by mothers of babies in the age group
of 0-4 years. PIEL already caters to children in the age group of 5-10 years
through its in-house
Jungle Magic
brand. With this acquisition, it now has
offerings for babies/children in the age group of 0-10 years.
Five brands in gastro-intestinal (GI) segment:
In December 2015, PIEL
acquired five brands from Organon India Private Limited and MSD BV. These
include
Naturolax, Lactobacil
and
Farizym,
which PIEL intends to continue in
the GI segment through the OTC route. These brands have a rich legacy in
India and high consumer pull. PIEL already has an antacid brand,
Polycrol
in
the GI segment.
Polycrol
the number one brand in East India. With these
additions, PIEL has enlarged its basket of offerings in the GI market.
Four brands from Pfizer:
In May 2016, PIEL entered into an agreement to
acquire four brands from Pfizer –
Ferradol, Neko, Sloan’s
and
Waterbury’s
Compound.
The agreement includes the trademark rights for
Ferradol
and
Waterbury’s Compound
also for Bangladesh and Sri Lanka. These brands
hold a rich legacy of 30+ years and enjoy high consumer pull.
Key risk
FDC ban:
In March 2016, the central government had banned 344 fixed dosage
combination drugs, including PIEL’s largest-selling headache analgesic brand,
Saridon. Saridon
is PIEL’s first INR1billion+ brand (25-30% of FY16 consumer
product sales). While the High Court has stayed the central government’s ban,
an adverse ruling could hamper the company’s near-term growth prospects.
17 February 2017
27

Piramal Enterprises
Information management:
Opening new avenues
Building on DRG acquisition to scale healthcare information services
PIEL’s Information Management (PIM) business originated from the acquisition of
Decision Resources Group (DRG), a decision-support platform in the healthcare
information services space.
It strategizes to scale via product innovation and geographical expansion, with active
thrust on the inorganic route
Its CY15 revenue was USD178m, implying 9% 5-year CAGR. We value PIM at 3x
EV/Sales.
DRG has achieved revenue
CAGR of 17% over the last
ten years.
In CY12, PIEL acquired Decision Resources Group (DRG), primarily a provider of
syndicated content to life sciences customers. DRG’s products and services are
built around proprietary data, algorithms, primary research, and domain
expertise.
The business is headquartered in Burlington, Massachusetts, with strong
presence in North America, Europe and Asia. Recently, the company leveraged
its existing capabilities to establish presence in China, which will help it cater to
a large part of emerging markets. It now has 15 office locations globally.
In CY15, DRG had revenue of USD178m. Its revenue has grown at a CAGR of 9%
over the last five years and at 17% over the last 10 years. It has capabilities
across the customers’ product life cycle, and employs 900+ people globally.
Exhibit 31: Revenue CAGR of 17% over the last ten years
Revenue (USDm)
116
131
139
151
164
178
94
37
51
62
103
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: MOSL, Company
PIM works with several leading life sciences companies, and has 10+ year
relationships with all of the top ten customers. In CY15, it boasted 96% client
retention (by value); among its top-20 customers, it had 100% retention. It
derives 37% of its revenue from its top-10 customers, and 57% from its top-20.
17 February 2017
28

Piramal Enterprises
Exhibit 32: Top 10 (20) customers contribute 37% (57%) of
revenue
4.84.7
4.7
4
3.6
3.5
3.4
2.9
2.8
2.7
Exhibit 33: Well-balanced composition of service lines
Global
consulting
services, 22
Data &
Analytics,
43
62.8
Research
products,
35
Source: MOSL, Company
Source: MOSL, Company
Strategy based on four pillars
PIM’s strategy is based on the dual intent of revenue growth and profitability
improvement. It has been expanding its addressable market through acquisitions
and product innovation, and the focus on profitability improvement is visible in its
efforts to augment presence in India and realize operational synergies. Its strategy is
based on the following four pillars:
[1] Expanding market size and geographical presence:
HBI acquisition to enable
entry into provider market; adaptive software to enable entry into payers market.
[2] Continued development of cost and operational synergies:
DRG India office on
target, with 160+ positions on-boarded in two offices; leveraging India and
reviewing cost structure to identify margin enhancement opportunities; leadership
team progressing well on integrating products and services under one brand.
[3] Inorganic growth opportunities:
Continue to look at attractive opportunities to
enhance capabilities/expand geographically through acquisitions.
[4] Product innovation:
New delivery platform for all DRG research reports is
progressing well and will transform how customers access and consume DRG
content; multiple new product ideas in pipeline.
Inorganic growth a crucial driver
Acquisitions have been a key part of PIEL’s growth strategy. After its acquisition by
PIEL, DRG added six companies, expanding the addressable market by 2.7x from
USD6b to USD16b.
Exhibit 34: Addressable market expanded through multiple acquisitions
Addressable market (USDb)
16
6
2
Past
Present
Future
Source: MOSL, Company
17 February 2017
29

Piramal Enterprises
While previous acquisitions have been aimed at adding/augmenting service lines,
the two latest acquisitions give PIM access to the healthcare provider and payer
spaces. Entry into these markets has been the key driver of the multifold expansion
in addressable market. Acquisitions after PIEL took control include:
1.
Abacus International:
Gave access to European Health Economics and
Outcomes Research (HEOR) market.
2.
Relay Technology Management:
Enabled DRG to supply clients with premier
analytics.
3.
Activate Networks:
Expanded DRG’s analytics capabilities; supports clients with
sales force targeting.
4.
HealthHiway:
Strength in providing analytics & solutions to Indian healthcare
providers.
5.
Healthcare Business Insights:
Trusted provider of best practice research,
training & services to >1,400 hospitals in the US; marks PIM’s entry into provider
space.
6.
Adaptive Software:
Leading solutions for health plan and pharmacy benefit
managers; marks PIM’s entry into payer space.
India expansion to accelerate product development and profitability
PIM has opened offices in
Bengaluru and Gurugram in
the past two years.
In FY16, PIM continued its expansion in India. It opened offices in Bengaluru
(January 2015) and Gurugram (February 2016). It has hired over 160 employees
in India so far.
The objective of this initiative is to accelerate growth by accessing talent,
increasing capabilities beyond existing products and services, improving
customer delivery & response time, and realizing cost efficiencies.
It will continue to capitalize on its India operations to drive innovation, enhance
revenue, expand margins, and promote cost efficiencies.
Performance in FY16 demonstrative of strategy enablement
Revenue growth of 13% in FY16 was a function of growth in Data & Analytics and
the HBI acquisition. Revenue visibility is high, driven by 96% retention rate in FY16
and continued new customer addition. Moreover, the newly entered provider and
payer markets give an additional impetus to growth.
DRG’s new, dynamic and web-based insight platform for its research reports is
expected to be launched in 2016. The DRG Insights Platform combines Google-like
search capabilities with a highly-intuitive user interface. This should help customers
identify and explore relevant content. The management believes this platform will
transform the way customers access and consume DRG content.
Global peers trade at EV/Sales of 1-4x
PIEL has stated its intent to demerge its diverse business segments to unlock
shareholders’ value. It had acquired DRG for USD635m, valuing the transaction at
~5x EV/Sales. This is in line with comparable global M&A transactions.
17 February 2017
30

Piramal Enterprises
Exhibit 35: DRG – peer comparison
Veeva Systems Inc
Verisk Analytics, Inc
Medidata Solutions, Inc
Athenahealth, Inc
Inovalon Holdings, Inc
IMS Health
Median
EV/
Revenue (x)
8.1
7.7
6.0
5.8
4.8
4.3
5.9
EV/EBITDA
(x)
28.0
18.0
27.0
29.0
14.0
14.0
23.0
EV
(USD m)
3,297
15,924
2,362
5,336
2,092
12,542
Source: MOSL, Company
Exhibit 36: M&A valuation multiples
Target
iHealth
Heartbeat Experts
Vitruvian
IMS Health
Altegra
Truven Health
Merge Healthcare
Median
Buyer/Investor
Connolly
Truven
CRF
Quintiles
Emdeon
IBM Watson
IBM Watson
Acquisition
price (USD m)
1,200
136
374
13,346
910
2,600
1,000
Value/LTM
revenue (x)
7.5
5.2
4.5
4.4
4.3
4.2
4.2
4.4
Transaction value/LTM
EBITDA (x)
14.0
22.0
18.0
15.0
16.0
17.0
24.0
17.0
Source: MOSL, Company
Value DRG at 3x forward sales
Assuming DRG grows at a CAGR of 12% (versus 17% CAGR over the last 10 years and
9% over the last three years), it would have sales of USD235m in CY17. We value
DRG at USD670m – 3x FY19 sales or 4x LTM sales of USD178m. We peg DRG at a
10% discount to peers, which trade at a median value of 4.4x LTM revenue, to factor
slower sales growth post acquisition by PIEL. Our EV for this business works out to
be INR43.5b FY19.
17 February 2017
31

Piramal Enterprises
Valuation and view
SOTP of INR2,200; implied P/BV of 2.3x FY19E
Post the sale of its domestic formulations business, PIEL has invested in fast-growing,
profitable businesses. It started wholesale lending from scratch and has grown to
become amongst the top players in real estate financing. With the best talent coupled
with stringent underwriting and rigorous post-disbursal monitoring, PIEL has built a
fast-growing, highly profitable franchise, with robust asset quality. We expect this
business to deliver 45%+ loan book CAGR over FY17-19.
PIEL’s fund management business has AUM of INR70b+ and the company has seeded
investments into each of the funds. We value this business at 7% AUM.
We believe the financial services business is a key growth driver as well as value
contributor for PIEL. This business constitutes ~75% of our SOTP valuation.
Investment of INR46b in the Shriram Group is valued at ~INR80b (FY19) based on a
target multiple of 2x for SHTF and 2.5x for SCUF. We have removed PIEL’s investment
in the Shriram Group from net worth.
Invested capital employed in healthcare and IT businesses stands at INR110b+. We
have allocated INR40b of net worth to these businesses. We have valued the
healthcare business based on EV/EBITDA and the IT business based on EV/Sales. Both
these businesses together contribute ~25% to SOTP.
Financial services business contributes ~75% of SOTP value
NBFC business is making
healthy RoA of ~6% and RoE
of 25%+
The financial services segment is a key value contributor for PIEL. It has
demonstrated its ability to grow faster than competition and simultaneously
generate best-in-class return ratios with robust asset quality. Over the past few
years, it has gained significant market share. The size of its loan book is comparable
to the developer loan book of Indiabulls Housing Finance and is bigger than the
developer loan books of Dewan Housing Finance and LIC Housing Finance. The
company also generates significant fee income from its asset management business.
The business generates pre-tax RoA of 5%+ and RoE of 25%+, with C/I ratio of ~7%.
Given the strong growth the business has demonstrated in the past few years as
well as the immense opportunity available, we expect 45%+ loan CAGR over FY17-
19. PIEL is well capitalized (leverage of ~4x) to support such high loan growth. We
expect RoA/RoE (post 35% tax rate) to be ~3.4%/25%+ by FY19. Asset quality should
remain robust, given the best practices followed by the company.
The acquisition of Shriram stake is a strategic diversification into retail finance. PIEL
could grow manifold in the long term and emerge as one of the most significant
players in the Indian financial services arena. Our back-of-the-envelope calculations
(refer exhibit 18) suggest that the merger of Shriram Group entities into PIEL would
lead to a sharp decline in the share of wholesale business to less than 20% and loan
book would increase to INR1t+. We value Shriram Group investment at INR80b v/s
invested capital of INR45b+. Our valuation is based on P/BV of 2.5x for SCUF and 2x
for SHTF.
The total AUM of PIEL’s alternate funds is INR70b. Under some funds, PIEL has put
the seed investment. We have factored in 10% CAGR in funds under management
32
Expect loan CAGR of 45%+
over FY17-19 and
sustainable RoE of 20%+
We have deducted
investment in Shriram
Group from net worth to
arrive at the amount
allocated to NBFC business
AUM of alternate funds at
INR87b; expect 15% CAGR
over FY16-19
17 February 2017

Piramal Enterprises
and value this business at 7% AUM. We have deducted the seed investment from
net worth to arrive at the allocated net worth to the financial services business. This
business contributes ~2% to overall SOTP.
Financial services business
contributes ~75% of SOTP
On a blended basis, we value the financial services business at 2.3x March 2019E BV
– INR1,671/share (~75% of SOTP). We have assigned a P/BV multiple of 2.7x for the
NBFC business. The implied value of Shriram Group investments is ~2x invested
capital.
Pharma and IT contribute ~25% of SOTP
Blended EV/EBITDA of 7x;
contributes ~19% of SOTP
PIEL had initially invested INR79b+ in Pharma (INR36b) and IT (INR43b) businesses.
Total capital employed in these businesses stands at INR100b+ as of FY16. Pharma
business has become profitable and we expect it to make EBITDA margin of ~20%
and achieve revenue CAGR of 16% over FY16-19. EBITDA growth is expected to be
~40% over FY17-19. On a blended basis, we have valued this business at EV/EBITDA
of 13x. IT business is expected to grow at a CAGR of 8-10% over FY16-19 and EBITDA
is expected to be ~16% over the same period. We value this business at EV/sales of
3x.
Exhibit 37: SOTP (FY19E Based)
Value
(INR B)
202
80
6
91
380
318
19.3
Value
(USD B)
3.0
1.2
0.1
1.4
5.7
4.7
19.3
INR per
share
1,169
465
37
529
2,200
1,844
19.3
Source: MOSL, Company
% To Total Rationale
53
2.7x PBV; ROE of ~25% - Loan CAGR of 45% FY17-19
21
2
24
100
Based on our Target price; Implied 1.75x of invested capital
7% AUM
Pharma EV/EBITDA 13x; IT EV/Sales of 3x
Implied 2.3x Consolidated BV
NBFC business
Shriram Investments
AMC
Pharma, IT and Others
Target Value
Current market cap.
Upside (%)
Exhibit 38: Total capital employed (FY16; INR b)
NBFC business
Shriram Investments
AMC
Pharma, IT and Others
Total
Net
Worth
34
46
4
40
124
% of
total
28
37
4
32
Borrowings
105
0
0
57
163
% of
total
65
0
0
35
Capital
% of
Employed
total
140
49
46
16
4
2
97
34
287
Source: MOSL, Company
17 February 2017
33

Piramal Enterprises
Financial and valuations
Income Statement
Y/E March
Revenues
Change (%)
HealthCare
Financial Services
Info Mgmt
Others
EBITDA*
Change (%)
HealthCare
Financial Services #
Info Mgmt
Depreciation
HealthCare
Financial Services
Info Mgmt
EBIT*
Change (%)
HealthCare
Financial Services #
Info Mgmt
Unallocated Inc/(Exp)
Core PBT
Change (%)
Exceptional Items
FY12
23,520
19,870
2,730
0
920
3,325
-1,532
4,857
0
1,293
1,293
0
0
2,032
-2,825
4,857
0
0
2,032
0
FY13
35,440
50.7
24,410
3,930
6,510
590
4,331
30.3
-92
2,796
1,628
2,096
1,457
6
633
2,236
10.0
-1,549
2,790
995
0
2,236
10.0
0
2,236
248
11.1
1,988
0.6
56
-42
1,890
-2.5
3,533
FY14
45,030
27.1
28,200
7,260
8,900
670
4,314
-0.4
947
2,110
1,257
2,469
1,560
14
896
1,845
-17.5
-613
2,096
361
0
1,845
-17.5
0
1,845
628
34.0
1,217
-38.8
8
-31
1,178
-37.7
10,599
FY15
51,230
13.8
31,210
9,371
10,196
453
8,698
101.6
299
6,575
1,824
2,899
1,927
17
954
5,799
214.4
-1,628
6,557
870
-2,407
3,392
83.9
26,962
30,354
3,450
11.4
26,904
2,110.3
-3
1,593
28,500
2,318.7
4,154
FY16
66,100
29.0
35,580
18,638
11,562
320
15,533
78.6
3,971
9,337
2,226
3,274
2,064
26
1,185
12,258
111.4
1,906
9,311
1,041
-3,773
8,485
150.2
457
8,942
1,032
11.5
7,910
-70.6
-3
1,593
9,506
-66.6
3,635
FY17E
84,543
27.9
38,749
33,365
12,429
0
22,299
43.6
4,664
14,901
2,734
3,839
2,564
25
1,250
18,459
50.6
2,099
14,876
1,484
-5,680
12,779
50.6
-180
12,599
1,764
14.0
10,835
37.0
5
2,023
12,853
35.2
4,499
(INR million)
FY18E
FY19E
113,227
33.9
48,240
51,067
13,921
0
33,062
48.3
8,824
21,176
3,063
4,139
2,814
25
1,300
28,923
56.7
6,009
21,151
1,763
-6,430
22,493
76.0
-180
22,313
3,124
14.0
19,189
77.1
5
2,753
21,937
70.7
7,678
138,725
22.5
54,858
68,275
15,591
0
40,287
21.9
10,873
25,984
3,430
4,439
3,064
25
1,350
35,848
23.9
7,808
25,959
2,080
-6,630
29,218
29.9
-180
29,038
4,065
14.0
24,972
30.1
5
3,454
28,421
29.6
9,947
Reported PBT
2,032
Taxes
56
Tax Rate (%)
2.8
PAT
1,976
Change (%)
Minority Interest
38
Share from Asso. Co
0
PAT Post MI
1,938
Change (%)
Dividend (Including Tax)
3,510
* Ex Exceptional, # Post interest expenses
17 February 2017
34

Piramal Enterprises
Financial and valuations
Balance Sheet
Y/E March
Equity Share Capital
Reserves and Surplus
Networth
Borrowings
Change (%)
Other liabilities
Change (%)
Total Liabilities
Loans+Investments
Change (%)
Goodwill
Fixed Assets
Other assets
Change (%)
Total Assets
Profitability Ratios (%)
EBITDA Margin - IT
EBITDA Margin - Pharma
Core ROE
ROE
Valuations
Book Value (INR)
BV Growth (%)
Price-BV (x)
EPS (INR)
EPS Growth (%)
Price-Earnings (x)
DPS (INR)
Dividend Yield (%)
E: MOSL Estimates
FY12
345
112,075
112,420
20,467
14,609
147,496
117,711
5,872
20,886
8,900
153,368
FY13
345
106,891
107,236
76,881
275.6
18,404
26.0
202,521
114,613
-2.6
40,045
20,768
27,094
204.4
202,521
FY14
345
92,866
93,211
95,519
24.2
26,316
43.0
215,045
111,406
-2.8
44,236
22,585
36,818
35.9
215,045
FY15
345
117,014
117,359
73,061
-23.5
18,937
-28.0
209,358
115,153
3.4
52,393
21,031
20,781
-43.6
209,358
FY16
345
123,876
124,221
162,545
122.5
21,591
14.0
308,356
199,609
73.3
57,141
26,532
25,075
20.7
308,356
FY17E
345
132,231
132,576
289,084
77.8
25,706
19.1
447,366
330,089
65.4
57,141
29,185
30,951
23.4
447,366
FY18E
345
146,490
146,835
413,040
42.9
31,909
24.1
591,784
460,569
39.5
57,141
32,103
41,971
35.6
591,784
(INR million)
FY19E
345
164,963
165,308
554,539
34.3
40,838
28.0
760,686
617,145
34.0
57,141
35,314
51,086
21.7
760,686
0.0
-7.7
24.9
-0.4
1.8
1.7
14.0
3.4
1.2
1.2
17.9
1.0
2.9
27.1
19.2
11.2
6.2
7.9
22.0
12.0
10.0
10.0
22.0
18.3
15.7
15.7
22.0
19.8
18.2
18.2
652
2.8
11.2
160.9
20
1.1
621
-4.6
2.9
11.0
-2
165.0
20
1.1
540
-13.1
3.3
6.8
-38
264.6
61
3.4
680
25.9
2.7
165.2
2,319
10.9
24
1.3
720
5.8
2.5
55.1
-67
32.8
21
1.2
768
6.7
2.4
74.5
35
24.3
26
1.4
851
10.8
2.1
127.1
71
14.2
44
2.5
958
12.6
1.9
164.7
30
11.0
58
3.2
17 February 2017
35

REPORT GALLERY
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REPORT GALLERY
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Piramal Enterprises
NOTES
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Disclosure of Interest Statement
Piramal Enterprises
Analyst ownership of the stock
No
Served as an officer, director or employee -
No
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For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC)
pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with Motilal Oswal
capital Markets (Hong Kong) Private Limited for distribution of research report in Kong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to
which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is
not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For U.S.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered
investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption
under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be
acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional
investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in
order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business
interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject
to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal
Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the
Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Varun Kumar
Varun.kumar@motilaloswal.com
Contact : (+65) 68189232/ (+65) 68189233 / 65249115
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
Motilal Oswal Securities Ltd
17 February 2017
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