Motilal Oswal Financial Services

Piramal Enterprises

BSE SENSEX

30,435

S&P CNX

9,429

18 May 2017

Update

| Sector:

Financials

CMP: INR2,798

TP: INR3,044 (+9%)

Buy

Capitalizing on multiple opportunities

NBFC and Pharma are key value drivers

Our Initiating coverage report on

Piramal Enterprises



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

2942 / 1322

20/77/81

488.5

7.5

291

48.6

Piramal Enterprises (PIEL) has carved a niche for itself in wholesale lending, and is

now one of the dominant players in most of the segments in which it operates. In the

lending business, the company has one of the lowest GNPAs and the highest

profitability. Post the initial years of lower-tenure loan book, PIEL is moving toward

secured and higher-tenure products, which provides support to growth. We expect a

40% loan CAGR in the NBFC business.

The Pharma business has demonstrated strong growth and improvement in

profitability in recent years. With its focus on building a portfolio via inorganic

acquisitions and the impending closure of the imaging business, we expect a sharp

improvement in profitability.

Over last five years, the stock has delivered 44% CAGR returns, and since our

initiation three months ago (Initiation

report),

it has run up 54%. Led by strong macro

tailwinds and healthy profitability, we raise the target multiple for financial services

to 3.6x from 2.7x (in line with peers). Our revised SOTP is INR3,044. Our target price

does not factor in the proposed capital raise of INR50b (~10% dilution), which, in our

view, would be largely utilized for the financial services business.

Product diversification – key to its success story in NBFC space

Since its foray into the financial services business in FY12, PIEL has exhibited a loan

book CAGR of over 100%, mainly driven by its focus on catering to all the needs of

developers – right from equity capital for land purchase to last mile inventory

funding. The company has significantly expanded its product suite over the years,

with new products such as construction finance and LRD contributing to

incremental loan growth. We believe this has been the key to Piramal’s success

story, as product diversification reduces dependence on any single product for

growth and mitigates asset quality risks.

Financials Snapshot (INR b)

Y/E March

2017 2018E

Revenues

85.5 116.8

EBITDA

22.5

34.8

PAT

10.8

19.1

EPS (INR)

72.6 124.6

EPS Gr. (%)

BV/Sh. (INR)

768

850

Payout (%)

33.8

34.0

Valuations

P/E (x)

39.0

22.7

P/BV (x)

3.7

3.3

Div. Yield (%)

0.9

1.5

2019E

143.4

43.4

25.6

166.8

960

34.0

17.0

2.9

2.0

Pharma business on a turnaround path

We expect Pharma revenue CAGR of ~20% till FY20, driven by (1) recent

acquisitions (leading to an increase in the addressable market size to USD20b in

FY18 from USD1b in FY16), (2) expansion into new areas and ADC manufacturing

capacity and (3) capacity expansion at other facilities. The global pharma business

(90% of revenue) enjoys a strong operating margin of 20%+, but the domestic

business has a low-single-digit margin. Imaging business, which was a drag on

profitability, is likely to wind down by CY17, driving overall margins higher. We

expect a strong turnaround in this business, with the EBITDA margin expanding to

~20.5% by FY19 (up ~600bp v/s FY17) and a revenue CAGR of 20%.

Shareholding pattern (%)

As On

Mar-17 Dec-16 Mar-16

Promoter

51.4

51.6

DII

3.6

3.5

FII

28.7

28.5

28.2

Others

16.3

16.5

16.7

FII Includes depository receipts

Alpesh Mehta

(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526 /

Kumar Saurabh

(Kumar.Saurabh @MotilalOswal.com); +91 22 6129 1519

Piran Engineer

(Piran.Engineer@MotilalOswal.com); +91 22 3980 4393 /

Ashish Chopra

(Ashish.Chopra@MotilalOswal.com); +91 22 6129 1530

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

Stock Performance (1-year)

Proposed capital raise to drive strong growth in financial services business

PIEL is planning to raise up to INR50b (~10% dilution), which, in our view, would

support strong growth in the financial services business. The Pharma and IT

businesses are sufficiently capitalized, with a debt to equity ratio of ~1x (our

estimate). Our back-of-the-envelope calculations suggest that NBFC leverage in this

business is 5x+. Considering the wholesale nature of the business, we believe peak

leverage could be 6-7x. We have not factored in the capital raise, but, if accounted

for, our consolidated BV for FY18/19 would be ~INR1,040/1,150 v/s our estimate of

INR850/960 (under Indian GAAP).

Reiterate Buy; strong foundation for robust growth

PIEL has the distinction of being one of the few companies in India to generate 25%+

book value CAGR over past 25+ years. Post the sale of the domestic formulations

business, management chose to invest and compound the money, rather than

distributing it to shareholders. We believe the company has the DNA to incubate

and grow businesses in niche segments. Significant proportion of capital (INR45.3b

in Shriram Group + INR4b seed investment in PE business + INR40b in Pharma and

IT) generates less than 5% RoE, but could create significant value over the longer

term. Best talent, coupled with stringent underwriting, has enabled PIEL to build a

fast-growing, highly profitable franchise with robust asset quality. The planned

capital infusion (up to INR50b) will provide the much-needed ammunition to

continue on the robust growth path. We use SOTP to arrive at a target price of

INR3,044. Buy.

Exhibit 1: PIEL: SOTP - March 2019 (without factoring in the proposed capital raise of up to ~INR50b)

Value

(INR B)

273

164

525

483

8.8

Value

(USD B)

4.1

1.2

0.1

2.5

7.8

7.2

8.8

INR per

1,583

470

952

3,044

2,798

8.8

Source: Company, MOSL

To Total Rationale

3.6x PBV; ROA/ROE of ~4%/25%+ - Loan CAGR of 40% FY17-20

100

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 3.2x Consolidated BV

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

Exhibit 2: PIEL: SOTP - March 2020 (without factoring in the proposed capital raise of up to ~INR50b)

Value

(INR B)

355

202

658

483

36.3

Value

(USD B)

5.3

1.4

0.1

3.0

9.8

36.3

INR per

2,056

542

1,170

3,813

2,798

36.3

Source: Company, MOSL

To Total Rationale

3.6x PBV; ROA/ROE of ~4%/~25%+ - Loan CAGR of 40% FY17-20

100

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 3.5x Consolidated BV

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

18 May 2017

Piramal Enterprises

Upping the ante in wholesale lending

Second largest real estate financier in the country



PIEL has grown from strength to strength to become the second largest real estate

lender in India, barely five years since its foray into the financial services business. It is

now a formidable player in this segment, with a clientele of ~100 top-tier developers.

This strong growth has been driven by its focus on catering to the needs of developers

across the entire lifecycle – from land purchase to last mile inventory funding. PIEL has

an unparalleled suite of products, ranging from pure equity to senior lending.

Despite strong growth over past five years, asset quality has remained best-in-class,

with GNPLs consistently less than 1%. The company follows prudent standard asset

provisioning of 2% of loans.

Backed by higher margins, a low cost-to-income ratio and negligible credit cost, the

business has exhibited a healthy RoA (pre-tax) of 5-6% and an RoE of 25%+. With the

addition of low-yielding and higher-duration products, we expect a healthy CAGR of

40%.

While new products are low-yielding, the benefit of capital raise (INR50b) would keep

RoAs largely stable. RoE, however, is expected to fall from 25%+ to ~18% due to large

capital infusion in this business.

PIEL is now among the top 3

real estate financiers in

India, with a loan book of

INR214b

Significant scale in financial services business

In a span of only five years, PIEL has evolved to become one of the largest real

estate financiers in India, with a loan book of over INR200b+ (100%+ five-year

CAGR). The company’s clientele includes tier-I developers in the top six metro

locations. Unlike most of its competitors which 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

developers – from preferred equity to senior debt. The company has expanded its

product suite over the years, with new products such as construction finance

contributing the most to incremental loan growth.

We believe this has been the key

to Piramal's success story – product diversification reduces dependence on any

single product for growth and also mitigates asset quality risks.

Exhibit 4: Break-up of loan book as of FY17

Special

Situations,

12%

Others,

38%

Exhibit 3: Loan book trend (INR b) (incl. special situations)

244

130

Constructio

n Finance,

50%

Source: MOSL, Company; Note: Others include equity and

mezzanine debt offerings

FY12

FY13

FY14

FY15

FY16

FY17

Source: MOSL, Company

18 May 2017

Piramal Enterprises

Exhibit 5: Loan book trend (INR b)

Real estate lending

SFG lending

Exhibit 6: Alternative asset management AUM (INR b)

100

115

145

170

202

214

Source: MOSL, Company

Exhibit 7:

Comparison of corporate loan portfolio with peers (INR b)

874

244

HDFC

PEL

201

101

DHFL

PNBHF

Source: MOSL, Company

IHFL

Exhibit 8: PIEL caters to end-to-end capital needs of developers

Particulars

Stages of lending

for a project

Private Equity

•

Primarily for land

purchase

Mezzanine Lending Construction Finance LRD

Housing Finance

•

Post land purchase

•

For construction of

•

Lease rental

till

projects

discounting for

commencement of

commercial

construction

projects

(Phase of

obtaining

approvals)

Off Balance Sheet

•

On Balance Sheet

•

On Balance Sheet

•

On Balance Sheet

Applied for HFC license

(Third Party Funds

in 2017. Awaiting

with PEL sponsor

approval from NHB.

commitment upto

7.5%)

Started in 2006;

•

2011

•

2015

•

2016

acquired by PEL in

2011

INR62b

•

INR79b

•

INR122b

•

INR12b

20-24%

4-6 years

•

17-19%

3-5 years

•

14-16%

4-6 years

•

11-12%

9-12 years

Current Size

•

Year of

commencement

Current Size

Average Yield / IRR

Tenor

•

18 May 2017

Piramal Enterprises

Exhibit 9: Financial services business – snapshot

FINANCIAL

SERVICES

LENDING (INR244b)

ALTERNATIVE AUM

(INR72b)

INVESTMENT

IN SHRIRAM

(INR46b)

HOUSING FINANCE

(INR10b*)

REAL ESTATE

(INR213b)

STRUCTURED

FINANCE

(INR30b)

MEZZANINE (INR

79b)

CONSTRUCTION

FINANCE (INR122b)

LRD (INR 12b)

MEZZANINE

SENIOR (INR

14b)

RESIDENTIAL

(INR103b)

COMMERCIAL

(INR19b)

ACQUISITION

FUNDING

LAS

Source: MOSL, Company; *INR10b committed to the retail housing finance business

PIEL now caters to the

capital needs of businesses

across various sectors

From a pure residential RE financier to a diversified wholesale lender

In FY12, PIEL acquired teams from leading financial services companies to run its

NBFC business. It forayed into special-situation 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 with construction finance

from January 2015 (low risk, but high maturity period of 4-5 years).

The company forayed into commercial real estate financing in January 2016.

Construction finance and lease rental discounting (7-10 year tenure - recently

added) are the key products. It has recently launched a flexible LRD product for

completed commercial real estate projects. Management is bullish on the prospects

of LRD, expecting this book to grow to INR100b by end-FY18.

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 inroads into 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 (e.g. refinancing,

construction finance). Recently, the special investment group merged with the RE

financing division. With this, PIEL is looking at wholesale lending across sectors.

PIEL has successfully scaled

up its commercial

construction finance

business over the past year

Construction finance and LRD driving incremental 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 relationships with developers till the end

of the project lifecycle. With strong disbursements in construction finance over past

two years, this segment now accounts for 56% of the outstanding real estate loan

book. While earlier the company was involved only in residential construction

finance, it has started with commercial construction finance a year ago. This book

now stands at INR19b.

18 May 2017

Piramal Enterprises

PIEL introduced its LRD product in FY17, which has scaled up well with the total loan

book at INR12b. Both construction finance and LRD are lower-yielding products than

other forms of wholesale lending (structured debt). Yields in construction finance

range from 14-16%, while those in LRD are ~11-12%.

Sector-agnostic lending in

the SFG segment led to

100% YoY growth in the

loan book

Scaling up the structured finance group business

Along with wholesale financing for real estate developers, PIEL 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. While the focus earlier was on opportunities in

infrastructure, the company is now following a sector-agnostic lending mantra. It

has exposure across the infrastructure, cement, renewables, transportation and

entertainment sectors.

PIEL used to do mezzanine financing earlier; however, it now also does senior

lending, LAS and promoter funding. The senior lending book now accounts for 47%

of the total SFG portfolio, leading to a better risk profile. Total loan book doubled in

FY17 to INR30b. The business has healthy security and cash cover of 1.5-2x. Yields

range from 13% to 20%, depending on product offerings and sector dynamics.

Exhibit 10: Best-in-class financial metrics (%)

Loan Yield

C/I ratio

GNPA

RoA

RoE

Leverage

FY16

17%

0.9%

25%

3.5x

FY17

16%

9.7%

0.4%

5.3%

25%+

5.0x

We expect the loan book to

grow at 40%+ CAGR over

the next three years to

INR690b

Given the lack of availability of capital for real estate projects, multitude of

opportunities in other sectors for stressed asset financing and the introduction of

retail housing finance, we expect the loan book to continue growing at a rapid pace

over the medium term. We believe growth will also be driven by its focus on

catering to tier-I developers in non-metro cities. We expect the total loan book to

reach INR690b+ by FY20, with further upside potential from fast ramp-up of the

housing finance business and better-than-expected impact/benefit of RERA on tier I

developers.

Exhibit 11:

Strong AUM growth expected over medium term

Loan book (INRb)

174

Growth (%)

FY14

FY15

130

FY16

244

FY17E

366

FY18E

512

FY19E

692

FY20E

934

FY21E

Source: MOSL, Company; Note: Strong growth in FY16 due to introduction of construction finance

18 May 2017

Piramal Enterprises

Partnering with the best

Forging alliances with several reputed global firms for various opportunities



The strength of PIEL’s robust business model is evidenced by its partnerships with

global firms of repute.

The alliances cater to a variety of segments, including infrastructure, real estate and

distressed situations.

In February, the company partnered with Ivanhoe Cambridge for providing finance to

the residential real estate segment.

Finding opportunities for

shareholder value creation

Partnerships across the spectrum



Special situations:

PIEL has a strategic alliance with APG for mezzanine lending

in special situations in the infrastructure segment. Both entities have committed

to USD375m under this alliance. Total outstanding disbursements under this

fund are INR9.7b (for each entity) as of March 2017.

Real estate financing:

The company entered into a joint venture with CPPIB in

FY14 to provide INR debt financing to residential projects in urban geographies.

It also entered into an alliance with Ivanhoe Cambridge in February 2017 for

providing equity financing to tier-I residential developers across the top five

metros in India.

Distressed asset investing:

PIEL has recently partnered with Bain Capital Credit

to make debt/equity investments in restructuring/distressed situations (barring

real estate) in India. Each party has committed to an initial contribution of

USD200m. Investments are expected to generate an IRR of 16-18% over a period

of 4-5 years. PIEL has made several key hires for this JV.

18 May 2017

Piramal Enterprises

Entering retail financing via organic and inorganic ways

HFC subsidiary and Shriram Group investments to be the key value drivers



Over 2013-14, PIEL forayed into the retail financing segment by acquiring a 10% stake

each in Shriram Transport Finance and Shriram City Union Finance. In addition, it

acquired a 20% stake in Shriram Capital.

We do not expect the merger of both entities with the parent in the near term, as it

would involve significant management attention. In both, retail as well as the

wholesale lending business, growth opportunities are immense.

PIEL has also applied for an HFC license with the NHB. It has committed INR10b to the

HFC, and has also made key hires in this segment. Build-out of the systems and

technology is underway.

PIEL acquired 10% stake in

SHTF in 2013, followed by

20% stake in Shriram

Capital and 10% stake in

SCUF

Shriram Group stakes – indirect entry into retail financing

PIEL has been the quintessential M&S specialist. It prefers the M&A route to build

long-gestation businesses. The company forayed into 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 also acquired a 20% stake in these two companies’ parent, Shriram Capital (for

INR21.5b in 2014). Altogether, it has invested INR45.8b (34% of 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. SHTF’s return ratios are just off cyclical

lows, with decadal high credit cost and NPLs. We believe the worst of asset quality

troubles is behind, and the company should witness improving return ratios due to

lower credit costs. Additionally, we believe margin compression fears are

overplayed with the company yet to reap significant benefit on CoF.

SHTF and SCUF are at

inflection points, where

return ratios are expected

to improve due to lower

credit costs

Shriram City Union (SCUF) is a multi-line financier dealing in SME, two-wheeler and

gold loans. It offers SME loans with ticket sizes lower than its peers. It does not rely

on DSAs for customer acquisition, but rather mines the large customer base of

Shriram Chits. SCUF is a pioneer in 2W financing, and is one of the largest in the

country in this space. It is a niche play in the retail NBFC space, with high growth

potential, strong profitability and low competition. While the company has

maintained GNPL (180dpd) <4.0% over the cycle, we expect it to rise to ~8% by FY19

on account of migration to 90dpd and some lingering impact of demonetization. Yet,

loan loss provisioning is expected to decline as SCUF has best-in-class PCR of 73%,

more than peers. We believe this is a 3.5-4.0%+ RoA business on a run-rate basis.

After all the impact of NPA migration is over, we expect RoA/RoE of 3.9%/17.8% in

FY19.

18 May 2017

Piramal Enterprises

Exhibit 12: SHTF – AUM trend

AUM (INR b)

Growth (%)

20.6

16.3

497

FY13

531

FY14

4.0

FY13

3.1

FY14

2.5

FY15

2.1

FY16

2.0

FY17

2.6

FY18E

2.9

FY19E

2.6

FY20E

Exhibit 13: SHTF – return ratios bottoming out

RoA (%)

RoE (%)

16.3

16.7

14.1

12.2

11.7

14.5

591

FY15

728

FY16

788

FY17E

883

FY18E

1,003

FY19E

1,146

FY20E

Source: MOSL, Company

Exhibit 14: SCUF – AUM trend

AUM (INR b)

(7)

Growth (%)

Exhibit 15: SCUF – return ratios bottoming out

RoE (%)

3.8

3.7

3.4

3.5

3.0

RoA (%)

3.6

2.7

3.9

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

Source: MOSL, Company

HFC license – another avenue for sustainable growth

PIEL has applied for an HFC license with the NHB and is awaiting approval for the

same. The company has made key hires in this segment, and already chalked out the

business strategy with work on systems and technology underway. We expect the

company to receive the HFC license shortly. Given the strong execution skills of

management, we believe this book could grow to a sizeable amount over next five

years. While margins in this segment will be lower, credit costs will also be lower

and leverage will be higher. We believe PIEL could deliver 15%+ sustainable RoE in

this business post the initial scale-up.

18 May 2017

Piramal Enterprises

Financials and valuations – NBFC

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

7,426

505

6,921

1,201

381

363

8,866

1,819

7,047

473

6.7

6,575

2,301

35.0

4,274

2016

14,766

5,857

8,909

28.7

1,287

891

454

11,540

30.2

1,655

-9.0

9,885

40.3

1,700

17.2

8,185

2,865

35.0

5,320

24.5

2017E

29,958

13,183

16,775

88.3

1,204

1,872

481

20,332

76.2

1,972

19.2

18,360

85.7

4,119

22.4

14,241

4,984

35.0

9,256

74.0

2018E

47,275

21,259

26,016

55.1

1,155

3,050

638

30,858

51.8

2,469

25.2

28,389

54.6

6,100

21.5

22,289

7,801

35.0

14,488

56.5

2019E

63,684

30,126

33,558

29.0

1,328

4,392

789

40,067

29.8

3,205

29.8

36,861

29.8

8,784

23.8

28,077

9,827

35.0

18,250

26.0

(INR Million)

2020E

84,290

41,769

42,521

26.7

1,527

6,021

932

51,001

27.3

4,080

27.3

46,921

27.3

12,041

25.7

34,879

12,208

35.0

22,672

24.2

2015

28,886

28,172

57,058

47,660

9,398

57,058

2016

34,206

108,088

283.7

142,293

130,480

173.8

11,813

25.7

142,293

2017E

43,119

237,508

119.7

280,627

244,000

87.0

36,627

210.0

280,627

2018E

57,607

329,400

38.7

15,593

402,600

366,000

50.0

36,600

-0.1

402,600

2019E

75,857

473,970

43.9

13,813

-11.4

563,640

512,400

40.0

51,240

40.0

563,640

2020E

98,529

639,860

35.0

22,526

63.1

760,914

691,740

35.0

69,174

35.0

760,914

2015

2016

2017E

16.0

7.6

8.4

9.0

2018E

15.5

7.5

8.0

8.5

2019E

14.5

7.5

7.0

7.6

2020E

14.0

7.5

6.5

7.1

23.9

4.4

9.7

28.8

4.2

8.0

27.3

3.8

8.0

26.0

3.4

8.0

18 May 2017

Piramal Enterprises

Healthcare: Rebuilding a niche franchise

Following the sale of its domestic formulations business to Abbott in FY11, Piramal

Enterprises (PIEL) has re-built its healthcare business. Over last five years, the

company recorded healthcare revenue CAGR of high-teens, reaching INR39.7b in

FY17 (~46% of total revenue). PIEL’s pharma revenue grew 14% YoY in FY17, led by

new product acquisitions (from Janssen and Mallinckrodt) and >25% organic growth

in its Indian consumer business. In 4QFY17, the pharma business revenue grew

~29% YoY, driven by a strong order book and acquisition of niche products.

EBITDA margin for the global pharma business has more than doubled over last five

years, from 10% in FY12 to ~20% in FY17, primarily driven by the focus on high-

margin niche branded generic product portfolios and cost efficiencies.

We expect robust pharma revenue CAGR of ~20% till FY20, driven by (1) recent

acquisitions (leading to an increase in the addressable market size to USD20b in

FY18 from USD1b in FY16), (2) expansion into new areas and ADC manufacturing

capacity and (3) debottlenecking/capacity expansion at other facilities. Global

pharma business (90% of revenues) enjoys a strong operating margin of more than

20%; however, the domestic business has a margin of low-single-digits. Imaging

business, which was a key drag on profitability, is likely to wind down by CY17,

driving overall margins higher. Overall, we expect a strong turnaround in this

business, with the EBITDA margin expanding to ~20.5% by FY19 (~600bp

improvement v/s FY17), with revenue CAGR of 20%.

18 May 2017

Piramal Enterprises

Piramal Healthcare – Rebuilding a niche franchise

Healthcare 2.0

Following the sale of its domestic formulations business to Abbott in FY11, PIEL has

re-built its healthcare business. Over last five years, the company recorded

healthcare revenue CAGR of 17%, reaching INR39.7b in FY17 (~46% of total

revenue). PIEL operates under two broad divisions in the healthcare segment: (1)

global pharma (constituting pharma solutions & critical care; ~90% of pharma

revenues) and (2) consumer products (~10%).

Exhibit 16: Healthcare business revenue (INR b)

Healthcare (INR b)

50.2

28.2

31.2

34.9

38.9

57.1

Exhibit 17: Healthcare business – revenue composition (%)

Global Pharma

Domestic Products

19.9

24.4

Source: MOSL, Company

PIEL is one of the few large

integrated CDMOs in the

world, offering both APIs

and formulations

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 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 in the global inhalation anesthesia space (after Abbott

and Baxter). It has a 12% market share in this space, which has increased from ~3%

in FY09, led by a strong product portfolio, competitive pricing, consistent supply of

products and a robust distribution network. Launch of Desflurane, cost reduction

and entry into new markets should help the company achieve 17-18% CAGR over

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, now featuring among the top-

7 players in this space. Notably, it has done well to climb up the ladder from 40

rank in 2007. PIEL has expanded its distribution reach to 1,500 towns (~480 in FY15),

with a field force of ~2,000 (~800 in FY15). We expect margin in this business to

expand (achieved breakeven in FY16), led by positive operating leverage

(distribution expansion largely done) and sales force automation (to facilitate

efficient productivity).

18 May 2017

Piramal Enterprises

We expect EBITDA margin

of global pharma business

(Ex India) to jump to ~21%

v/s ~16% in FY16.

Invested ~INR30b toward seven acquisitions in pharma

Over last two years, PIEL has invested heavily in the pharma business. It has spent

~INR30b to acquire seven assets across geographies in different areas of the

business. It acquired two pharma businesses – Coldstream into injectables and Ash

Stevens into high-potency API. Both of these are in the US. Two pharma product

portfolios containing differentiated branded generic products were acquired from

Janssen, and the latest one was acquired from Mallinckrodt. In the consumer

products portfolio in India, it acquired four brands from Pfizer, five brands from

Organon India and MSD, and the baby-care brand ‘Little’s’. Because of these

acquisitions, pro forma revenue for FY16 would go up to INR43b from ~INR39b

currently. Similarly, EBITDA margin of global pharma business (Ex India) will jump to

~21% v/s ~16% in FY16.

Exhibit 18: Invested ~INR30b to do seven acquisitions in pharma

Source: MOSL, Company

Exhibit 19: Pro forma revenue increase led by seven

acquisitions (INR b)

32.06 35.17

43.2

Exhibit 20: Pro forma EBITDA margin expansion led by seven

acquisitions

17%

10%

11%

12%

16%

20%

21%

14.09

17.68

27.65

21.69 25.06

Source: MOSL, Company

18 May 2017

Piramal Enterprises

We expect the Global

Pharma business to deliver

20% CAGR till FY20, led by

acquisitions, launch of

Desflurane and ramp-up of

the CRAMs business

Global pharma business – adding niche capabilities

The company’s global pharma business recorded a 15% CAGR over last five years.

We expect this business to deliver 20% CAGR till FY20, led by its recent acquisitions,

launch of Desflurane and ramp-up of the CRAMs business.

Exhibit 21: Global pharma – the largest segment within healthcare (90% of FY17 revenue)

Pharma Solutions (INR mn)

21,690

FY13

25,060

FY14

27,645

FY15

32,060

FY16

35,170

FY17

45,721

FY18E

51,436

FY19E

57,866

FY20E

Source: MOSL, Company

PIEL has end-to-end manufacturing and service delivery capabilities both for APIs

and formulations, including niche capabilities in injectables, high-potency API,

antibody drug conjugates, inhalation anesthesia, etc. It also has a large global

distribution network, reaching over 100 countries through dedicated sales

force/distributors with a strong presence in key geographies of North America,

Europe, India and Japan.

Exhibit 22: Global pharma – adding capabilities in niche areas

Product Portfolio

Inhalation Anaesthesia

Injectable Anaesthesia /

Pain Management

Intrathecal Severe

Spasticity / Pain

Management

Gablofen

Products under

development

Announced acquisition

from Mallinckrodt LLC in

Jan 2017

Acquired from Janssen

Pharmaceutica in

Oct 2016

Other Products

Desflurane

Isoflurane

Sevoflurane

Halothane

To be launched

in FY17-18

Sublimaze*

Sufenta*

Repifen*

Dipidolor*

Hypnomidate*

* Controlled substances

API Generics

Vitamins

Differentiated

branded hospital

generics

Source: MOSL, Company

18 May 2017

Piramal Enterprises

Niche capabilities across product segments



Grangemouth (ADC):

PIEL has a facility in Grangemouth (Scotland) for antibody

drug conjugates (ADC – a 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 manufacture of sterile injectable products. This acquisition

has strengthened its position in the injectables market, complementing its

sterile injectables 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 implementing a USD12m 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.

18 May 2017

Piramal Enterprises

Key business drivers in global pharma business

New product launch, JV

with NavinFluorine and

strong hospital network to

drive global pharma

business



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

driven by the increasing share in the inhalation anesthesia market and the

launch of existing products in new geographies.



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.



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.



Ramp-up of acquired products from Janssen and Mallinckrodt:

PIEL acquired

five injectable anesthesia/pain management products from Janssen in October

2016. Four of these five products are controlled substances, and will remain

limited competition products. PIEL has marketing authorization in >50 countries

for these products. PIEL also acquired Gablofen, and two pain management

products from Mallinckrodt.

Consumer business

Strong brand portfolio

PIEL’s consumer product

business is the seventh

largest among all OTC

companies in India

PIEL’s consumer product business is the seventh 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 2 in each

category where it operates. As at end-FY16, six of PIEL’s 11 brands featured among

the top-100 Indian OTC brands.

Exhibit 23:

Consumer products – PIEL targets INR10b revenue in 2020 (incl. Allergan sales)

2,720

FY13

3,140

FY14

3,565

FY15

2,799

FY16

3,750

FY17

4,500

FY18E

5,625

FY19E

7,031

FY20E

Note: Consumer business excludes JV sales from Allergan – ~INR1.6b in FY17

Source: MOSL, Company

18 May 2017

Piramal Enterprises

Exhibit 24: Consumer products portfolio

Source: MOSL, Company

Key business drivers



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 past few years and sweat its resources efficiently by enhancing

its product basket.



Brand acquisitions:

The company’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 the baby-care

brand,

Little’s.

The

Little’s

range, which includes products across the non-

food baby-care category, is preferred by mothers of babies in the age group

of 0-4 years. The company 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 the company 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

is the number one brand in east India.

With these additions, PIEL has enlarged its basket of offerings in the GI

market.

18 May 2017

Piramal Enterprises



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.

18 May 2017

Piramal Enterprises

PIEL Information Management – Opening new avenues

DRG’s revenue grew at a

CAGR of 11% over FY14-17.

PIEL’s Information Management business (PIM) comes from the acquisition of DRG

(Decision Resources Group), which is a decision-support platform in the healthcare

information services space. The company provides Consulting Services, Research

Products, and Data & Analytics to life sciences companies, enabling them to make

informed decisions around investment, cost containment and strategy.



PIEL acquired the DRG core business in 2012, which primarily provided

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 FY17, DRG’s revenue grew 6% to INR12.2b. Over FY14-17, it grew at a CAGR of

11%. The company has capabilities across the customers’ product life cycle, and

employs ~900 people (CY15), globally.

Exhibit 25: Revenue CAGR of 11% since first full year of DRG acquisition

Revenue (INR m)

8,993

4,827

5,227

6,462

6,496

10,196

11,563

12,224

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

Source: MOSL, Company



PIM works with several leading life sciences companies, and has 10+ year

relationships with all of the top-10 customers. The stickiness is reflected in the

fact that it had 96% client retention (by value) in CY15, and 100% among its top-

20 customers. It derives 37% of its revenue from its top-10 customers, and 57%

from its top-20.

18 May 2017

Piramal Enterprises

Exhibit 26: Top-10 (20) customers contribute 37% (57%) of

revenue

4.8

4.7

3.6

3.5

3.4

62.8

2.7

Source: MOSL, Company

2.9

2.8

Data &

Analytics,

Research

products,

Source: MOSL, Company

Exhibit 27: Well-balanced composition of service lines

Global

consulting

services, 22

Strategy based on four pillars

PIM’s strategy is based

on the dual intent of

revenue growth and

profitability

improvement

PIM’s strategy is based on the dual intent of revenue growth and profitability

improvement. It has been increasing its addressable market through acquisitions

and product innovation, and the focus on profitability improvement is visible

through its efforts to augment presence in India, and realize operational synergies.

Its strategy is based on the following four pillars:

Expanding market size and geographical presence:

HBI acquisition to enable

entry into provider market; acquisition of Adaptive Software to enable entry

into payers market.

Continued development of cost and operational synergies:

DRG India office is

on target, with 250+ positions on-boarded in two offices. The company is

leveraging India and reviewing cost structure to identify margin enhancement

opportunities. Leadership team is progressing well on integrating products and

services under one brand.

Inorganic growth opportunities:

Continues to look at attractive opportunities to

enhance capabilities/expand geographically through acquisitions. Four

acquisitions since 2015 have bolstered DRG’s Analytics, Provider, Payer, and

Data Capabilities and Resources.

Product innovation:

PIM has launched a new delivery platform for all DRG

research reports. There are multiple new product ideas in the pipeline. PIM is

increasingly focused on strategic partnerships and JVs to enhance product

innovation, data capabilities and sales into new channels.

Inorganic growth has been a crucial driver

Acquisitions have been a key strategy to growth in the past. After PIEL’s acquisition

of DRG, the latter added six companies, thereby expanding the addressable market

by ~2.7x (to USD16b from USD6b earlier).

18 May 2017

Piramal Enterprises

Exhibit 28: Addressable market expanded through multiple acquisitions

Addressable market (USDb)

Past

Present

Future

Source: MOSL, Company

Addressable market could

be USD16b in the future

While previous acquisitions have been towards adding/augmenting service lines, the

two latest companies acquired give PIM access to the healthcare provider and payer

space. Entry into these markets has been the key driver of the multifold expansion

in addressable market. Acquisitions post PIEL taking control include:

Walnut Medical:

UK-based data company that provides access to key European

hospital-level data – to enhance and expand data and analytics offerings

Abacus International:

Gave access to European Health Economics and

Outcomes Research (HEOR) market

Relay Technology Management:

Enabled DRG to supply clients with premier

analytics

Activate Networks:

Expanded DRG’s analytics capabilities; supports clients with

sales force targeting

HealthHiway:

Strength in providing analytics & solutions to Indian healthcare

providers

Healthcare Business Insights:

Trusted provider of best practice research,

training & services to >1,400 hospitals in the US; marks company’s entry into

provider space

Adaptive Software:

Leading solutions for Health Plans and Pharmacy Benefit

Managers; marks company’s entry into payer space

The company has opened

offices in Bengaluru and

Gurugram in the past two

years

India expansion to accelerate product development and profitability



In FY17, PIM continued its expansion in India. It opened offices in Bengaluru and

Gurugram in January 2015 and February 2016, respectively. It has hired 250+

employees in India so far.

The objective of this initiative has been towards accelerating growth through

accessing talent, increasing capabilities beyond existing products and services,

improving customer delivery and 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 demonstrative of strategy enablement

Revenue growth of 13% in FY16 was a function of growth in Data & Analytics and

the HBI acquisition. This slowed down slightly to 6% in FY17. The company has high

revenue visibility – driven by 96% retention rate in FY16 and continued addition in

new customers. Moreover, the newly-entered provider and payer markets give an

additional impetus to growth opportunities.

18 May 2017

Piramal Enterprises

DRG’s new, dynamic and web-based insight platform for DRG research reports was

launched in FY17. The DRG Insights Platform combines Google-like search

capabilities with a highly-intuitive user interface. This will help customers identify

and explore highly-relevant content. The platform will transform the way customer’s

access and consume DRG content.

Global peers trade at 4-8x EV/Sales valuation

PIEL had acquired DRG for a

total consideration of

USD635m, valuing the

transaction at ~5x EV/Sales

PIEL has stated its intent to demerge its diverse business segments to unlock

shareholders’ value. PIEL had acquired DRG for a total consideration of USD635m,

valuing the transaction at ~5x EV/Sales. This is in line with global M&A transactions

that are directly comparable to the operations of DRG.

Exhibit 29: DRG's 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

23.0

EV (USDm)

3,297

15,924

2,362

5,336

2,092

12,542

Source: MOSL, Company

Exhibit 30: 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

Acquisition

price (USDm)

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

4.4

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 conservatively at 4x forward sales

Assuming DRG grows at a CAGR of 12% (versus 17% CAGR over CY05-15, and 11%

since FY14 – first full year of acquisition revenues), we expect sales of USD229m in

CY18. We value it at 4x forward sales at USD690m, which would imply ~4.5x LTM

sales of USD182m. We peg DRG inline with peers, which trade at a median value of

4.4x LTM revenue to factor in slower sales growth post acquisition in recent years.

18 May 2017

Piramal Enterprises

Valuation and view

SOTP of INR3,044; implied P/BV of 3.2x FY19E



Post the sale of its domestic formulations business, PIEL has invested in fast-growing,

profitable businesses. Starting with wholesale lending from scratch, it has now grown

to become one of 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 40%+ loan book CAGR over FY17-20.

The 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 and value contributor

for PIEL. This business constitutes ~70% of our SOTP valuation.

Investment of INR46b in Shriram Group is valued at ~INR81b (FY19E), based on a

target multiple of 2x for SHTF and 2.5x for SCUF. We have removed PIEL's investment

in Shriram Group from net worth.

Invested capital employed in the healthcare and IT businesses stands at INR120b+. 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 ~30% of SOTP.

Financial services business contributes ~70% of SOTP value

The financial services segment is a key value contributor for PIEL. It has

demonstrated its ability to grow faster than competitors and, at the same time,

generate best-in-class return ratios with robust asset quality. Over past few years, it

has gained a 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 a pre-tax RoA of 5%+ and an RoE of 25%+, with a C/I ratio of ~9%.

Given strong growth the business has demonstrated over past few years as well as

the immense opportunity available, we expect 40%+ loan CAGR over FY17- 20. We

expect the proposed capital raise of INR50b+ to be used 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. We

have not factored in proposed capital raise in our estimates.

Our valuation is based on P/BV of 2.5x for SCUF and 2x for SHTF. Total AUM of PIEL’s

alternate funds is INR70b+. Under some funds, PIEL has put the seed investment.

We have factored in 15%+ CAGR in funds under management, 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 ~1% of overall SOTP.

On a blended basis, we value the NBFC business at 3.6x March 2019E BV –

INR1,583/share (~50% of SOTP). The implied value of Shriram Group investments is

~1.8x invested capital. Pharma and IT contribute ~20% of SOTP. Total capital

employed in Pharma and IT businesses stands at INR120b+ as of FY17. Pharma

18 May 2017

Piramal Enterprises

business has become profitable, and we expect it to deliver EBITDA margin of ~20%

and revenue CAGR of ~19% over FY17-20. EBITDA growth is expected to be ~40%

over FY17-20. On a blended basis, we have valued this business at EV/EBITDA of 14x.

Over FY17-20, the IT business is expected to grow at a CAGR of 8-10% and EBITDA is

likely to be ~16%. We value this business at EV/sales of 4x.

Exhibit 31: PIEL: SOTP - March 2019 (without factoring in the proposed capital raise of up to ~INR50b)

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

Value

(INR B)

273

164

525

483

8.8

Value

(USD B)

4.1

1.2

0.1

2.5

7.8

7.2

8.8

INR per

1,583

470

952

3,044

2,798

8.8

To Total

100

Rationale

3.6x PBV; ROA/ROE of ~4%/25%+ - Loan CAGR of 40% FY17-20

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 3.2x Consolidated BV

Source: Company, MOSL

Exhibit 32: PIEL: SOTP - March 2020 (without factoring in the proposed capital raise of up to ~INR50b)

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

Value

(INR B)

355

202

658

483

36.3

Value

(USD B)

5.3

1.4

0.1

3.0

9.8

36.3

INR per

2,056

542

1,170

3,813

2,798

36.3

To Total

100

Rationale

3.6x PBV; ROA/ROE of ~4%/~25%+ - Loan CAGR of 40% FY17-20

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 3.5x Consolidated BV

Source: Company, MOSL

18 May 2017

Piramal Enterprises

Capital raise to drive strong growth in financial services

BV accretion of ~20% post capital raise

PEL is planning to raise upto INR50b (~10% dilution) which in our view would

support the strong growth in financial services business. The pharma and IT

businesses are sufficiently capitalized, with a debt to equity ratio of ~1x (our

estimate). Our back of the envelope calculations suggest that NBFC leverage in this

business is 5x+. Considering wholesale nature of the business, we believe peak

leverage could be 6-7x. While we have not factored in the capital raise, if accounted

for our consolidated BV for FY18/19 would be ~INR1040/1150 vs our estimate of

INR850/960 (under Indian GAAP). Below we show the sensitivity of capital raise to

target price based on different multiples for financial services business.

Exhibit 33: PIEL: SOTP - March 2019 (If proposed capital raise of INR50b factored in) – FS multiple of 2.5x

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

Value

(INR B)

324

164

576

533

8.2

Value

(INR B)

389

164

641

533

20.4

Value (USD

4.8

1.2

0.1

2.5

8.6

8.0

8.2

Value (USD

5.8

1.2

0.1

2.5

9.6

8.0

20.4

INR per

1,704

426

863

3,028

2,798

8.2

INR per

2,044

426

863

3,368

2,798

20.4

% To Total

100

Rationale

2.5x PBV; ROA/ROE of ~4%/~16% - Loan CAGR of 40% FY17-20

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 2.6x Consolidated BV

Exhibit 34: PIEL: SOTP - March 2019 (If proposed capital raise of INR50b factored in) – FS multiple of 3.0x

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

% To Total

100

Rationale

3x PBV; ROA/ROE of ~4%/~16% - Loan CAGR of 40% FY17-20

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 2.9x Consolidated BV

Source: Company, MOSL

Exhibit 35: PIEL: SOTP - March 2019 (If proposed capital raise of INR50b factored in)- FS multiple of 3.6x

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

Value

(INR B)

467

164

719

533

35.0

Value (USD

7.0

1.2

0.1

2.5

10.7

8.0

35.0

INR per

2,453

426

863

3,777

2,798

35.0

% To Total

100

Rationale

3.6x PBV; ROA/ROE of ~4%/~16% - Loan CAGR of 40% FY17-20

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 3.3x Consolidated BV

Source: Company, MOSL

Exhibit 36: PIEL: SOTP - March 2019 (If proposed capital raise of INR50b factored in) – FS multiple of 4x

NBFC business

Shriram Investments

AMC

Pharma, IT and Others

Target Value

Current market cap.

Upside (%)

Value

(INR B)

519

164

771

533

44.7

Value (USD

7.7

1.2

0.1

2.5

11.5

8.0

44.7

INR per

2,726

426

863

4,050

2,798

44.7

% To Total

100

Rationale

4x PBV; ROA/ROE of ~4%/~16% - Loan CAGR of 40% FY17-20

Based on our Target Multiple; Implied 1.8x of invested capital

7% AUM

Pharma EV/EBITDA 14x; IT EV/Sales of 4x

Implied 3.5x Consolidated BV

Source: Company, MOSL

18 May 2017

Piramal Enterprises

Financials and Valuations - Consolidated

INCOME STATEMENT

FY13

FY14

FY15

Revenues

35,440

45,030

51,230

Change (%)

50.7

27.1

13.8

HealthCare

24,410

28,200

31,210

Financial Services

3,930

7,260

9,371

Info Mgmt

6,510

8,900

10,196

Others

590

670

453

EBITDA*

4,331

4,314

8,698

Change (%)

30.3

-0.4

101.6

HealthCare

-92

947

299

Financial Services #

2,796

2,110

6,575

Info Mgmt

1,628

1,257

1,824

Depreciation

2,096

2,469

2,899

HealthCare

1,457

1,560

1,927

Financial Services

Info Mgmt

633

896

954

EBIT*

2,236

1,845

5,799

Change (%)

10.0

-17.5

214.4

HealthCare

-1,549

-613

-1,628

Financial Services #

2,790

2,096

6,557

Info Mgmt

995

361

870

Unallocated Inc/(Exp)

-2,407

Core PBT

2,236

1,845

3,392

Change (%)

10.0

-17.5

83.9

Exceptional Items

26,962

Reported PBT

2,236

1,845

30,354

Taxes

248

628

3,450

Tax Rate (%)

11.1

34.0

11.4

PAT

1,988

1,217

26,904

Change (%)

0.6

-38.8

2,110.3

Minority Interest

-3

Share from Asso. Co

-42

-31

1,593

PAT Post MI

1,890

1,178

28,500

Change (%)

-2.5

-37.7

2,318.7

Dividend (Including Tax)

3,533

10,599

4,154

* Ex Exceptional, # Post interest expenses; FY16 & FY17 nos based on IND AS

FY16

63,815

24.6

34,670

17,397

11,559

188

13,726

57.8

2,495

8,185

3,046

2,554

1,344

1,185

11,172

92.6

1,151

8,159

1,862

-4,028

7,144

110.6

457

7,600

495

6.5

7,105

-73.6

1,942

9,047

-68.3

3,635

FY17E

85,468

33.9

38,920

33,515

12,224

809

22,506

64.0

5,898

14,241

2,368

3,817

2,564

1,228

18,689

67.3

3,334

14,216

1,140

-5,487

13,202

84.8

-100

13,103

2,281

17.4

10,821

52.3

1,702

12,523

38.4

4,227

FY18E

116,837

36.7

50,221

52,117

13,691

809

34,826

54.7

9,500

22,314

3,012

3,397

2,094

1,278

31,429

68.2

7,406

22,289

1,734

-8,183

23,246

76.1

23,246

4,184

18.0

19,062

76.2

2,432

21,494

71.6

7,308

FY19E

143,396

22.7

57,061

70,193

15,334

809

43,354

24.5

11,878

28,102

3,373

3,697

2,344

1,328

39,657

26.2

9,534

28,077

2,045

-8,383

31,274

34.5

31,274

5,629

18.0

25,645

34.5

3,133

28,777

33.9

9,784

(INR M)

FY20E

175,649

22.5

64,897

92,769

17,174

809

52,546

21.2

13,864

34,904

3,778

3,997

2,594

1,378

48,549

22.4

11,269

34,879

2,400

-8,583

39,966

27.8

39,966

7,194

18.0

32,772

27.8

3,830

36,602

27.2

12,811

18 May 2017

Piramal Enterprises

Financials and Valuations - Consolidated

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

* Under Indian GAAP

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

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

132,173

132,518

291,966

79.6

25,710

19.1

450,193

313,129

56.9

57,141

29,185

50,739

102.3

450,193

FY18E

345

146,358

146,704

383,857

31.5

31,810

23.7

562,371

435,129

39.0

57,141

32,103

37,998

-25.1

562,371

FY19E

345

165,351

165,697

522,981

36.2

40,594

27.6

729,272

581,529

33.6

57,141

35,314

55,289

45.5

729,272

(INR M)

FY19E

345

189,143

189,488

683,970

30.8

52,635

29.7

926,093

760,869

30.8

57,141

38,845

69,239

25.2

926,093

25.0

-0.4

1.8

1.7

14.1

3.4

1.2

17.9

1.0

2.9

27.1

18.5

7.2

5.5

7.5

19.4

13.3

9.8

22.0

18.9

15.4

22.0

20.8

18.4

22.0

21.4

20.6

621

-4.6

11.0

-2

540

-13.1

6.8

-38

680

25.9

165.2

2,319

720

5.8

52.4

-68

768

6.7

3.7

72.6

39.0

0.9

850

10.7

3.3

124.6

22.7

1.5

960

12.9

2.9

166.8

17.0

2.0

1,098

14.4

2.6

212.1

13.3

2.6

18 May 2017

Piramal Enterprises

NOTES

18 May 2017

GALLERY

Piramal Enterprises

18 May 2017

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18 May 2017