Higher R&D expenses and fall in income from investments drove Piramal Healthcare's third quarter consolidated profits lower by 86 per cent to Rs 8.5 crore.

But helped by growth in its pharma business and favourable forex movement, revenues from operations grew by 39 per cent to Rs 558.7 crore. Total income came in lower as income from investments plunged by 55 per cent to Rs 58.8 crore.

Though the demerger of the R&D division of Piramal Life Sciences (PLSL) into Piramal Healthcare was approved only in the December quarter, it came into effect from April 2011.

As a result, the R&D expense of PLSL for nine-months ended December 2011 of Rs 94 crore was booked in this quarter. The company, however, may be able to scale up its profitability in the long run as it begins reaping the benefits from the investments made in its businesses and R&D.

Core business brings cheer

Pharma solutions business (CRAMs) reported a 57 per cent growth in sales – sales from assets in India delivered 70 per cent growth, while assets outside India registered 42 per cent growth. This was driven by strong growth in formulations and favourable currency (likely upside of about 7 per cent due to forex fluctuations).

For the nine-month period, the segment revenues grew by about 43 per cent. The management however expects to end the year only with a 20 per cent growth. It expects the sales growth in the fourth quarter to be lower given the high base of last year.

Delays in regulatory approvals in Europe and pricing pressure for Sevoflurane in US hit the performance of its critical care segment. The segment saw a 1.5 per cent fall in sales during the quarter (3.3 per cent for the nine-month period). The management expects to end the year with a mid-single digit growth.

The OTC (over-the-counter) and ophthalmology revenues saw a modest 4.4 per cent growth during the quarter. The company has been investing in creating brands (Lacto Calamine, i-pill, Saridon, Supractiv Complete) and distribution networks for the segment. It expects to end the year with a 20 per cent growth. Though the OTC segment has been growing at above market rates, it will be a while before it begins contributing to the profitability.

Investments

The company's income from investments, a key revenue driver in recent times, took a hit as the company had used up Rs 2,856 crore last quarter to acquire a 5.5 per cent stake in Vodafone India.

It recently doubled its stake by acquiring another 5.5 per cent for Rs 3,007 crore from ETHL Communications Holdings (part of the Essar group). The investments however are only of short-term nature. It expects to exit in 12-18 months through the Vodafone IPO with a 17-20 per cent return.

There will be no income from investments in the coming quarters, as the company doesn't have any cash on its books after the latest Vodafone deal. The company currently has a net debt of Rs 1,200 crore.

Debt levels, however, aren't expected to rise further as the company is set to get another tranche of Rs 2,000 crore from its Abbott deal in September.

New businesses

Its newly formed Financial Services (which includes India REIT fund) segment, which has commenced lending, had a loan book of Rs 131 crore at the end of December. The management expects it to go up to Rs 600 crore by the end of the year.

It has also floated a new company, Piramal Systems and Technologies (PST), to spearhead the group's foray into defence security business.

Srividhya.sivakumar@thehindu.co.in

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