Piramal Health bets on local ops as Crams falters

After maintaining its poise for the better part of the current financial year ending March, Piramal Healthcare now seems to be getting a sense that its custom manufacturing services (Crams) may not be able to achieve even last year’s sales figure.

The company, though, is confident that a buoyant domestic market will help compensate for the poor show of the customs manufacturing operations, Rajesh Laddha, chief financial officer told NewsWire18 in an interview.

Customs manufacturing business, or pharma solutions as the company prefers to call it, is the part of Piramal Healthcare’s business that caters to overseas pharmaceuticals companies and accounted for almost one third of its revenues in 2008-09 (April-March).
Domestic formulations business that includes sale of finished dosages and over-the-counter drugs in the Indian market, accounts for 50% of Piramal’s revenues.

“There has not been much improvement in terms of actual business. We initially thought that probably second half (of 2009-10) would be better, but we are still not witnessing that kind of an improvement in customs manufacturing operations. It is the way it was earlier this year,” Laddha said.

The customs manufacturing business was hit as many of the company’s clients went for de-stocking this year following the global financial downturn.

Also, the company closed down its Huddersfield unit in UK because of the high cost structure. It is now gradually shifting the product portfolio of that plant to its Indian units, while it is in the process of disposing off the Huddersfield facility.

On the target of garnering around Rs 1,000 crore from custom manufacturing in 2009-10, he said, “We might be a little bit short. It has stabilised, it is not going down further. Revenue could be anywhere between Rs 900 crore and Rs 1,000 crore.” In 2008-09, Piramal Healthcare’s customs manufacturing revenue stood at Rs 1,060 crore.

For six months to September, the company registered 8.4% year-on-year decline in customs manufacturing revenues at Rs 460 crore. Laddha, though, was confident that the company would be able to achieve its earlier guidance of around 16% growth in total revenue for the current fiscal.

“Overall, we will maintain our growth target of 15-16% because domestic business is doing well. Domestic sales have been growing at 20% plus so far. It may have slowed down (in last few months) a little bit, but it still doing around 20%,” he said.

The company is also pinning some hope on the following year and Laddha said that early signals indicate 2010-11 may turn out to be much better. “If the situation remains like this, even then we should see overall improvement. But we believe that beginning of the next year should show some improvement. That belief is coming from the talks we had with customers and their feedback,” Laddha said.

Piramal Healthcare is yet to take a call on the mode by which it plans to raise Rs 1,000 crore through equity for which it has passed an enabling resolution earlier this month.
It, though, is clear about the utilisation of the funds for retiring the high cost debts on its books.

“Whatever we raise in terms of equity will go for retirement of debt. We have taken an approval for raising Rs 1000 crore. Nothing has been frozen on that front. Could be institutional placement, could be ADR/GDR kind of a thing,” Laddha said.