Is it worth buying Cash?

I was checking into Piramal Enterprises Limited. This company was in news after it sold to Abbott its formulation business for a huge sum of money. Kudos were levied upon Mr. Ajay Piramal for selling the business so high. He's now being regarded as India's biggest "value investor". He's considered a brilliant manager by almost all investors in India. His company Piramal Enterprises Limited has been considered as a "value" bet by a management guru from Gurgaon and he talks about adding Mr. Ajay Piramal as a manager  to this bet. Sounds convincing...

So, I started looking Piramal Healthcare annual reports for March 2012. First thing, I couldn't understand why they're carrying the long-term debt of Rs. 6500 million when they can easily get rid of it. Also, I was surprised to see current short-term borrowings of around Rs. 10,140 million. Then, I started suspecting that whether they're not making any money from the business or current operations right now. I went straightaway to the P&L statement and found out that had it not been for "Other Income" they would have been making losses in the financial year ending March, 2012. I could see that even the previous year wasn't good for them. Operating cash flows have taken a battering. The quarter ending June, 2012 is also not providing any sort of comfort.

If you just look first hand at the Piramal Healthcare balance sheet for March 2012, you'll be enticed by looking at the long-term investments of Rs. 1,30,190 million which comes out to be Rs. 754 per share which is way up the current prices. If one is claiming to be a "value investor", concepts like "margin of safety", "buying cash" will start dancing before his eyes. But a value investor needs to focus on the operating cash flows too, which is the future of the business. Unless, the operating cash flows don't start flowing, the business with its huge cash reserves still might end up eating it. And as is evident from the market position towards Piramal Enterprises Limited stock in a bullish market, market doesn't pay for cash only and it means business.

I'm not suggesting here that its all downhill for Piramal Enterprises from here. I'm just using this opportunity as an instance to clarify "Value Investment". Piramal Enterprises has lots of subsidiaries & they have diversified very recently and also entered other healthcare spheres. Right now, they're also incurring around Rs. 2,000 - 2,500 million as R&D expenses which has a very poor track record in India. Only time'll tell whether they'll turn positive cash flows or not.