Piramal Group demerges financial services, pharma businesses

Move seen to make valuations clearer; pharma company to be listed by mid-2022

By Salil Panchal Forbes India Staff

Published: Oct 7, 2021 08:22:51 PM IST

Updated: Oct 8, 2021 12:25:56 PM IST

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Ajay Piramal, chairman of the Piramal Group

Image: Mexy Xavier

Piramal Group on Thursday announced the demerger of its pharmaceuticals and financial services businesses, which separates the two businesses more clearly. The pharmaceutical business will get demerged from the listed Piramal Enterprises Ltd (PEL) and consolidated under Piramal Pharma Ltd (PPL). With the board clearing the proposal, once the regulatory approvals are in place, PPL is expected to get listed at the stock exchanges in about 9-10 months.

In a separate move, the group’s non-banking financial company (NBFC) PHL Fininvest Pvt Ltd will be merged with PEL, to become a larger well-diversified listed entity. The merged housing finance company will remain a wholly-owned subsidiary of Piramal Enterprises. Shareholders of PEL will get four shares of PPL for every one share in PEL, in addition to their existing holding in PEL. The loan book for the finance company will be about Rs 65,000 crore.

The delinking of the two businesses had been an overhang on valuations for the two businesses for quite some time, with the debate that there was little similarity between them. The financial services business is valued as a multiple of book value while the pharma business is a multiple of Ebitda.

“We were getting the demerger ready over the past two years. This was part of the plan,” Ajay Piramal, chairman of the Piramal Group, tells Forbes India.

The company raised Rs 18,000 crore of equity to scout for acquisition opportunities; it monetised its health care insights and analytics business of Decision Resources Group (DRG) by selling it to US-based Clarivate Analytics for $950 million. PPL then sold 20 percent stake to a Carlyle Group firm for Rs 3,523 crore, followed by the buyout of bankrupt DHFL for Rs 34,250 crore.

The DHFL acquisition will help make the financial services book well-diversified from being largely wholesale-focussed. While scaling up the loan book, the plan going ahead, will be to leverage on DHFL’s platform to cross-sell products and increase the share of retail loans to about 67 percent from the about 40 percent currently.

On revenues of Rs 12,800 crore, financial services constituted about 55 percent of the business at Rs 7,033 crore while pharma contributed the balance 45 percent at Rs 5,776 crore. PEL had reported flattish growth in the June-ended quarter at Rs 2,909 crore and 7.6 percent rise in net profit.

“Lending activity has very much normalised since June, both in terms of demand and recovery of loans,” says Piramal. He did not perceive much concern about rising bad loans in the retail lending space.

The pharma business will comprise three large verticals: Its contract development and manufacturing pharmaceutical company (CDMO); Complex Hospital Generics and India Consumer healthcare business. The existing OTC pharma business will get merged into the existing pharma business.

CDMO revenues clocked at Rs 3,616 crore, hospital generics at Rs 1,700 crore and consumer health care at Rs 500 crore. The global businesses, which include CDMO and Hospital Generics, comprise 90 percent of revenues.

Piramal is confident that the economic slowdown due to the pandemic is starting to wane, with demand for loans in the housing finance and wholesale lending moving up. The larger scaled businesses are starting to improved demand for goods and services though some pain is still being witnessed for small- and micro-businesses.