After acquiring DHFL to strengthen its financial services business, Piramal Group is carving out the pharmaceutical business into a new listed entity In an interview with BusinessLine , Ajay Piramal, Chairman, and Nandini Piramal, Executive Director, Piramal Enterprises Ltd, discuss plans going ahead.

How significant is the demerger for the Piramal Group?

Ajay Piramal (AP): This has been part of the plan for some time. Since the financial crisis with IL&FS started in end September 2018, we had charted out a course for our company. We had said we will first raise equity of ₹10,000 crore. We actually raised ₹18,000 crore. We also said we will simplify the business. We sold our DRG business for $950 million. In the next step, we brought all the pharma business into a subsidiary and brought in Carlyle.

In the last interview, I said that the demerger will be in the very near term. We were very wholesale focussed in financial services, and therefore we decided to diversify. That’s when the DHFL merger took place. Once that was done, we said let us demerge. Now with the demerger, both the businesses — financial services and pharma — are now independent. They have a runway for growth; they have a good performance; there is adequate equity for us to grow in both businesses, organically as well as through acquisitions. It simplifies the structure.

Shareholders of PEL (Piramal Enterprises Limited) will get four shares of PPL (Piramal Pharma Limited) for every one share in PEL. Can you elaborate on this?

AP: If you have one share of PEL, you will get a share of the financial services and four shares of PPL. Let us just think of it as a split. You could have got five shares of pharma but 20 per cent is owned by Carlyle and therefore you get four shares. But it doesn’t make any difference. Today, each shareholder will be a shareholder of both companies.

What is the timeline for the demerger?

AP: It is subject to all the usual regulatory approvals and will require approval from the RBI, NCLT, stock exchanges, SEBI, shareholders and creditors, which are all customary. It will take about nine to 10 months. The process will start immediately.

Did you do a fresh valuation for the demerger?

AP: It doesn’t make a difference in valuation because if you have an existing share of Piramal, you will get shares in both financial services as well as in the in the pharma business. But we have to do a valuation to satisfy all the norms.

Will the housing finance company remain a separate entity?

AP: Yes. PHL Fininvest is another NBFC of the group. We are simplifying it. It was 100 per cent subsidiary, we are merging it into PEL, which is a publicly listed entity. That will own 100 per cent of the housing finance company, which is a merger of DHFL with PCHFL (Piramal Capital & Housing Finance Limited). So the financial services business, which will be PEL, an NBFC, will own 100 per cent of HFC.

In pharma, will you still be interested in the same areas such as CDMO, hospital generics and consumer healthcare business?

AP: There are good growth opportunities in each of these businesses. We will continue to build on these businesses, both organically and through acquisitions. We have also done three acquisitions in the last 12 months — two in the space of CDMO and one in the space of anesthetic business. We will continue to do so even now as we have adequate equity and there’s a good runway for growth even through demand of our existing products.

Will you look at biologics given the current interest in vaccines and Covid products?

AP: Biologics is not an area of focus as of now. If in the future, we find a reasonable acquisition that fits in with our strategy, we could look at it. If some of our customers in the CDMO business ask for it, we will see how it is placed.

Any fresh capital that needs to be infused into the pharma side?

AP: No, pharma has adequate capital. Our debt-equity ratios are very comfortable. Debt to EBITDA is in the two range, which is comfortable. We have enough capital today to grow.

How do you seeing the online pharma business?

Nandini Piramal (NP): Online has become an incredibly important channel for any pharma company and it has expanded during the pandemic. Pre-Covid, the online business was maybe 10 per cent of overall market, and now it is doubled. The online segment gives the chance to launch new products. If they succeed, then you can take it to the grocers, the kirana stores, and the chemists. We have launched 38 new SKUs and products last year. Online has proven a great testing ground to launch new products and to get consumer feedback.

Will you consider any further acquisitions in the pharma space?

NP: Yes, the appetite is there. We have a very good debt-to-equity ratio. We have room to raise more debt if we want to. We are looking for specific types of acquisitions. But ultimately, it’s all about the right opportunity at the right price. There are lots of deals happening, which are very expensive.

How fast do you expect the pharma business to grow post this demerger?

AP: Our CAGR growth for the last 10 years has been 15 per cent per annum. We will do better than that going forward.

Who will lead the pharma business post the demerger?

AP: We already have a management team for the pharma business, and it will continue. We are demerging only now but there was always a totally different independent team that was running it. The CEO of the business is Peter DeYoung and he will remain.

Can you give some insight in your hospital generics business?

AP: In hospital generics, we have a good spread of distribution, both in the US as well as globally. Today, 93 per cent of our pharma business is global while in hospital genetics, almost 99 per cent, if not 100 per cent, is global. So we take advantage of those products.

Published on October 7, 2021