Piramal Enterprises down 4% post demerger announcement

The shares of Piramal Enterprises were trading 4 per cent lower during the morning trade on Friday after the company announced the demerger of its financial services and pharmaceutical businesses to create two separate listed entities.

At 11:51 am, Piramal Enterprises was trading at ₹2765.on the BSE, down ₹121.40 or 4.21 per cent. It opened at an intraday high of ₹2957.30 as against the previous close of ₹2886.40. It hit an intraday low of ₹2727.80.

On the NSE, it was trading at ₹2,764.80, down ₹123.40 or 4.27 per cent.

The company on Thursday announced the demerger in a bid to simplify the corporate structure.

While the financial services, including the recently acquired DHFL, will remain under Piramal Enterprise Ltd (PEL), the pharmaceutical operations will be carved out into a separate entity called Piramal Pharma Limited (PPL). Existing shareholders of PEL will get four shares of PPL for one share of PEL.

Piramal Enterprises will transform into a listed diversified NBFC, focussing on retail and wholesale financing, with a consolidated loan book of ₹65,000 crore. Piramal Pharma will comprise contract development and manufacturing, global distribution of complex hospital generics and consumer products market in India.

The pharma business accounted for about 45 per cent of PEL’s revenues in FY 21. Private equity major Carlyle already owns a 20 per cent stake in the pharma unit.

Piramal said the pharma unit could get listed over the next 8-9 months.

The demerger is subject to shareholders, creditors and regulatory approvals and is meant to unlock value for shareholders, the company said.

There will be no tax implication due to the demerger. PPL will become one of the largest pharma companies listed on exchanges post the demerger. Net debt in pharma co is ₹3,200 crore, net worth is at ₹7,000 crore, and net block in pharma business is ₹6,000 crore. Unallocated networth of about ₹11,000 crore will remain in PEL. Meanwhile, the Board of PEL has appointed Puneet Yadu Dalmia as an Additional Director of the company.

Brokerages however were bullish on the stock post the announcement.

Motilal Oswal Research maintained a 'Buy' rating on the stock at a target price of ₹3310 with a 15 per cent upside.

"The demerger would optimize the capital structure for each business and enable both to independently pursue growth opportunities," it said in a note.

"PPL is expected to continue its growth journey on the back of: a) fully integrated synthesis CDMO presence, bolstered by capabilities in peptide APIs via the Hemmo Pharma acquisition, b) an unblemished regulatory track-record, c) niche portfolio of differentiated dosage forms in CHG, supported by global distribution, and d) strong brands with an established pan-India distribution network in the Consumer Healthcare segment. PPL will look to use inorganic growth levers to add new products and capabilities in CDMO, CHG, and India Consumer Healthcare segments. We expect CDMO/CHG/Consumer Healthcare to clock a sales CAGR of 19 per cent/21 per cent/20 per cent over FY21-23E," it said.

"Over the next three years, we expect PIEL’s FS business to make meaningful inroads into Retail. Product diversification within Retail would help the company deliver strong growth and lower concentration risk. We expect the FS business (excluding the Life Insurance JV) to deliver ~2.3 per cent RoA/10 per cent RoE over the medium term (post building in the DHFL acquisition). We have an unchanged target multiple of 1.8x for the FS business. We roll forward our valuation to Sep’23E. Using SoTP, we arrive at TP of ₹3,310/share and maintain our BUY rating," it added.

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