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We will exit Vodafone in 12-18 months: Ajay Piramal

Interview with Chairman, Piramal Healthcare

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Piramal Healthcare, which turned cash-rich after it sold its formulations business to Abbott, has made two investments in Vodafone India, taking its stake to 11 per cent. Even after investing almost Rs 6,000 crore, Ajay Piramal, chairman of the company, insists it is a short-term investment. He talks to Katya B Naidu about exit options, risk profile of the investment and regulatory worries in the telecom sector. Edited excerpts:

Do you expect a larger play in Vodafone India, with an 11 per cent stake? What kind of managerial role will Piramal play?
We will have a seat on the board, and will be represented by (the chief financial officer of Piramal Healthcare). Whatever responsibilities the board has, those will be taken care of. Running of the company will be done by Vodafone.

For us, this is a short-term investment. We have been looking for such opportunities to invest in companies which have a good track record and go with the India growth story. We think this is an investment in that direction. We will exit in the short term, i.e. between 12 and 18 months. The first option is through an initial public offer. If that does not go through, we would look at selling it back to Vodafone itself or to another company.

What kind of returns do you expect from the investment? Did Vodafone assure you any guaranteed price, if you were to sell the stake back to it?
The returns we expect are in the same region of our last investment, i.e. 17-20 per cent. At the valuation we have done, we feel confident we will get our returns at the end of the period. No, we have not been given any price guarantee. But, we will expect the same return.

Would you be looking at any more investment in Vodafone?
No.

How would you fund the investment in Vodafone? How much cash do you have on your balance sheet?
We had Rs 1,200 crore on our balance sheet before the Vodafone investment. Now, we do not have any cash on the balance sheet. We would be raising short-term loans of Rs 1,800 crore from banks and financial institutions to close the deal. We have clarity on the repayment because at least for the next three years, we will get almost Rs 2,000 crore (from the deal). Today, our net worth is Rs 11,500 crore. Our rating is AA for debt. All these mean we have enough access to fundings. With regard to cost of funds and availability, we are in a strong position.

The telecom sector is going through a variety of regulatory issues. Vodafone, too, had to face some, after the government cancelled its 3G roaming pacts. So, what kind of risks do you see in your investments?
We don’t see any risk because ours is really a short-term play. The sector issues will not affect us, as we have more than one option.

Piramal is a pharma company. Will these short-term investments make it risky for the sector investors who consider it a defensive sector?
I don’t think we will remain a pure pharmaceutical company anymore. We will be a diversified conglomerate. I think the investors will have to appreciate that. Our responsibility is to maximise shareholder value and if that means we can make short-term investment where we can maximise short-term value, we can do that. That’s what we are trying to explain. If we can get 17-20 per cent returns, any analyst would realise it is better than investing in a stock. It is our job is to increase shareholder value. At the same time, we are looking at long-term investments in pharma.

What are the areas that you will be investing in pharma?
One is of course the drug discovery business, which is going to grow, and in the long-term, become a fully integrated pharma company. I’m pretty confident we’ll be launching a new chemical entity. We are investing in the over-the-counter space in India. The third area is contract manufacturing, and the fourth area would be critical care.

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