Demerger to give a push to both pharma and financial services: Ajay Piramal

In a Q&A, the Chairman of Piramal Group talks about the prospects of both businesses, the rationale for the demerger and how supply side issues are impacting Indian companies

Ajay Piramal, Chairman of Piramal group is optimistic that the Indian economy is set for a turnaround and all industries will be back to their pre-Covid level by the end of the current fiscal. After announcing the demerger of its pharmaceutical business from Piramal Enterprises, Piramal spoke to Dev Chatterjee and Sohini Das about the prospects of both businesses, the rationale for the demerger and how supply side issues are impacting the Indian companies. Excerpts:

Your investors have been asking for quite some time to demerge the financial services and pharma businesses. What is the rationale behind this move now?

There was a lot of demand from the shareholders as well as from new investors about creating more focused businesses. We just completed the acquisition of DHFL which has been recently merged with our housing finance business. We thought this is the right time as both businesses are growing very fast and the demerger will give an opportunity to the investors to invest in either of the businesses or both in future.

At Rs 6,000 crore sales per annum in pharmaceuticals, we have a decent sized business which will grow in future. A large portion of our pharma sales are now coming from overseas from our 15 plants globally and we expect to grow that business in future.

Are you open to acquiring a pharma company to have an entire portfolio of drugs?

We have done three acquisitions since Carlyle made an investment. One of them was in the Contract Development and Manufacturing (CDMO) space in the US. We acquired the balance 50 per cent stake in a company that was making intermediates, and very recently we acquired another company in India called Hemmo Pharmaceuticals.

Our strategy for acquisition has always been and remains the same is that it must be a strategic fit for our business. Secondly, it has to be a decent valuation. We are unlike a private equity. They are willing to pay a significant amount, because they know they will exit the business in five years. So they see what is the entry multiple and what is the exit multiple. We will remain in the business, and that way we will be a bit conservative.

What is the vision and ambition for the pharma business post the demerger?

Our turnover will be exceed Rs 6,000 crore. It will be a reasonably sized company. Our focus is on global pharma. Most of our business is outside of India, we have 15 manufacturing locations globally-–in Canada, the UK and India. There are three lines of businesses–-hospital generics, CDMO and OTC. In all three segments there is a runway for growth.

There are opportunities in India. We will grow organically. For acquisitions, the valuations are pretty high; if it makes sense we will do it. Globally, our plants have good regulatory track record. We will continue to focus there as well.

On the overall economy front, do you see signs of pick up and do you think companies will reach their pre- Covid sales by fiscal end?

The economy is picking up quite well though inflation is a worrying sign. Rising energy prices are a big worry with oil prices again flaring up. We have to keep an eye on that. Most of the companies will reach their pre- Covid sales by year end though everyone is facing supply side constraints. There is enough demand in the economy, but supply is a huge problem.