Piramal Enterprises board approves to demerge and list pharma business

A decade after selling its branded formulations business to US-major Abbott Laboratories for $3.72 billion, the Ajay Piramal group has announced it would demerge its pharmaceutical and financial services arms into separate listed entities.

With an FY21 turnover of Rs 5,776 crore, Piramal Pharma will rank among the top 10 pharma companies in the country by revenue.

Piramal Pharma, however, draws around 15 per cent of its revenues from India, and the bulk of its business (48 per cent) comes from North America. The pharma business contributes 45 per cent to the group turnover with the remaining coming from the financial services arm.

According to the plan, PHL Fininvest, the non-banking financial company (NBFC), will be amalgamated with Piramal Enterprises (PEL) to create a large listed NBFC in India.

The merged housing finance company (HFC), after the DHFL acquisition, will remain a wholly-owned wholesale financing subsidiary of PEL.

Shareholders of PEL will get four shares of Piramal Pharma for every one share in PEL. The demerger will create a focused management for both businesses and give liquidity for shareholders (following the listing of the shares of PPL pursuant to the scheme) and will also insulate and de-risk both the businesses.

The demerger will give potential investors the option of being associated with the business of their choice.

In an interview, Ajay Piramal, chairman, Piramal Group, said the new structure would simplify the corporate setup and empower both the independently listed entities to be “future-ready” and pursue growth strategies with a sharper focus and identity.

“We have been working on this for quite some time as there was a lot of demand from investors to have focused businesses. With this, both the financial services business and pharma business will be separated and unlock value for shareholders,” Piramal said.

On Thursday, PEL shares closed 1.57 per cent up to Rs 2,886, making its market cap Rs 68,887 crore.

Piramal’s pharma business comprises a contract development and manufacturing (CDMO) business (among the top three in India); a complex hospitals generics business; India consumer healthcare business; and a joint venture with Allergan in the ophthalmology space.

Of this, the CDMO business contributes 62 per cent of the pharma revenues, while 29 per cent comes from the hospital generics segment, and about 9 per cent comes from India consumer health care.

Last October, when US-based private equity major Carlyle picked up 20 per cent in Piramal Pharma for $490 million, Nandini Piramal, executive director of Piramal Enterprises (who will now also head the pharma division), had said besides paring debt, the fresh equity infusion would be used to create a war-chest for the next phase of growth.

Piramal Pharma has carried out three acquisitions in recent months -- API maker Hemmo Pharma for Rs 775 crore in March; an oral solids dosage facility in Sellersville, Pennsylvania, for about $17.5 million; and the remaining 49 per cent stake in Convergence Chemicals for Rs 65 crore.

Nandini Piramal, however, pointed out the pharma business would continue to grow organically both overseas and in India.

Over the past 10 years, the pharma business has clocked a 14 per cent compound annual growth rate (CAGR) in revenues and 28 per cent CAGR in earnings before interest, tax, depreciation, and amortisation.

Ajay Piramal said the group was not looking at Srei for a takeover. On PEL’s investments in Shriram group companies, Piramal said his group would exit Shriram even as the valuations were going up.