The market has speculated ad nauseam on Ajay Piramal's ambitions to start a bank, but few know that his group has already attained some scale in the financial services business. His flagship company, Piramal Enterprises, has been quietly building a formidable financial services business with some of the best minds in the industry. The business is unique in the sense that it has taken an offbeat approach to products: merging relatively new investment opportunities with innovative financial structures.
Banking business is on its radar too, but considering the strict terms for new bank licences, the group may consider a roundabout way to get into the sector. "There are many ways to get into banking," says Piramal, and adds that the group will evaluate it if necessary over time.
The group's financial services arm started out as a business that would deploy capital to productive sectors of the economy. In essence, it meant sectors with varying degrees of risk. In a post-Lehman Brothers world, this model made immense business sense as capital had suddenly become scarce and expensive.
Its reputation has helped it raise funds both globally and in India for its private equity funds. While the private equity business has been entrusted to an old loyalist Khushru Jijina, former State Bank of India chief AK Purwar has spent the last few years building a non-banking financial services company.
Piramal Enterprises financial services business encompasses three entities: Indiareit, PHL Finance and Structured Investments. The strategy has been to either lend to fast-growing, recession-proof sectors (like education and healthcare) or leverage upon the group's expertise in real estate to partner with developers on large projects focussed on Tier I cities. Apart from this, there are several sectors where infrastructure projects are stuck due to last mile funding and the Structured Investments Group seeks to fill this gap by providing mezzanine funding.
The idea is to build solid long-term assets during stressful times, and at attractive valuations. Jayesh Desai, head of the Structured Investment Group, says: "There will always be opportunity in some sector which is hungry for capital. We offer capital which is between senior debt and equity. In these stressed times, equity valuations are beaten down and sectors like infrastructure and power are not able to borrow from banks. We offer a solution which is not fixed returns but which are better than debt."
Indiareit is a private equity fund that is focussed on real estate development in Tier-I cities. The company had raised Rs 4,257 crore as on March 31, 2013. It has the rare distinction of having an internal rate of return of 23 per cent. Of its total fund of Rs 4,257 crore, Indiareit has exited and returned Rs 1,000 crore to investors. Indiareit is also present in managing third-party funds. Since the boom in 2007, about 97 real estate private-equity funds have together pumped in $50 billion into India, but a mere seven per cent of the investment has seen exits. Given that banks do not finance land, Indiareit believes the opportunities are endless in this space.
PHL Finance-the group's non-banking finance arm started in 2011-caters to capital-starved sectors like education, healthcare and real estate. Headed by Purwar, the non-banking Financial company (NBFC) had a loan book of Rs 1,591 crore at the end of March 2013. Given his expertise, Purwar would love to start another bank, but before that he wants to take the NBFC's loan book to Rs 6,000 crore and also build a retail vertical.
The Structured Investment Group could look at picking up equity stakes in high-yield infrastructure projects. The financial services division has ended FY13 with revenues (including investment income) of Rs 393 crore, an increase of 44 per cent from the previous year.
The group has also not written off its plans to bid for a banking licence all together. Given that it is flush with cash, funds would be the least of its problems.