A decade after the Piramal group sold its domestic formulations business to US-based Abbott for $3.72 billion, it has again signed a large deal to unlock value in its existing business. On Saturday, Piramal Enterprises (PEL) said US-based private equity player Carlyle was taking a 20 per cent stake in its pharma business at an enterprise value of $2.78 billion. The group also plans to list its business arm, which has been spun off into a separate subsidiary, soon. Through this, Piramal is readying a ‘war chest’ for future strategic investments —both organic and inorganic.
Carlyle will pick up the stake in Piramal Pharma for $490 million, or around Rs 3,700 crore. There is also an upside component built into the deal, which will depend on the profitability of the current year’s performance, Ajay Piramal, chairman of Piramal Enterprises, said.
“We have an enterprise valuation $2.78 billion and there is an upside component (up to $360 million) built into it that will depend on the profitability of the current year's performance. The deal value could go up to $3.1 billion," he said. PEL's pharma business clocked revenue of Rs 5,419 crore in FY20, with earnings before interest, taxes, depreciation and amortisation (Ebitda) of over Rs 1,400 crore and an Ebitda margin of 26 per cent.
Piramal said that given the type of business mix they had, it was an industry-leading valuation. He added that the strategic partnership with Carlyle in the times of Covid-19 was a reflection on the strength of Piramal's pharma business. In the interim, the funds could be used to lower debt from Rs 4,200 crore (FY20) to Rs 2,500 crore in FY21.
"We will list the pharma business in the near future. Now, we will work with our partners to decide what is the most appropriate time to do that," Piramal said.
Piramal Pharma will include Piramal Pharma Solutions, an end-to-end contract development and manufacturing organisation (CDMO) business and Piramal Critical Care, a complex hospital generics business selling specialised products across over 100 countries.
It also includes Consumer Products Division, a consumer health care business selling over-the-counter products in India; PEL’s investment in the joint venture with Allergan India, a leader in ophthalmology in the domestic market, and Convergence Chemicals.
Piramal said, “We see many opportunities for the global pharma business and there are opportunities for both organic and inorganic growth.” Nandini Piramal, executive director of PEL, felt that this deal would help create a war chest for the next phase of growth. Earlier this month, Piramal bought an oral solids facility in the US for about $17.5 million.
Nandini told reporters that the company would expand capacities across their manufacturing sites and also explore acquisition opportunities both inside and outside India. "In the medium term, we will deleverage the business. That will allow us to raise more funds when we need it. We want to have a 1.5x net debt to Ebitda ratio for the pharma business," she said.
She added that after the Abbott deal, the group had managed to build a robust pharma business in the last 10 years. “Our pharma Ebitda has gone up 13 times with a CAGR of 33 per cent — from Rs 110 crore in FY11 to Rs 1,430 crore in FY20,” Nandini said. Piramal had sold its domestic formulations business to Abbott in 2010 for $3.72 billion and signed a non-compete agreement to not enter the domestic branded formulations market.
As for acquisitions, Piramal is planning to look at a few options. “We will look at acquiring branded formulations in India. We would also look at vaccines as well, apart from acquiring plants and manufacturing sites both in India and overseas. Organic capital investments are planned to expand our capacities,” Nandini said.
Neeraj Bharadwaj, managing director, Carlyle Asia Partners advisory team, said, “Given global pharma industry trends, we see attractive opportunities for organic as well as inorganic growth in each of these businesses. We are excited to work with the company’s experienced management team, and will leverage our global network, extensive knowledge of the healthcare sector, and operating experience to seek to expand its platform, develop strategic opportunities and facilitate broader market access.”
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The other key business of PEL is financial services, which clocked income from operations of Rs 7,650 crore in FY20 last month. However, for the March 2020 quarter, the financial services business posted a segment loss of Rs 1,705 crore on income of Rs 1,718 crore. Like peers, the business has been under pressure.
Despite the PEL stock more than doubling from its March lows, at Rs 1,343, it is still 27 per cent lower as compared to the year-ago levels. At the current levels, PEL’s market cap is Rs 30,281 crore.
Earlier, Piramal had raised Rs 14,500 crore through asset sales and other fundraising initiatives. It sold its health care insights and analytics subsidiary Decision Resources Group (DRG) to US-based Clarivate Analytics for $950 million in January this year, and also raised Rs 3,650 crore through a rights offer in February 2020.