Piramal set to demerge pharma, finance arms

Billionaire businessman Ajay Piramal’s Piramal Enterprises (PEL) has finalised a plan to demerge its financial services and pharmaceutical businesses and list them on stock exchanges to unlock value in the two fast-growing sectors. After the demerger exercise, which is expected to be completed in the current financial year itself, PEL will become a holding company operating smaller businesses of the group, apart from controlling a sizable chunk in the two proposed listed entities, according to sources.

Insiders said the realty and financial services business would be headed by Piramal’s son Anand, while daughter Nandini would look after the pharmaceutical business. Piramal will look after the group holding company, besides taking over as chairman of the new entities. “The valuation exercise of various businesses is now over, and the board will take a call on the report soon,” said a source.

For 2017-18, the pharmaceutical business contributed 42 per cent to the company’s turnover of ~106 billion, compared to 47 per cent by financial services. The pharmaceutical business generated revenues of ~44 billion in the last financial year.

An email sent to PEL did not elicit any response.

PEL also holds a significant stake in unlisted Shriram Capital, and a 10 per cent stake each in Shriram Capital’s two listed subsidiaries, Shriram Transport and Shriram City Union. PEL invested ~45 billion to pick up stakes in the three entities over the last few years. Interestingly, Shriram Capital is also planning to consolidate its businesses under one listed entity, Shriram Transport Finance Co Ltd, by merging Shriram Capital and Shriram City Union with itself, Shriram group Chairman R Thyagarajan recently told this paper. Though there were plans earlier to merge the financial services business of PEL with the Shriram group, these had been dropped, another source said.

To prepare for the demerger exercise, in the fiscal year ended March 2018, Piramal Finance and Piramal Capital were merged into the housing finance unit – Piramal Housing Finance. The idea was to streamline the financial services business and improve the company’s return on equity by as much as 4 per cent.

The company also got the board’s approval to enter asset management and merchant banking businesses in May.

PEL shares closed 4.4 per cent up at ~2,799 a share on Wednesday with market value of ~497 billion on the BSE. The company’s shares are down 3 per cent since January. The Piramal family holds a 46.16 per cent stake in the holding company. Since the Abbott deal in 2010, when the Piramals sold their domestic pharma business for $3.7 billion, PEL’s both key businesses — financial services and pharmaceuticals — consistently delivered a strong performance, according to its 2018 annual report. In financial services, the company recorded a return on equity of 25 per cent over the last 10 consecutive quarters prior to the fund raise, while pharmaceutical revenues have grown at a seven-year CAGR (compounded annual growth rate) of 16 per cent.