Ajay Piramal hints at revamping Piramal Enterprises

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Mumbai: Ajay Piramal, chairman of Piramal Enterprises Ltd (PEL), on Monday hinted at an impending restructuring of the varied businesses under the company’s umbrella.

While declaring the company’s fourth quarter results, Piramal said the group may look to unlock shareholder value, though he declined to give specifics.

“PEL is a conglomerate today and, hence, may seem to be complex and difficult to understand. We are fully aware and alive to this fact. It is our intent to simplify the structure going forward and create focused businesses, in the process also unlocking value for our shareholders,” Piramal said.

Piramal Enterprises currently has six divisions under it—healthcare, pharmaceutical solutions, critical care, consumer products, financial services and information management.

“In the medium term, there will be independent entities and our decisions will be in the interest of all shareholders,” he added, declining to elaborate on which divisions the company would choose to separate out first.

For the quarter ended March 2016, Piramal Enterprises reported a consolidated net profit of Rs.180 crore, compared with Rs.95.4 crore a year earlier.

Consolidated revenue rose to Rs.1,733.51 crore as againstRs.1,297.50 crore a year ago.

In the full fiscal year, the company’s net profit increased toRs.951 crore, compared with an adjusted net profit of Rs.421 crore for FY15.

The company said the net profit number had been adjusted to exclude the one-time gains from the sale of its 11% stake in Vodafone India for Rs.8,900 crore.

Net income from financial services more than doubled toRs.559 crore in the March quarter from a year earlier.

“The growth in income was primarily driven by the increase in the size of the loan book. The loan book grew by 174% toRs.13,048 crore, as on 31 March 2016, against Rs.4,766 crore, as on 31 March 2015,” the company said.

“Our entry into construction finance enabled us to significantly scale up our loan book. It now constitutes 42% of the real estate loan book,” it said.

Piramal’s healthcare business, which contributes 54% of total annual sales, reported a 14% increase in revenue in the fourth quarter of 2016 at Rs.955 crore, compared with Rs.836 crore in the year-ago period.

Given the growing size of each individual business, it makes sense for the company to consider restructuring, said an investment banker.

“Given the overall economic scenario, corporates have to work with focused businesses, generating the right return ratios and, therefore, all businesses not achieving the same have to be restructured. Also examples like the Marico spin-off of Kaya has shown that market also appreciates such value unlocking,” said Ajay Garg, founder of Equirus Capital, a Mumbai-based boutique investment bank.

Apart from restructuring existing businesses, Piramal Enterprises may look to enter new businesses as well.

The company has strategically tied up with partners to get into segments such as real estate.

According to Piramal, the group has plans for investments in stressed assets and is exploring the possibility of launching a fund with a foreign partner to do so.

“We are not only looking at asset sales, but will work on it, turn it around and then create value,” he said.

“In the realty segment, we already have a tie-up with Canadian Pension Plan Investment Board (CPPIB) and we are not looking at any significant tie-up as far as lending is concerned,” he said.

In 2014, Piramal Enterprises merged its real estate private equity and non-banking financial company to form Piramal Fund Management Pvt. Ltd.

The integrated company, part of the holding company, Piramal Capital, combined Indiareit Fund Advisors Pvt. Ltd and non-banking finance arm Piramal Finance.

In February 2014, Piramal Fund Management launched a $500 million platform with CPPIB to provide debt financing to residential real estate firms.

In addition, Piramal Fund Management is launching a $250 million (about Rs.1,600 crore) platform with a pension fund to undertake equity investments in residential projects, Mintreported on 9 April.

In the non-banking finance segment, Piramal Eterprises bought a 20% stake in Shriram Capital Ltd in April 2014 and Ajay Piramal took over as chairman later that year.

Piramal also owns a 9.9% stake in Shriram Transport Finance, the Shriram Group’s truck financing arm, and a 9.9% stake in Shriram City Union Finance, the group’s consumer finance arm.