‘BUY IMPERFECT AND SELL PERFECT’
Ajay Piramal, Chairman of the Piramal Group, reveals his M&A mantra and his plans for the pharmaceuticals and financial services businesses
AJAY PIRAMAL has built a reputation of a shrewd businessman who can spot an opportunity before anyone else. Acquiring assets at relatively low valuations, the Chairman of the Piramal Group is known to build a business and then sell it at a handsome profit. He has done this time and again, and is called the “takeover man” with awe and respect. In the 1980s, he bought a fledgeling operation in the pharmaceuticals space, which he grew for the next three decades before selling out to US drug maker Abbott Laboratories for $3.72 billion in 2010. As Piramal looks to recreate some of that pharmaceuticals magic topped up with financial services now as well as real estate, there is considerable interest in what he is doing. In an interview with BT, he outlines his plans for the pharmaceuticals and financial services businesses, and his M&A recipe. Edited excerpts:
What led to your interest in financial services?
Once we sold the domestic formulations business in 2010 to Abbott, we took a look at the landscape. The economy was growing, and with it the lending business too. Taking inflation into consideration, it was obvious that a 15-17 per cent growth each year was not impossible. We already had some experience of
the lending business and real estate as well.
From a lending point of view, two companies stood out. For wholesale, it was HDFC and in retail, Shriram was big. The wholesale business could be built organically and we got started with that and real estate. When it came to retail, we liked Shriram. While wholesale grew, retail was proving to be a bit of a challenge. In Shriram [Piramal picked up stakes in three group companies and became Chairman of the unlisted Shriram Capital in 2014], there were issues around culture and it did not quite work out. Had we continued, it would have destroyed value in both the companies. But we still had to do retail. Therefore, a decision was taken to exit. Now, we said we will do retail [lending] within Piramal [Group]. However, it takes about 10 years to build a business here, as is clear from the successes one can see.
Given the baggage of DHFL, what prompted you to bid for it so aggressively?
We [had] looked at it even before it was referred to the Insolvency and Bankruptcy Code. That was in May 2019. There were too many cases and we realised it would be difficult to handle. When it did come up for bidding, we spent a lot of time in understanding the business. It turned out to be really competitive (laughs)! Historically, our track record has been very good when it comes to handling creditors.
We had a long-term approach in mind, while the others were looking to extract value. Over the last six months, we have added 4,000 people, apart from investing in technology. The process of rebranding is now on the anvil.
How is your financial services landscape shaping up?
Our balance sheet is one of the strongest. At the group level, our net worth for the pharmaceuticals business is `7,000 crore, and another `25,000 crore for financial services. That is stronger than many banks. There are always interesting opportunities and competition will be intense. That said, competition is actually reducing [in these businesses].
Are you looking at a banking licence?
Just looking at the NBFC [non-banking financial company] regulations today, I keep telling my team that we have to be ‘bank ready’.
What prompts you to take contrarian bets?
I have always believed in looking beyond the obvious. When we acquired Nicholas Laboratories in the late 1980s, the multinational corporations in pharmaceuticals were looking to exit India. This was a market with low pricing and a lot of issues. We got the asset at 0.3x of sales. When we decided to exit the business, the talk was all about India being the best market.
To us, the market had peaked out.
What is your M&A mantra?
The right acquisition gives you good value. It should not be perfect. In fact, my belief is that you sell when perfect and buy when imperfect. That’s when the arbitrage of valuation comes in.
What will your businesses look like in five to 10 years?
The two pillars will be pharmaceuticals and financial services. Take the case of pharmaceuticals, where each of the businesses we play in is quite different. Again, in financial services, there is wholesale and retail, with each offering some serious growth potential. Both pharmaceuticals and financial services are serious growth engines for India and we would like to be significant players here.
What are your plans for inorganic growth?
It is in our DNA and we will also look for opportunities. Both the businesses we are in can grow that way. As long as we see value in making a buyout, we will do it.
OUR BALANCE SHEET IS STRONG... AT THE GROUP LEVEL, OUR NET WORTH FOR THE PHARMA BUSINESS IS `7,000 CRORE, WITH ANOTHER `25,000 CRORE FOR THE FINANCIAL SERVICES BUSINESS