After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.
In 2010, when the Ajay Piramal-led Piramal Enterprises sold its branded generics business to Abbott for $3.72 billion (about Rs 16,000 crore then), many wondered what would the company do so with the money? Would they be able to maintain a decent rate of return for their shareholders or would the cash be squandered on ventures that would eventually prove unprofitable. More than one voice suggested the company return a part of the cash to its shareholders.
Five years on, it would be fair to say that Piramal Enterprises has been an efficient user of the money it received. Its revenue has risen at a 23 percent CAGR over the last five years to Rs 6,610 crore while net profit has risen at 53 percent CAGR to Rs 951 crore in the same period. (See chart). In the same period, Piramal’s stock has risen from Rs 387 to Rs 1,335, taking its market cap to Rs 23053 crore.
At a press conference to announce its quarterly and annual results for the financial year ended March 31, 2016, Ajay Piramal was in an upbeat mood. “We have reinvented ourselves at regular intervals since 1988 (when we moved from the textiles business to the pharma business),” he said. He also acknowledged that the company had become a conglomerate and the structure made Piramal Enterprises difficult to understand. “We will simplify it in the medium term,” he said, but declined to specify a timeline.
In the years since 2010, Pirmal Enterprises has proved adept at taking advantage of opportunities for its cash. In 2012, the company invested about Rs 6,000 crore in Vodafone’s Indian subsidiary for an 11 percent stake. It exited the investment in April 2014 with a 52 percent gain. Ajay Piramal has also taken over as chairman of Shriram Capital. (In May 2013, Piramal bought a 9.9 percent stake in Shriram Transport Finance; in May 2014, he bought a 20 percent stake in Shriram Capital and in June 2014, he picked up another 9.9 percent stake in ShriramCity Union Finance). The property lending business through Piramal Fund Management has seen its book bulge to Rs 8,192 crore. In addition, a tie-up with the Canadian Pension Plan has seen it invest their money in residential real estate in India.
Piramal sees his next big opportunity in distressed assets. He finds himself in an enviable position of sitting on capital at a time when the economy is going through some stress. He’s spoken about a Distressed Assets Fund. “We plan to get specialist help and a structure is being put in place for that. Expect an announcement soon,” he said. The fund will not be restricted to any specific asset class but it would be fair to say that stressed sectors like steel, roads and real estate would find their way in the fund. It has all the makings of a billion dollar enterprise for Piramal Enterprises.