Mumbai: Billionaire Ajay Piramal, who heads the realty-to-research Ajay Piramal Group, says his cash-rich company Piramal Healthcare Ltd’s long-term investment strategy is clear. The existing businesses of Piramal Healthcare, which divested some of its key portfolios last year for Rs 17,600 crore, cannot absorb all the cash it has on the books, even after considering long-term investment plans.
So it has to look outside, and the management has made up its mind on certain areas for investment that will grow at a high rate over a long term. Piramal explained these plans in an interview. Edited excerpts:
Some media reports, after you picked up a minority stake in Vodafone, suggested that you are confused about where to invest the huge cash that your company has on its books now.
There is absolutely no confusion. We are very clear on the investment plans and it has already been laid out on a piece of paper in terms of our long-term strategies, both in the existing businesses and outside that. (The) Vodafone deal was just a short-term management of money that can bring more returns than parking it in a fixed deposit. The company has identified investment options for the existing businesses as well as some areas outside them for the long term. But in the interim, it may look at short-term portfolio investments such as the Vodafone deal, provided they can bring at least 17-20% return.
Which are those new areas?
As you know, we are already in the realty business and this is one area that will see exponential growth in India in the next several years. Catering to the financial needs of this sector and many other industry and service sectors will be a key business that Piramal Health will enter now in a big way. Going forward, there will be other financial services also that the company will look at under a broad-based non-banking financial services company (NBFC) that we are building now.
It’s a key diversification for a healthcare company.
Yes. Our existing businesses under the Piramal Health fold, including drug manufacturing service, hospital medicines, consumer health and the recently added drug discovery, will not require the money that it has on its books now, even after considering the long investment plans for these businesses over the next five years or so. Rather, we don’t find enough opportunities that can consume the entire money to create value in this single sector. We are in the process of building a financial services company, Piramal Capital, which will be a fully owned subsidiary of Piramal Healthcare. There are already several experts who are knowledgable in this business, working on formalizing the structure. Under this company, we will give loans to corporates as well as consumers. As of today it’s only corporate loans, and in the long term, the aim is to enter retail loans including housing finance. Other vertical of the company will deal with private equity business that will focus on investments in reality companies. We are already in the private equity business through Indiareit Fund Advisors, and since Piramal Healthcare currently owns this company, it will get merged into Piramal Capital.
How do you plan to grow the healthcare business?
We have a total estimate of about Rs 6,000-7,000 crore to be spent in these four areas (drug manufacturing, hospital medicines, consumer health and drug discovery) over a period of five years. It will be a combination of organic and inorganic expansion—inorganic or acquisition opportunities both in India and abroad. This is currently an estimate and I think good acquisitions not only in India, but also globally would require this budget. And, drug discovery, a capital-intensive area today, which would also require good investments to turn it as money generating.
Your group is also present in areas such as real estate and glass bottles. Will the group leverage the financial capabilities of its companies for growth?
There is a tight corporate governance and there are no inter-corporate loans or something of that sort is possible within the group. But all the group companies, be it Piramal Glass Ltd or any other entity, have a strong asset base. Those can be leverage(d) for fund-raising in case there is a need. Funds haven’t been a constrain for any of these entities for growth opportunities.
Will you continue looking at portfolio investments like the Vodafone deals?
It is not possible to put the entire money today as far as the long-term investments are concerned. Perhaps, such short-term investments could be made part of the NBFC that we are building now. But this will depend on the availability of surplus cash position which can be utilized for short- and medium-term investments. But my criteria for this is growing global company with strong market hold and capable of giving at least 17-20% return. In the Vodafone deal also, the understanding is that we would exit in two years’ time at the time of its initial public offer, or if that doesn’t happen they or their group companies could acquire it if the FIPB (foreign investment promotion board) or FDI ( foreign direct investment) allows them to do that, or they will help us find a buyer in the said duration.