Mumbai: Piramal Healthcare Ltd, the country’s fourth largest drug maker by sales, plans to raise up to Rs1,000 crore by issuing shares or securities convertible into shares, it said on Thursday. It will use the money mainly to repay debt.
The company, in a statement to the stock exchanges, said its board has empowered a committee of directors to fix the price for the issue.
The committee will also decide on the mode of fund raising—via equity or debt issue—depending on market conditions. Subscribing to securities is a form of extending debt as the investor earns interest on it.
Shares of Piramal Health dropped 3.27% to close at Rs400.95 on the Bombay Stock Exchange on Thursday, after the announcement of the fund-raising plan.
Murari Rajan, Piramal Health’s executive director in charge of mergers and acquisitions and investor relations, said the board’s decision “will give the company flexibility to raise funds as and when it is required”.
“The fresh funds will be primarily used for repayment of debts, which will offer the company financial flexibility to look at any future acquisitions or expansion opportunities,” Rajan added.
The mode of fund raising will determine how investors will benefit from the plan.
“The price of the fresh equity should be in the range of Rs375-400 per share going by the last four-six month average,” said Ranjit Kapadia, vice-president, institutional research, HDFC Securities. “The investors will only benefit if it’s a rights issue of equity. A warrant or qualified institutional placement will only benefit the promoter or an institutional investor.”
Piramal Health has a debt of Rs1,400 crore on its books. This debt, a combination of short- and long-term loans from its bankers, had been raised at an annual interest rate of about 8%. Its debt-equity ratio is 0.9%, indicating the firm relies more on equity for its financing.
As per data on the stock exchanges, promoters of Piramal Health had pledged or encumbered 8.14% of their shares against loans or such liabilities as of 30 September.
The Mumbai-based drug maker, which spun off its research and development activities into a separate listed company, Piramal Life Sciences Ltd, in 2007, had plans earlier to invite an equity partner into the new company to take forward its high-risk and expensive drug research and development business. This plan “has been shelved for the moment as it has become self-sustainable now,” said Rajan.
In the first half of the fiscal year ended 30 September, Piramal Health’s net profit rose 35% over a year ago to Rs190 crore, as sales increased 14% to Rs1,820 crore.