Mumbai: Piramal Enterprises Ltd said on Thursday that it has sold its 11% stake in Vodafone India Ltd to Prime Metals Ltd, an indirect subsidiary of Vodafone Group Plc, for Rs.8,900 crore, marking another milestone in the transformation of Ajay G. Piramal from a healthcare czar to one of India’s largest financiers.
Piramal said the sale of 45.4 million shares, or 11%, in Vodafone India to Prime Metals is valued at Rs.1,960 per share. That’s a 51.78% premium to the price the company had paid in 2011-12.
The deal leaves Piramal with a substantial cash chest (estimated at over Rs.10,000 crore) at a time when capital market activity is drying up, banks are becoming reluctant to lend money, and companies are selling assets to reduce debt.
In February, Vodafone Group received approval from the cabinet to buy out minority shareholders in its Indian unit. The company, which entered India in 2007 by buying Hutchison Whampoa Ltd’s local cellular assets in an $11 billion transaction, will now have complete ownership of its Indian arm Vodafone India Ltd.
A Vodafone Group spokesperson confirmed in an email that the transaction is expected to close on Friday, following which the group will fully own the Indian arm. The group has also bought out its non-executive chairman Analjit Singh’s 4.5% stake in the Indian arm.
“I feel very happy that we have successfully delivered… over 50% returns,” Ajay Piramal said in a phone interview. He said his group’s objective was “making investments that offer opportunity to generate attractive long-term return on equity”.
He pointed out that many Indian companies are cash-starved as the market for initial public offerings has dried up. “India has many opportunities,” Piramal said. “We have cash and we will use that most judiciously.”
Piramal Group plans to invest in three sectors where it has a presence—financial services, information management and healthcare.
“Financial services and information management are also sunrise sectors besides pharmaceuticals,” Piramal said. “And we are present in all three sectors.”
Piramal Enterprises, having sold its drug formulation unit in 2012 to Abbott Laboratories for Rs.17,000 crore, was ready with a list of businesses it wanted to enter, Mint reported on 19 February.
The group’s new focus areas include realty funding, lending and structured equity investments in infrastructure and education on the financial services and realty side; and drug discovery research, hospital-based products and consumer health and information management on the pharma front.
Piramal Enterprises had consolidated revenue of $650 million (around Rs.3,900 crore) in 2012-13.
Although the Piramal Group sold its drug formulation business to Abbot, it remains in allied businesses, such as custom manufacturing, research, emergency care and the manufacture of over-the-counter products.
The Abbot deal transformed Ajay Piramal into a mover and shaker in big finance, and he has “some smart investment strategies”, said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd.
Ahead of the curve
Ajay Piramal is known for identifying opportunities early. In the late 1980s, he took a decision to move out of a sluggish textiles business to pharmaceuticals. When international pharma companies were exiting the Indian markets, Piramal bought them out.
His contrarian approach of investing in the domestic formulations business when everyone else was chasing the international generics market delivered rich dividends. In 2010, his domestic formulations business was valued by Abbott at an unprecedented nine times sales and 30 times of ebitda (earnings before interest, tax, depreciation and amortization.)
Piramal said he also has plans to increase the company’s stake in Shriram Transport Finance Co. Ltd. “We have little less than 10% stake in Shriram Transport,” he said. “We have also plans to invest in its parent group Shriram Capital Ltd.”
He did not give a timeline for this.
“It’s their sheer capability to choose the right deals that gives them these results,” said Narayan K. Seshadri, chairman, Tranzmute Capital and Management Pvt. Ltd, a business advisory firm. “I am told that Piramal Group evaluates hundreds of deals on a day-to-day basis. Choosing the right investment at the right time makes all the difference.”
Piramal is modest about these deal-making abilities. He says his group has made many mistakes.
“We keep making mistakes and learning from them. No one is perfect. The underlying philosophy of our investments is creating long-term value for our shareholders,” Piramal said.
On Thursday, shares of Piramal Enterprises gained 3.73% to Rs.556.15 on BSE, while India’s benchmark Sensex rose 0.06% to 22,715.33 points. The announcement came during market hours.
Ajay Piramal has always set new benchmarks for family businesses in the country, according to Kavil Ramachandran, Thomas Schmidheiny chair professor of family business and wealth management at the Indian Business School in Hyderabad.
“He is not tied down by a single business. Instead, he believes in redefining the portfolio of his businesses judiciously to create long term wealth for the family. This has enabled him to grow rapidly,” Ramachandran said. “In fact, we need some amount of such flexibility in family businesses so that they continue to be entrepreneurial.”