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Mumbai: Textile, pharma, financial services, real estate, and now, infrastructure—can Ajay G. Piramal, 60, reinvent himself yet again as he steps up his involvement in the group’s existing financial services businesses and pushes for a mega-merger with Infrastructure Leasing and Financial Services Ltd (IL&FS)?

Piramal, no stranger to building and acquiring businesses, bought 20% in Shriram Capital Ltd in April 2014 and took over as chairman later that year. The Piramal Group also has its own real estate and structured finance businesses. If Piramal can build on these existing interests with a successful bid for IL&FS—as reported in the media last week—it would make him one of the biggest investors in infrastructure and infrastructure financing in India.

Last week, The Economic Times reported that Piramal would become the promoter, with a 35% stake, in a company to be created by the merger of his financial services business with infrastructure firm IL&FS. The all-stock deal, will create a company with revenue of $2.5 billion, or about 15,000 crore, the report said.

Piramal’s growing interest in financial services is evident from his increased involvement in Shriram Capital.

Piramal Enterprises declined to participate in the story.

Hari Sankaran, vice-chairman and managing director, IL&FS, termed the developments as market speculation, without elaborating.

Shriram Capital is the holding company of the Shriram Group’s financial services business. In addition to his stake in it, Piramal also owns a 9.9% stake in Shriram Transport Finance, the Shriram Group’s truck financing arm and a 9.9% stake in Shriram City Union Finance, the group’s consumer finance arm.

Together, Piramal Enterprises and Shriram Capital will be one of India’s largest financial services conglomerates.

“When it comes to Shriram Capital, Ajay is just getting his feet wet. He is an avid participant in many Shriram Group senior meetings where he shares his vision for the group and practical ways to make the quantum leap in coming years," said G.S. Sundararajan, whole-time director, Shriram Capital, and group director, Shriram Group.

According to Sundararajan, Piramal’s keenness to understand the various financial services businesses of the group has helped him build a rapport with the senior business team. There is immense mutual respect between Shriram Group founder R. Thyagarajan and Ajay Piramal, Sundararajan added.

But taking over a large infrastructure firm such as IL&FS poses an entirely different challenge . The infrastructure sector in India is fraught with execution risks. Over the past decade, several infrastructure firms have seen their books balloon with debt, largely on account of projects delayed by issues related to land acquisition, regulatory issues, delays in environmental approvals, and, in the case of power plants, availability of fuel.

The IL&FS business model is all about conceiving infrastructure projects—from concept to commissioning, and across sectors—said a consultant who works in the infrastructure business.

This person, who asked not to be identified, said Piramal, who is used to buying and selling companies across businesses, may find infrastructure a different sort of business. He specifically listed execution and human resource challenges.

IL&FS was promoted by Central Bank of India, Housing Development Finance Corp. Ltd (HDFC) and Unit Trust of India (UTI). Over the years, IL&FS has broad-based its shareholding and inducted institutional shareholders including State Bank of India, Life Insurance Corp. of India, ORIX Corp. of Japan and Abu Dhabi Investment Authority. According to its latest annual report, IL&FS reported a profit of 249.45 crore for the last financial year on revenue of 11,640.53 crore.

Not everyone is sceptical about Piramal’s ability to pull off a deal of this size.

“India needs a large infrastructure financing institution with financial muscle. At present, the infrastructure financing companies are led by public sector undertakings or firms that are struggling to raise capital," said Vikas Khemani, president and chief executive officer at Edelweiss Securities Ltd.

Piramal, he added, has the three things such an institution needs—capability, funding and credibility.

“Most importantly, Ajay Piramal has been a successful entrepreneur who created his empire through successful mergers and acquisitions."

Indeed, Piramal Enterprises has a “a strong track record of successful acquisitions and mergers," said a person familiar with developments in the company who asked not to be identified.

While Piramal has not confirmed his plans for IL&FS, a statement from the company to exchanges last week said that the company, from time to time, explores various investment opportunities as part of its business strategy.

“This evaluation of opportunities includes various criteria, including technical, financial, taxation, commercial, regulatory and legal. Once these criteria are met, it is followed by internal approvals at various levels, post which, comes a comprehensive financial and legal diligence," the company said.

In its filing to the BSE last week, IL&FS Transportation Networks Ltd also said that IL&FS keeps exploring various strategic alternatives and transactions from time to time without elaborating.

A strong acquisition track record

Ajay Piramal built Piramal Enterprises by selling businesses profitably and acquiring new businesses.

Just 29 years old when his father died in 1984, Piramal was handed over a flailing textile business, Morarjee Mills, that had been crippled by a prolonged labour strife. He exited the textile business altogether in the late 1980s.

Piramal started his acquisition drive in 1984 by scooping up Gujarat Glass.

His entry into the unfamiliar territory of pharmaceuticals came about in 1988 when he acquired Nicholas Laboratories Ltd for 1.6 crore at a time when most multinational drug makers were exiting India. The payback came 22 years later when, in 2010, US-based Abbott Laboratories bought his Indian branded generics business for $3.72 billion in a blockbuster deal that valued the unit at nine times annual sales and 30 times profit.

Part of the proceeds from the deal went into making a financial investment in Vodafone India Ltd in 2011-12. In 2014, Piramal sold the 11% stake he had acquired back to the Vodafone group for 8,900 crore, in a deal that was closed at a 51.78% premium to the price at which the investment was made.

Less than a week after the sale, Ajay bought a 20% stake in Shriram Capital.

In 2011, Piramal Enterprises entered the real estate and real estate financing sectors. Both verticals are now starting to take shape.

In July, the real estate unit raised 1,800 crore from private equity firm Warburg Pincus. A month later, Goldman Sachs picked up a minority stake in Piramal Realty by investing 900 crore to help the company buy properties in and around Mumbai.

Piramal Enterprises also has a strategic alliance with CPPIB Credit Investments Inc., a wholly owned subsidiary of the Canada Pension Plan Investment Board (CPPIB), for a $500 million realty debt fund.

Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services Llp, who has consulted on more than 700 projects over the course of 33 years, with large firms in the areas of business strategy and capital expansion, says that Piramal Enterprises has chosen right business model.

“Like Prem Watsa (founder-chairman of Fairfax Financial Holdings) and Berkshire Hathaway Inc., Piramal Enterprises is investing in highly successful and professionally run companies wherein there is no need to put in lot of management time. The value addition for such companies happen with the help of existing workforce. The investors need to step only to give directional guidance," Parekh said.

Piramal Enterprises reported a net profit of 2,850 crore on revenue of 5,123 crore of the revenue for the last financial year. But this was largely because of exceptional gains including that arising from the sale of a 11% stake in Vodafone India. In 2013-14, Piramal Enterprises reported a net loss of 501 crore on revenue of 4,503 crore.

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