Ajay Piramal (61), Chairman of Piramal Enterprises and Shriram Capital, is a master of value creation and is often labelled as India's Warren Buffett. He is known to be a contrarian with an ability to enter and exit businesses at an opportune time. In 2010, Piramal sold off the flagship formulation division of Piramal Enterprises for Rs 18,000 crore and since then has been rebuilding a business empire across niche healthcare and information management, financial services, glass and real estate. Piramal is now targeting a four-fold jump in the value of his business empire to $20 billion in just four years. Edited excerpts from an interview with P.B. Jayakumar:
After the sale of the formulation division to Abbott in 2010, Piramal Enterprises faced lots of challenges ...
In the past six years, we have clearly stuck to our strategy. We have been telling the markets and shareholders to believe in us. Some people had doubts but we had the confidence that we were in the right direction. After the sale of the formulation business, what we got after paying taxes and all other expenses was Rs 15,000 crore. At that time many people, including some expert bankers and investment advisories, approached us promising to distribute or invest money on our behalf. We took a hard look at it and felt we have people and infrastructure within Piramal and we could do the investments on our own. We also said that it will take some time to show results, don't judge us every quarter or one year or two years. That was one bold decision we took.
Then, we looked at the businesses we are going to get in. Till 2010, we were basically in pharmaceuticals. We realised all the money that has come in cannot be invested only in pharmaceuticals. In 2010, there was lots of excitement in investing in infrastructure. Many people approached me with ideas but we felt uncomfortable. Most of those people were like traders than businessmen. They had never done any business.
As a company, if you want to diversify and grow, then you need to invest in the US. That was the second big decision we took. The third strategic decision was entry into financial services, as it is going to grow big in the country. If India's economy has to grow, financial services normally have to grow one-and-a-half to twice that of GDP growth. The private sector or NBFCs will grow more than the public sector banks. Then, we felt that all our investments in pharma will be good investments. These were the four big decisions for direction we took in 2010. We did not enter infrastructure and now you can see the results.
You made a big fortune by investing for a short duration in Vodafone?
Our first big investment was in Vodafone. Then, Vodafone had equity of about 74 per cent and there was speculation that it may go up to 100 per cent, but that had not happened for many years. Vodafone wanted a reliable partner, who at the right time would give back the equity when they required. We invested Rs 5,863 crore in two tranches and realised Rs 8,900 crore. There were some unique advantages. First, nobody had that much funds available and nobody would have funded that much. No bank or NBFC would have taken equity like this and Vodafone would not have trusted anybody. Therefore we got a good return on that. Vodafone is happy and we are happy.
Which are the new areas in financial services that you are planning to enter?
There are many possibilities in financial services. The loan book itself can grow. In real estate business funding, we are involved in land acquisition, construction finance, apartment funding and so on, and can grow in other areas as well. There is also a distressed assets fund (being planned). With all the pain in the financial and debt market, we are looking at distressed assets as well. We will create a fund and will get a foreign partner and will take over distressed assets from banks and then work on their turnaround to create value. In office space, we are only giving loans to those who are developing.
Information management is another focus area for you. What are its prospects?
That is one area where we want to be in future. We wanted to invest in the US. We calculated that healthcare costs are going up. One of the ways for cutting costs is through better data and information. That is why we invested in DRG. Healthcare is a space we understand. Some of the customers are common also (the MNC drug companies that are also clients of its contract manufacturing business). We provide information to hospitals. This business is not an extension of the healthcare business. There are some commonalities.
Now 54 per cent of your revenues are from healthcare, 28 per cent from financial management and rest from information management. How will it stack up going forward?
Going forward, there will be a split between the pharmaceutical business and financial services in PEL. I think financial services has become large enough to be independent on its own. Similarly, pharmaceutical and healthcare is large enough to stand on its own. My understanding is that shareholders also prefer to have it separated rather than being together. So, within the next 12 to 24 months, you will see the split happen. It will be a share split. If you have one share of PEL now, you will have two shares, one of healthcare and the other of financial services.
What is the rationale in selling businesses when actually they are doing well?
That is a judgement call. Till now we have been proved right. For example, what if we had remained in textiles? You see what has happened to all the textile mill owners. You should know the right time either to enter or exit. When we entered pharmaceuticals, all multinationals were exiting and no Indian company was willing to buy them. It was felt that multinationals have been burdened with overheads and their growth in the past has been low. That is why we got them at a low value. Frankly, when we sold, the whole world was willing to come and buy. We have always been contrarian. That is why we did not invest in infrastructure when everybody was investing. Nobody was investing in the US when we did. So I think that is the call you keep taking.