Ajay Piramal of Piramal Group hailing from a family that ran a very successful textile industry business, switched track to become one of India’s renowned pharmaceutical entrepreneurs business. Today, he has holds the reputation of being one of India’s savviest deal-makers and investors.
Speaking to CNBC-TV18, Piramal adds that he wishes to be both a strategic investor and a financial powerhouse focusing on sectors where the risks in execution have been overcome and are in need of last-mile funding. He says that the economy touching a bottom was one of the reasons behind the shift of his investment focus from overseas markets to India.
Below is the edited transcript of the show on CNBC-TV18
Q: After you sold your business to Abbott, you used the pile of cash to foray into real estate, financial services business and earned the reputation of being a very savvy and contrarian investor. What is your outlook regarding the investment climate?
A: As an investor, I exited the domestic Indian pharmaceutical business in 2010 as I felt the investment climate was not very conducive. In 2010, we decided to diversify a little and enter overseas markets. We invested USD 630 million in an information management company in the US. Now I think that the investment climate in India has probably hit a bottom and its time to re-look at investing in India.
Q: That's a contrarian view because at the moment one couldn’t get more gloomier on India — the uninterrupted depreciation in the rupee, complete lack of any policy action.
A: My view was contrarian even in 2010. Investors wondered why we exited the pharmaceutical sector which was at its peak. But one look at the valuations for our domestic business in 2010 makes it clear that it will not be possible to get the same valuations today.
Q: Were you paid nine times your sales figures?
A: A little over that and about 30 times operating profits.
Q: Putting that into perspective, the Daiichi-Ranbaxy deal was five times sales?
A: That's right.
Q: Do you think those valuations will return?
A: You can never say 'never'. It looks difficult today because the domestic economic environment is not what it used to be. Frankly, the buzz that India generated in 2010 is not there today. I don't think there is any deal that’s taking place at these valuations today.
Q: You mean the buzz in the pharma sector?
A: The buzz in the pharma sector, the buzz about India as a really hot growth economy is not what it was in 2010.
Q: Yet you think today is not a bad time for investment in India?
A: I believe that in the future India’s growth rate in is going to be higher than rest of the world. There are so many needs much we have — consumption, infrastructure. Economic growth has actually suffered a lot in the last few years. I don’t see that trend continuing. There will be changes.
Q: But isn't it your style to look and invest slowly as and when the opportunity arises ?
A: That's right. Yes, I have been investing. Another plan that I followed up on after exiting the pharma sector in 2010 besides the information management investment, was to start planning a foray into financial services. That’s where I found opportunities to invest.
An overview of the In the financial-services sector shows that the banking sector is stretched due to tepid economic growth and the lack of sufficient funds. The returns on offer are higher than what one would get in normal circumstances.
A: I plan to be both. I have already started a non-banking financial company (NBFC) which has been performing well. I have also invested in Shriram Transport because this sector is unique. Despite the entire commercial-vehicles sector coping with difficult times, Shriram Transport Finance has been able to record strong growth with a change in the focus on funding second-hand vehicles.
I believe that there are many sectors such as infrastructure which need last mile funding and the risks in execution have been overcome.
Q: So what are the other sectors that appeal to you?
A: We forayed into infrastructure and renewable energy as investors, not as financers. As a company, my attention is on three broad sectors, the whole pharmaceuticals and life-sciences segment, information management and financial services.
Q: At the moment, almost 80 percent of yours revenues are from overseas investments after your sale of stake to Abbott. As the investment climate in India improves, do you expect more revenues from domestic investments?
A: I aim to set the ratio of revenues from domestic and overseas investments at 50:50 and that is why I am investing much more in India. The revenue ratio also involves products manufactured out of India and exported. Though that segment will continue to grow, I plan to increase investment in the financial services space.
Information management is a totally global business and adds to the mix. The decision to invest overseas proved to be rewarding considering the current economic situation in India today. Globally, the US the economy is still the strongest economy in the long-term.
Q: What is your reserve of capital available for investment?
A: We made investments in the financial services space along with a large investment in Vodafone which will be unwound next year. That will give us a fair amount of capital of around Rs 8,000 crore.
Q: How is was your experience in the telecom space? Though you enter purely as an investor, did the industry pan out the way you expected? What is your view on the telecom industry?
A: We forayed into the telecom sector as short-term investors in Vodafone. After booking returns next year, we will exit..
Q: So you examine opportunities that offer returns for investment that are better than interest rates?
A: Correct. Telecom is probably one of those really good high-growth industries that have been somehow stifled.
Q: Is the case similar in the pharmaceutical sector as well? What motivated to exit the pharmaceutical sector? Did you exit because you estimated that the economic boom had come to an end?
A: I felt that the best period in the Indian pharmaceutical industry had come to an end and as a company with high standards of quality and strong brands we had reached the peak of our performance.
The focus on lowering prices and generic products does not bode well either the consumer or the industry Focus on encouraging generics on the basis of only price results in compromises on quality.
Q: Do you think that this policy will change after the elections?
A: I don't think it is easy to change policies that are populist.
Q: When you sold stake to Abbott and you intended to accelerate your Over-The-Counter (OTC) and Contract Research and Manufacturing Services (CRAMS) businesses. Have both grown as expected?
A: Other than the domestic business, there four different areas in the pharmaceuticals where we had a presence and I think all of them have grown well —critical care, inhalation anaesthesia products, OTC drugs and CRAMS. We hoped to make some acquisitions but the talks did not pan out because the valuations were very high.
Q: How do you approach deals as a seller and as a buyer?
A: As a buyer, I view each opportunity as a strategic fit and its ability to create value. My ability to clinch deals rests on keeping my ego out of the whole thing. I think I am fortunate that I do not have that attitude.
Q: How long do you think it will take for the Indian market to bounce back and how long are you prepared to wait?
A: Crucial policy decisions have to be taken in order to boost the confidence in the investors. And the decisions need to be quick.
Q: Do you still think that India could be a good place to invest?
A: The situation cannot get worse.
Q: So you look at all deals based on valuation because the economy cannot get any worse?
A: All the good things about India are true. A large and young population that is hungry for growth and is willing to work for it — that is strong positive.
Q: How is your interaction with your shareholders?
A: I think the shareholders have been very patient in allowing us time to evolve our strategy. I believe shareholders will remain only when they are assured of strong returns over a period of time with a style of governance that is both prudent and transparent.
We are actually valued at less than our levels of cash, but I think in the long-term view that if investors believe in us and our investments, they will continue to remain with us. We are not here for the short-term.
Q: How has your life changed from running a pharmaceutical business to being an investors today?
A: It has become more difficult because one has to now understand newer businesses. Information management and the financial services sector are new. To some extent, it has resulted in have to recruit new people and learn new systems, processes, markets. My life has actually become a bit more challenging.
Q: Who advised you on information management? What made you make that leap from pharmaceuticals to information management?
A: In 2010, when I sold the business in India, we setup a team of competent and highly experienced professionals to examine the current trends in the US. On of the areas of future growth that the team found was information management. Investing required not much of capital and offered relatively high margin.
Q: Do you miss those days when the business environment was relatively easier?
A: No, I do not miss those days. The present environment is good fun too. I am also happy that both my children are involved in the business.
A: That is not a very pleasant event as far as Indian pharma industry was also concerned. I find that now the regulations and global regulators have become much tougher with much more inspection.
I am very happy that despite repeated USFDA inspection at our numerous plants and our commitment to Abbott, there was not even a whisper in the press or elsewhere of any wrongdoing or lapse. That gives me a sense of satisfaction.
Q: What is the breakup of your division of income through various businesses?
A: That is very difficult to answer. A lot of our income still comes from the pharmaceutical and life-sciences space which further depends our research and development programme. This year I am very excited about the acquisition of Bayer's molecular imaging facility in Germany from where products have been submitted to the FDA and have cleared all the clinical trials. So, if things go as we hope they would, then we could kick-start a global launch next year.