Ajay Piramal says that Indian growth will be higher than the rest of the world soon and adds that the financial services sector is ripe for investment with lucrative returns on offer.
The buzz in the pharma sector, the buzz about India as a really hot growth economy is not what it was in 2010
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.
Shriram Trans stock price
On October 31, 2014, Shriram Transport Finance Corporation closed at Rs 950.40, up Rs 43.60, or 4.81 percent. The 52-week high of the share was Rs 1021.30 and the 52-week low was Rs 544.20.
The company's trailing 12-month (TTM) EPS was at Rs 53.11 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 17.89. The latest book value of the company is Rs 364.65 per share. At current value, the price-to-book value of the company is 2.61.
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