Ajay Piramal - It’s all about recognizing the risk correctly
In the early days, when we were hunting for acquisitions, I faced more than my share of criticism. Analysts didn’t believe in our story. There were voices of dissent – we had no organic growth to show, we were driven by only acquisitions, that is not a good strategy and so on. But it worked and worked beautifully. In the history of pharmaceutical deals, we got the highest multiples ever. When I bought these companies, I bought them at a third of their sales value. But when we sold them, we sold at nearly 10X sales. That itself gave us a 30X return!
Currently, there is so much criticism around our investment in real estate. Lending to developers is risky; the banks have to provision additional capital as risk weight. But for us, it is almost risk-free. You have the project as a security. If you lend with a safe margin and the developer does not execute, you can take over the project at half the value, complete it and make your money. It is one of the businesses where you get to take over the assets without any baggage like labour or other costs. A bank can’t take over a project and recover its money, but we can. We have execution capabilities.
Source: Outlook Business – March, 2018