Piramal Enterprises Ltd


(bharat19) #982

As far as i can read and understand , The company filed an appeal before SAT , Mumbai against show cause Notice by SEBI. Parties filled their written submissions before adjudicating officer and appeared for hearing. SEBI fined them and again they filed separate appeals.
Former compliance officer in his personal capacity filed for settlement and that matter is pending…
The wordings are not clear or are not in sequence/order. It reminds me of a famous saying : If you can’t convince them , confuse them !


(MK) #983

Thank you for correcting me sir.

Just another doubt: Does this mean that the net worth of the company would have no impact due to this write off?


(Rohit Chauhan) #984

yes, thats my understanding. This is the case with subsidiary and associate companies if i recall correctly. In case of associate companies there is further accounting of dividends which pass through P&L and deducted from the book value while adding the share of profits at the same time. So in effect share of profit - dividend paid is added to the holding value of an associate company which raises the networth. Allegran and some of shriram holdings are being accounted this way


(Shiv Kumar) #986

Piramal Enterprises AGM Notes

For once attendees fawning over Ajay Piramal were fewer in number and he had to answer some tough questions from shareholders!

He opened the meeting by informing shareholders that the company has had to write of Rs 400 crore as a one-time exceptional item following the sale of its Imaging business. He said the performance of the Imaging business was dragging down the margins of the pharma vertical which would improve in the coming quarters.

Later during the interaction with shareholders, PEL’s decision to sell at a loss the Imaging business it bought from Bayer six years was questioned by investors.

Ajay Piramal said the Imaging business was basically used in the drug discovery for Alzheimer’s and the research in this field was not giving the desired results. Bigger companies like Astra Zeneca and others were exiting the field of Alzheimer’s disease and PEL also decided to cut its losses and exit the Imaging business.

For those who have been invested for long in Piramal Enterprises, exits like these are common when a business fails to achieve these goals. Ajay Piramal had simply shut down the company’s molecular research division some years ago after several molecules under development failed Clinical tests. At that time, he said the company would not throw good money after bad and chose to exit the research business. It was not sold, but shut down instead and the scientists in the team retrenched.

Another shareholder sought more details on the performance of the DRG business, one of the three verticals set up by Ajay Piramal after the sale of the formulation business to Abott ten years ago. This gentleman who had done some amount of research on PEL’s performance pointed out that the management was only showing DRG’s revenue growth in rupee terms and sought more information about its performance on dollar terms.

Ajay Piramal admitted that DRG’s
performance in

dollar terms was
poor.

He said the nature of the information management business has been undergoing a big change. From detailed research provided after a period of time, DRG’s customers are looking for research and information in real time and accordingly PEL is restructuring (Piramal did not use this word) this vertical.

He pointed out that the company was strengthening its team in India by hiring more people and the DRG business would hopefully turnaround “not next year but in the next two-three years”. “The need for data is growing and the future is very bright,” he said.

Piramal’s decision to merge the sick Piramal Phytocare with PEL was also subject to some questions from shareholders. One of them recalled the logic behind the setting up of Phytocare which was to carry out research and manufacturing in the field of herbal medicines. Ajay Piramal said it was decided to bring back Phytocare back into the field of PEL as there was not enough infrastructure for the herbal medicines.

The performance of the INDIAREIT funds, which is not part of Piramal Enterprises, also came in for criticism from a shareholder who apparently lost a lot of money in that business. He wanted to know from the management how it was so bullish on Piramal Enterprises’ real estate business when it was not able to generate much returns to investors in the INDIAREIT funds.

Piramal said the core business of PEL was different from the INDIA REIT businesses. He said PEL lent to the top few (I think he gave the figure eight, I am not sure) companies in the real estate business and spoke at length about the processes adopted by PEL in lending to customers.

Like in the last AGM he pointed out that promoters owned 50 per cent stake in PEL and thus it was in his interest to ensure that capital lent to borrowers came back to the company.

After the AGM I went upto the dais asked Piramal if there was any over lapping between PEL’s clients and companies that were in INDIA REIT’s portfolio. Piramal said there was no overlap.

He also pointed out to the investor who had lost money in INDIAREIT that the management team of the fund has been changed and the newer funds were doing very well.

disclosure: holding Piramal Enterprises for long in core portfolio

shiv kumar


(Shiv Kumar) #987

this report covers the DRG business in depth

disclosure: holding
shiv kumar


(rupaniamit) #988

@rohitc99 - In “Equity Method” of accounting for inter-corporate investments, dividends don’t pass through P&L, but are only deducted from the investment line-item. Any share of gains or losses of investment passes through P&L.

It seems like their Imaging business is consolidated as per it’s description on page 142 (and not accounted per equity method) on FY2018 annual report. Below is the screenshot. So this means all revenues, expenses, assets and liabilities would be consolidated/merged.

image

Per page 272 of annual report, Piramal Imaging SA had negative networth of 489.15cr. I have limited understanding of what accounting implications would be on disposal of subsidiary which had negative equity. Below are some of the questions that I have. Will appreciate if any accounting expert can educate me here:

  1. Here subsidiary has negative equity of 489.15cr. We are not writing-off any assets here but writing off negative equity (in other words, writing-off liabilities). Why would this write-off of negative equity have to pass through P&L decreasing last quarter earnings?

My understanding is that if assets and liabilities of Imaging business will no longer be merged started next quarter, then the consolidated equity will go up in this case as Imaging business had negative equity.

All views/comments invited.

Disc: invested


(Amit Mehta) #989

Annual share of losses should have been passed through p&L to create the negative networth. If they are booking more loss in the P&L then wouldnt that mean that they have exited it at a further loss than what was already accounted for?


(MD RH) #990

In the name of diversification , it is known as diworsification . Flashnet deal is High Alarm event for the existing investors. People claiming that it gave 30% CAGR . But from Piramal past price chart we saw that stock give 8% cagr from 2004 to 2012 and then finally break out happened after Abott deal .My question is How many of us that patience to be get FD return from Stock market when no brainer HDFC Bank /Gruh give sure shot 20% cagr for next many years? What is the guarantee that Abott like situation will happen in 8 years or after 16 years. Honestly I don’t have that patience


(rupaniamit) #991

I did some further digging. Imaging business was acquired around April 2012. Below is what Mr. Piramal wrote in his chairman’s letter for FY2013 annual report.

It’s numbers were provided starting annual report of FY2014. I see negative equity balance of 89.85cr with annual loss of 67.51 (surprising to see negative equity in early years). My guess is that PEL would have paid a premium as this business achieved significant milestones with USFDA and EMA and all this premium would be recorded as Goodwill on PEL’s balancesheet.

The purchase of imaging business was done on making progress in it’s ongoing research and come up with a commercial drug for Alzheimer’s disease. In short - burn cash until any success of drug approval. This is the reason why it would have generated huge research expenses every year making losses and making bigger negative equity balance every year. While in the subsidiary books’ equity turns negative (which is consolidated), goodwill in parent’s balancesheet stays in-tact.

My guess is this write-off of 452cr towards Imaging assets is writing-off the goodwill it paid during acquisition in 2012. On top of this this business has burnt around Rs. 800cr in annual losses between 2012-2018.

If my guess is correct then with this sale negative equity (more liabilities than assets) of Imaging business will not be recorded on b/s anymore and reduction in Goodwill shall offset any decrease in liabilities with not much change to overall equity/book value.

All views/comments invited. Thanks.


(Amit Mehta) #992

That sounds logical.

Considering the fundamentals and losses they have generated till now, they should have impaired the asset, not sure how they managed to continue without impairment. I am just wondering if they have more assets which should be written down but they are showing them at book value.

Even the current announcement should have been better and explain what they brought it for, how much they further invested in the business and how much they lost more on the sale of the business. As opposed to saying its a one-off item; and clearly avoiding more information on it.

I am fine with them making business mistakes. If you try 10 things you can go wrong in 2-3 of them. But the mistakes shouldn’t be big and the company should be quick in cutting losses. But what I personally don’t like is that they are not forthcoming in sharing details of mistakes and try to hide them while discussing 30 yr track record etc

Disclaimer: Invested with a small position


(Krishnaraj) #993

Great analysis @rupaniamit - thank you for digging up on facts and putting them up. I think your guesses are correct.


(Raj A A) #994


(Yatharth) #995

No response from management to phone to queries on this. As I understand, given the current challenges, it may take much longer, if at all they plan to do so.


(Raj A A) #996

The Exchange has sought clarification from Piramal Enterprises Ltd on August 02, 2018 with reference to news appeared on : www.business-standard.com dated August 02, 2018 quoting “Piramal set to demerge pharma, finance arms, and list them on stock exchange”.

The reply is awaited.
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=3b1c6639-6f7d-4d2c-a064-56075c18636e


(Raj) #997

Company clarified. It’s all rumours.


(shyamutty) #998


(Shiv Kumar) #999

I won’t set much store by the denial issued by Piramal. The demerger has been on the anvil for the past few years. The news report speaks indepth about valuations done on the finance and pharma sectors, it could be that the Piramal family and board are weighing the pros and cons of the whole exercise.

disclosure:holding


(Marathondreams) #1000

If you read the clarification carefully, it seems the demerger plan is for next financial year. They are refuting that no such plan is currently being implemented and hence potential demerger in this financial year is factually incorrect ! :slight_smile:


(Sunday) #1001

(Kanwal Sudan) #1002

Agree with you on using acquisition method for subsidiaries. Not so sure about goodwill on acquisition - did not find any numbers in FY13/14 annual report even though for other acquisitions they have given goodwill figures.

My guess is that since retained earnings of Piramal Imaging will no longer be consolidated with the parent, the negative retained earnings of PI will have to be removed from consolidated level. Consequently the whole loss reported in the past (which had accumulated on the balance sheet at consolidated level), will now be reported in the P&L as a one time loss. Retained earnings at consolidated level will of course be same both before and after sale. Makes sense?