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Piramal Enterprises Ltd

Same here. I also received the same mail from " PARASRAMPURIA SHARE & INV CONSULTANCY MUMBAI"

Is everything fine.
Disclosure: Invested.

Yes I too received it.

Its not uncommon. In the past, I have received requests (for Tata Steel as well as South Indian Bank rights issue) from some agency or other to buy out my rights shares, in case I am not interested. I think these guys are hand in glove with registrar of various issues.

In nutshell, nothing to get alarmed. Juts ignore them.

Okay just a small query: When applying through ASBA for the rights issue, I just have to submit the signed CAF form at my bank (Kotak) where my savings account is right? or something else needs to be done?

You need to contact your bank branch whether they will accept or not. For me My kotak savings bank branch directed me to main branch in Hyderabad to submit. I was able to submit in the main branch in Hyderabad

Okay cool, will get in touch with my bank.

Thanks!

Please refer to page 281 of the Letter of Offer under Procedure for Application through the ASBA Process.

The list of ASBA branches is available here and here. If your branch is listed, you can submit your CAF form there.

PEL has decided to sell health analytics and insights business for $950M (2.3x gain in 7 years) to further strengthen the balance sheet (link)

Any comments on this from experts?

Discl: Invested

AP was saying this will create value for shareholders…I dont know how…

Note that the calculation will be more complicated than this because a lot of investments were made into DRG (or the Information Management segment), more than profits made.

As such $635 milllion in May 2012 (~ ₹ 3,400 cr at then fx rates) was invested, and current capital employed for this segment, is ₹5,300 crores ( ~ $740 million), accumulated profits have been thin (based on segment results shared). Thus more capital was added to this business over this time frame. The time period is more than 7.7 years.

Thus annualized returns would be lower.

Piramal is struggling because of real estate slowdown . 2 Rights issue in 2 years , exiting of shriram group at cheap valuations & exiting of healthcare analytics(valuation looks to be decent), all points to stress in his loan portfolio & is desperately in need of fresh capital.
Also the money raised from banks in the last few quarters are at a higher interest rate even though the interest rate in india was falling .

I havent yet applied for rights issue & are still in 2 minds whether to apply or not

Disc: 12% of my portfolio

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Isn’t it strange that he eventually sold off good businesses DRG (ideally should have been scaled), Shriram group companies and is left with real estate financing business only which can be as commoditized as it can get.

In hindsight what if he had focused on Pharma and scaled that business.

He was not making money in DRG…it was struggling…

DRG has been a drag on both top and bottomline and Piramal has been considering selling it off for the last three years after one more attempt to scale it up. He admitted to this much during the AGM much before the IL&FS/DHFL crisis caused financial companies’ stock pries to melt. Now one has to wait for value unlocking in the company’s pharma business which is expected in the next few months.

disclosure: holding and applied for double my entitlements in the rights issue

shiv kumar

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Poor due diligence when bought or management incompetence to run it profitably. Such businesses(consulting and analytics) are inherently good profitable businesses.

Isn’t it a case of what we call Reinvestment risk when you keep selling businesses to book profits to buy something cheaper. Sooner than later you are likely to get caught on wrong foot.

No wonder Berkshire don’t want to sell their businesses ever.

Looks like Piramal is planning to raise more money by selling minority stake in pharma entity.

Anybody have an idea how much of Piramals loans are stuck in unsold or incomplete real estate property ? it seems he’s trying to put down fire in his financing business.

total money raised in last 2 years : ~16300 cr + deals in progress
rights issue 2018 : 2000 cr
rights issue 2019: 5400cr
shriram transport sale : 2300cr
data analytics group: ~6500cr
shriram investment (shriram capital) : looking for an exit
piramal pharma entity: looking to sell minority stake

Piramal Management now returning back to quite comfortable Zone.
Slide aimed to bring down Debt Equity Ratio with Right and Prefential itself.
Now Raising around 7000 Crs through selling Helthcare Insight & Analytics Business will further strengthen it’s Balance Sheet.
Now tunnel seem to be over for PEL with New Lights

IT Business
The DRG business was bought under the premise of entering and scaling a lucrative Data & Analytics business focused on Healthcare. As a practitioner in this field and catering to the same sector I can definitely confirm - while being lucrative it is extremely difficult to profitably scale this business unless you are not based in the active developed markets, mostly the US and Europe. Unlike IT outsourcing this is a very local business. PEL brought DRG upto 24% EBITDA level in the last 8 years and now under the new owners (Clarivate) the same business will be monetized at much higher level (close to 40% EBITDA level) making the deal EPS accretive for the new owners.

The IT business was a drag on PEL’s consolidated numbers and they were trying to exit this for quite some time. I believe the exit valuation (5X Sales) is decent and provided a return of 2.3x on the core equity they had put in (in INR terms) over the close to 8 years time frame. This business was 9% of the consolidated revenues (H1FY20) with slow to moderate growth.

Finance Business

After the IL&FS / DHFL crisis and resulting credit tightening the biggest issue was their short term funding catering to long term loans. PEL had CP based borrowings of 18017 Cr (in Sep’18) which they had to drastically reduce as funds dried up for NBFCs. Most of the fund raised over the past year has gone towards fixing the ALM mismatch and now this exposure have reduced to 1,483 Cr (Sep '19).

On the loan book side, they have kept the loan book size at the same level ~53000 Cr over the last 4 quarters while actively working on changing the wholesale:retail mix (wholesale residential RE exposure is now at 48% of loan book). Share of retail loans has gone up from 4% book, 2325 Cr (Sep '18) to 12% book, 6393 Cr( Sep '19).

There is definitely a lot of stress in the books (the 26381 Cr Construction finance book) which will slowly unfold over the next 3-4 quarters and is reflected in their increased avg. cost of borrowing (at 11%, H1FY20). They will definitely target to amass all the growth capital they can garner and definitely monetize the Shriram stakes to this extent.

PEL has taken some drastic steps to course correct and should emerge stronger out of this crisis. The focus is on expanding the retail book with new head of Consumer lending on boarded and focusing on a technology driven lending (following the footsteps of Bajaj Finance). They are also considering inorganic growth through acquisition of retail and HFC book from distressed entities.

The biggest change in wholesale side is co-origination with banks to reduce the single-borrower exposure and focus towards managing wholesale portfolios and earning fee income.

Pharma Business

On the Pharma side, both their Global Pharma & India Consumer Products businesses are at a mature stage. While they continue to optimize this growth (in mid teens) and further tune the EBITDA (already at 24%, can go up to 25% by FY21) - it is not a bad time to consider selling a minority stake in this mature business.

Their focus would be to re-enter the lucrative domestic formulations (as the non-compete with Abbott has ended) where PEL definitely has a strong know how and advantage of having scaled this in India in the past.

Overall, the business is at pretty weak juncture at this point, but given the strong support they have garnered from external partners speaks volume about their commitment. I believe PEL will ride this tumultuous phase and come out victorious on the other side.

For sake of history, we should always remember the now venerable Bajaj Finance once had a pretty shaky start (FY08-09) with very high NPAs (7%+), but they did all that on a lower loan book and came out as winner over the next 12 years. So the opportunity size in Financial Sector in India is humongous and there is definitely room for a long term play!

Disc: Invested since 2016, no recent transactions, not subscribing to rights at this time.

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