Piramal Enterprises announces demerger from financial, pharma business
- ByStartupStory | October 9, 2021
Piramal Enterprises board directors approved a composite plan of agreement under which the pharmaceutical activities of the Piramal group would be consolidated into a separate company and also listed. The core of Piramal Enterprises will house only the financial services activities of the Piramal Group.
According to Piramal, this is likely to simplify the organizational structure of the company and also create defined pockets of value. The risks, investments and return on investments of pharmaceutical and financial companies are completely different and so keeping them under one roof has created a distorted view of risk and return.
Under the scheme, the pharmaceutical activity of the Piramal group would be vertically spun off from PEL. Existing shareholders of Piramal Enterprises will receive 4 Piramal Pharma shares for each Piramal Enterprises share they own. They will also continue to hold the PEL shares, even if this concerns the wound up company.
Following the deal, Piramal Pharma will become one of the largest publicly traded pharmaceutical companies in India and will compete with the biggest Indian names such as Sun Pharma, Reddy Labs, Cipla and Divi’s Laboratories. Piramal Enterprises will be one of the largest fund-based NBFCs in India with a substantial presence in retail and wholesale financing.
Perhaps the DHFL deal was the trigger. Less than a fortnight earlier, PEL had completed the formalities under the NCLT formula and assumed full control of Dewan Housing and Finance Ltd. PEL had paid a total consideration of Rs.38,000 crore for the majority stake in DHFL. Here’s how DHFL will position PEL in the top tier of NBFC companies in India.
First of all, the acquisition of DHFL brings the wholesale mix to 50/50. The next step will be to bring it to 75:25 in favor of retail and in that journey the acquisition of DHFL will be crucial. DHFL gives PEL significant reach with the addition of 301 locations, in addition to the 14 existing locations.
It could also set the tone for long-term banking licensing plans. Ajay Piramal had planned to enter the banking sector through the agreement between IDFC bank and Shriram group, which has not materialized. The decision to separate from pharmaceuticals allows PEL to focus more on financial services.
Follow Startup Story
Related Posts
