Piramal to Hive Off Pharma and Focus on Financial Services

The board of Piramal Enterprises approved a composite scheme of arrangement under which the pharma business of the Piramal group would be hived off into a separate company and would also be listed. The core Piramal Enterprises will only house the financial services business of Piramal Group.

According to Piramal, this is likely to simplify the corporate structure of the business and also create demarcated pockets of value. The risks, investments and ROI of the pharma and the financial business are totally different and hence keeping them under the same roof created distorted perceptions of risk and returns.

Under the scheme of arrangement, the pharma business of the Piramal group would get vertically demerged from PEL. The existing shareholders of Piramal Enterprises will get 4 shares of Piramal Pharma for every 1 share of Piramal Enterprises held by them. They will also continue to hold the PEL shares, albeit it would pertain to the downsized business.

Post the deal, Piramal Pharma will become one of the largest listed pharma companies in India and would compete with the larger names in India like Sun Pharma, Reddy Labs, Cipla and Divi’s Laboratories. Piramal Enterprises will be one of the largest fund-based NBFCs in India with substantial presence in retail and wholesale financing.

Perhaps, the DHFL deal was the trigger

Less than a fortnight earlier, PEL had completed formalities under the NCLT formula and taken full control of Dewan Housing and Finance Ltd. PEL had paid a total consideration of Rs.38,000 crore for controlling stake in DHFL. Here is how DHFL will position PEL in the top league of NBFC companies in India.

Firstly, the DFHL acquisition will take the retail wholesale mix to 50:50. The next step will be to take it to 75:25 in favour of retail and in this journey, the DHFL acquisition will be critical. DHFL gives tremendous reach to PEL with the addition of 301 branches, in addition to its existing 14 branches. 

This could also set the tone for the long-term bank license plans. Ajay Piramal had planned an entry into banking via the deal between IDFC bank and Shriram Group, which did not materialize. The decision to hive off pharma allows PEL to sharpen its focus on financial services.

Also Read:-

Will DHFL Shares Be Delisted After Being Acquired by the Piramal Group?