Hello and welcome to LATA and the Leaders series, where I meet leaders whom I have covered over the last three decades in journalism and ask them to look at their own past decisions with today's lens and to look at future expectations with their experience. And one of the most fascinating leaders whom I have covered is someone who is almost magical with money. He is known for buying MNC companies at dirt cheap valuations and then selling them at several times the price that he bought. You must have guessed my guest is Mr. Ajay Piramal. Mr. Piramal has bought a bunch of MNC pharma companies, if I remember, at less than one-time price-to-book and sold them, I remember, to Abbott at 30x the profit. And that wasn't just pharma. In real estate, in NBFCs, he started off as a private equity lender to real estate and then that metamorphosed into a retail home loan powerhouse today. And then there have been other ventures, the Vodafone venture, the Shriram venture, all of them have made money. So clearly, we have to understand the mantra behind this magic. Thank you very much for your time, Mr. Piramal.
Well, I want to start with pharma because that is an emotional connect for me. One of the first press conferences I covered as a cub reporter was when you bought Boehringer Mannheim. But let me zoom out. How are you looking at India's pharma industry today? Where do we excel and where are we making money?
So when I look at our own pharma industry, our business, I must say that we are now 90% of our sales and a lot of our manufacturing is actually global. We have manufacturing in the US, we have it in Canada, in the UK and in India. And I think in that space we bring in a lot of strengths. What we do in the CDMO space is that we take molecules which are on patent, which are in the development stage, and then take them to commercial. And I think this is where India brings in a lot of positives. The development stage would take place very often globally because it needs to be near the customer, but later on when you do commercialization, that's where the India angle comes in even better. And I think today India has got a lot of credibility as far as any global pharma is concerned. And I think because of our track record with US FDA and so on, without any warning till now in our history across several sites, that's a big advantage. Similarly, we are also in complex hospital generic products. These are complex products. So though they are generic, the brand still carries a value. And again, we manufacture it in India, we manufacture it in the US, and the intermediates and all for this plus the manufacturing, we get a competitive advantage. The third part of it is again the OTC, which is an India-centered business, which is about 10% of us.
Yeah, of course, that we know very well. I'm a migraine patient so Saridon is a lifesaver. But yes, through the decades, I understand that getting no warning from US FDA was one of the standout achievements of Piramal Pharma. But how do you see Indian pharma? You think CDMO will still be our strength? I mean, you all do very high-level, high-value CDMO. It has kind of now gone into all industries in the form of GCC. This is the original GCC. We have a long runway here.
I think so, we do have it. It is very, very competitive as well. But I think we do have a long runway in this. I think pharma has a future in India because of the fact that our manufacturing costs are much lower. The quality of talent that's available across pharma in the country is very high. And because I think today now there is a reputation for the well-known companies in India to be good, reliable pharma producers.
Just last quarter the CDMO had some problems of stocking etc. It's just a one-off?
Yeah, I mean, this happens. And sometimes when you have a very large customer and they want to manage their inventory, so it's part of the... yes. So that's why also one of the emphasis on our companies is to develop more and more products which are in the commercial stage, then you diversify the risk.
Okay, what about the US Biosecure Act and the fact that the insistence is that people come and manufacture there? You already have that advantage. Does that put Piramal Pharma in a better position?
It does, it does put it in a much better position because again, I think the authorities feel so, even the customers, because most of the pharma, the new products, the new molecules are US companies, so they feel comfortable that there's an option in the right home in their backyard as well as India. So this is a good combination to have.
Yeah. But you have a penchant for M&A in pharma in particular. So will that continue? Are you all still open to acquisitions?
Yes, we are open to it. And now just recently the board did announce that we've done an acquisition. Again, this really fits into our strategy. The way we do it, I think it'll be consummated in the next few months. Again, it is a brand. I think what we... it is a generic brand, but it is again complex and it is a niche market, but it is a good brand in that.
And again, it helps us because this is what we always believed in. You need the brand. We have the manufacturing capabilities or we have associations with others where we can get it manufactured. We have the sales and distribution and the customer relationships. So this just means that we can do it at a much lower cost and leverage.
But what was the logic? I'm just going back into history because of the nostalgia I have with those events. What was the logic behind buying it? Were you aware that you could turn it around and why exit when you were doing so well?
So, when we bought it and we entered into pharmaceuticals and kept growing, there was never the intention of exiting it. The reason why we exited is because I think I like to take a dispassionate view. I look upon ourselves as really trustees for the benefit of shareholders, of employees, customers, and society. And when we got the offer that we did from Abbott, and you named the multiples, which is the highest ever in any generic, branded generics anywhere in the world, we felt that... and when we did all the calculations of what is the future value, how much we will grow, how much is the NPV today, we felt that we could not have matched it. And it was in the best interests of our shareholders as well as employees because that was a high when India was actually at a high just after the global financial crisis. And we didn't expect, I didn't think that it'll continue. And actually if you see the time also, it's not continued in what it was. And therefore we have to take a dispassionate view of things and do what is in the right interest.
That's a big management lesson to Moneycontrol viewers who are listening. Actually, well, because it's Moneycontrol, I must ask you the question on Piramal Pharma as well. What kind of growth rate are you looking at? I mean, I'm not asking for next quarter but more generally.
So generally, we believe that by 2030 we should be doubling our sales to about a $2 billion sales. I think EBITDA we expect to be at least a multiple three times. And we'll get a... yeah, that'll be what it will be.
But even that would be at least 25... I mean, if in four-five years you're looking at doubling, you're at least growing mid-teens.
And 25% EBITDA, so I think that should be a good... yeah.
And let me zoom out and ask a more general question. What was the... how do you calculate or how do you arrive at a decision to acquire? That is the big thing that you are known for. So what is the lesson to younger entrepreneurs in the M&A game?
I think the lesson which I know is that one must have the... what is the strategy ahead or what's the vision that you want to build, and therefore then look at an M&A target. You know, my biggest concern sometimes is that M&A looks very nice and everybody wants to do it, but only 70, I think probably 75% they say of M&As don't succeed because you usually overpay. So we believe that first there should be a really strategic fit and there should be a vision behind it. The second thing is that we have to really go beyond the headlines. You know, that's where I find that you can create value. So when we bought, let's say, when we entered into pharmaceuticals, that was not the time to enter pharmaceuticals and especially an MNC. The costs were high, their growth rates were not good, and everybody, that's why no big pharma ever wanted, took interest in Nicholas. So again, so you have to be different.
When we bought Boehringer... so many... yeah, so every time because that was the impression that the headlines gave.
What are the headlines then? One is that multinationals are very, I mean, they are very cost-heavy in India. As far as the MNC was concerned, they were not for India because there was no patent, there was the DPCO, yes, so it was... there was a price control order and then you're not sure of your IPRs. Yes, and therefore it was nice, they wanted to sell low here, wanted to buy. So that was a time we felt that there was an opportunity that the market would grow and we could create value. And the main thing was that brands made a difference, which people were not appreciating.
Today also you spoke about lesson... brands is the other lesson.
And really the lesson is that don't go on the headlines, go into the real few things which are important and go into the story of the company or the industry.
Okay, let me come to the other area which actually interests me more because although I began as a general reporter, I cut my teeth as a banking reporter. People look up to you, regard you very highly. Let me see. All of us listen to what you say and you get the best. But yeah, one of the things that I really admired was the way you all went for DHFL. It was at that time I was not sure whether it was even wise because the IBC was not geared for finance companies. It was geared for manufacturing companies. So when you bid, what was your thinking? It was bold and it worked like hell. So I mean, your thinking?
So you know, it's interesting you point out because obviously you know the space so well. This was the first financial services company put in the IBC, that also because the Reserve Bank put it because the whole system... DHFL owed 90,000 crores to the banking system. And so what was the reason for it? Again, what was the headlines? The headline showed that DHFL, there was a lot of scam and there was a lot of fraud, which was very true, there's nothing wrong in that, was correct. But when you went into the next level, which is what I want to say, you realize that the scams and the fraud was all in the wholesale book.
That wholesale book was where there was a lot of related parties and interconnected other firms and all that.
But the retail was not as bad.
But they had a good piece.
That's right. But nobody realized that and hence I think that's what we spotted, that this is where there is value.
And the way then we bid for it is only the retail, mainly the retail.
I think it was a 37,000 cr book that you all took or something?
No, we... yeah, so we paid about 37,000, which is in terms of 40% of the value.
Which is much higher than what, if you see the average of any IBC was. So that was the reason. Okay.
We also felt that again, our experience is that if you have a good management team and if you can integrate that into your business, we can actually create disproportionate value. Otherwise, to set up a retail franchise from... you will know better, it'll take eight or 10 years for profitability. Now this for DHFL, this whole transaction... it came done in 2022. And now in three and a half years, book size in retail alone is 80,000 crores. We started at 20, so...
Yes, yes, I mean it's an outstanding success. And you now want them to do beyond housing?
They are now a diversified NBFC. Yes, it is a diversified NBFC. Housing is there, so we have about 80% is retail. And 20% is wholesale, which is both corporate and real estate. And we will do housing, which will be about 40-50% of the retail.
Okay. Okay. Well, I was interested by the fact that you said it takes a long time to set up an NBFC, but yet Bajaj is entering. He has announced plans for an NBFC. You think it's becoming too competitive a space? I mean, there's only Jio and then of course Bajaj Finance and the old guys are there.
But you know, in every space in India there is competition, but yet you stand out. And so, yes, there is competition and we have to be on our feet all the time.
Okay, let me broaden on this NBFC bit. Today even banks are having a problem raising real cheap deposits. I mean, they're getting those fleeting deposits but they're not getting the term deposits. So do you think this penchant which an NBFC always had for a banking license is now less, there isn't that much of an advantage? Or is there... you know, a lot of NBFCs have talked about banking license but if you see them, nobody has really converted it in the last 20 years.
So I think, look at the size of the balance sheets of people like Bajaj and now Shriram and all are much higher. So I think that is one... one can keep thinking about it, but I don't think it's going to be very much in the near future.
Yeah. No, you're right. I mean, Bajaj Finance, I did speak to Sanjiv Bajaj on this series as well. They are running at almost a five lakh cr book which makes them the fifth largest private sector bank actually. Yeah. So if they were a bank. Yeah, I agree with you. Now the runway to growth in NBFCs also seems to be really very high. But coming back to NBFCs, the Shriram merger, why didn't it... I mean, otherwise you would also be in the four lakh cr league, what?
So Shriram, as you know, we had invested in about 2012-13. Over that period, our idea was to get into financial services. And the idea was that again, the same thinking, that retail to build a franchise takes a long time. And Shriram has a unique franchise which is very difficult to replicate. And that is why we entered it. And even the promoters, R.T. and the whole team was very keen we came in. And actually, I was appointed chairman and for a couple of years I was chairman. And they wanted the merger also to take place. I mean, this... we also thought about it, it was fitting into our strategy as I said, we had already developed a wholesale book and when the process of developing a wholesale and the retail... but then when I went into more details and especially had a more inside view of it, I realized that the culture which Shriram has is a very, very unique culture. That is the Shriram strength. And it was not in alignment with the culture that we had. And it is difficult to change a culture which has 10,000 people. And frankly, I don't think it would have been successful also. Therefore, we thought it's in the best interest for us as well as for the Shriram to have it separate. And actually, history is showing it.
Yes, yes, that's right. Both of them have done well.
There was an old M&A hand who told me, you know, you can mix tea and coffee but will it taste good? So I take your point on that. But you all are still looking for acquisitions in finance as well.
