Billionaire Ajay Piramal Is Creating Two Behemoths—In Financial Services And In Pharma

Fresh from the $4.7 billion acquisition of troubled lender Dewan Housing Finance Corporation Ltd. (DHFL) last week, pharma tycoon Ajay Piramal, 66, is simplifying the structure at the $1.7 billion (fiscal 2021 revenue) Piramal Enterprises by creating a diversified financial services conglomerate and a leading pharma player. On Thursday, the board of Piramal Enterprises approved the demerger of the pharma business into Piramal Pharma, which will be listed on the Indian bourses. The demerger is subject to regulatory, shareholder and creditor approval.

The proposal is that the financial arm will continue as Piramal Enterprises with a consolidated loan book of 650,000 million rupees ($9 billion) and with a presence across 24 states with 301 branches and more than 2,000 employees.

In a recent freewheeling discussion, Ajay Piramal and his son Anand Piramal, 35, sat down with Forbes Asia to discuss their vision for their business and the immediate priorities for the Piramal Group. Today, their Piramal Enterprises gets 45% of its $1.7 billion revenue from pharma, and 55% from financial services.

FORBES ASIA: What are the top three priorities for the Piramal Group?

Ajay: The first is the demerger. The second is to ensure that the integration of DHFL is successful and the third thing is that we have to be really ready for any acquisitions. I am looking at the economy in a very positive frame of mind. When you look at the NBFC sector, some companies will do better than the others. Those companies that are strong and with good balance sheets and good management will be able to grow further. There may be others that are weaker and may be falling by the wayside. Consolidation will take place and we should take part in that.

Are you looking into acquisitions in the pharma industry as well?

Ajay: We have completed two acquisitions in the last 12 months—one in the U.S. and one in India. We will continuously look for anything that fits in strategically with our plans.

What is your vision for the financial services business that you are building after the merger?

Anand: We want to be a pre-eminent lender of choice for underserved and unserved customers in tier 2 and tier 3 cities of India. Clearly there is a great opportunity and a great need for financial services as India grows. And most banks and non-banking-financial companies focus on urban areas because that is where all the demand is and that is where the data is also more organized. Out dominance will be for home loans in the 1,500,000 rupees ($20,500) segment.

You are primarily a wholesale lender. How do you expect that this will change after the merger?

Anand: We are looking at a 50-50 mix of wholesale and retail lending and down the road we want it to be two-thirds retail lending and one-third wholesale lending. Retail lending is a lower margin business but it gives you more stability in difficult times. Plus, in financial services, if you have diversity in the mix—that is, if you have four or five different products—it allows you to demonstrate performance no matter how difficult the times are. Over the next two years, we will offer used-car loans; education loans and loans for small and medium enterprises.

You’ve talked about this being a digital-first approach for the new entity. Could you explain what that means?

Anand: Data analytics will be at the core of our business. In tier 2 and tier 3 cities there are much less organized datasets on this population. You have to use more predictive analytics to underwrite a loan correctly. But the good thing about mortgages is that we are with the customers over a much longer period of time. The richness of the database for mortgages is higher than any other category in financial services.

What about the legal liabilities relating to the DHFL merger? DHFL’s previous owner Kapil Wadhawan offered to pay creditors in full and even filed a case in the Supreme Court saying that his proposal should be considered. What is the update on that?

Ajay: If Wadhawan was so keen about paying the creditors, the company would not have gone into this state. The reason why it went to IBC (Insolvency and Bankruptcy Code) was because he was not paying off the creditors. It is a frivolous suit. It is disposed off. The other matters—if any—will be dealt with by the Committee of Creditors (CoC). We have made the payments as per the plan approved by 94% of the CoC members. Everybody has the right to keep filing cases, but the court will decide.

Are you looking at a bank license for the financial services business?

Ajay: There are many pluses and there are some disadvantages with that. We are waiting and watching.