Piramal Enterprises, the financial services-to-pharma conglomerate, on Monday said that company is eyeing organic growth in financial services.
In an exclusive interview to CNBC-TV18, Ajay Piramal, chairman, said, "My view is that in the next few years, you should just focus independently both the groups, the Piramal as well as Shriram. There are enough opportunities to growth, let us grow it to a sizeable number and then we should see."
Watch: Open to large acquisition in pharma sector, says Ajay Piramal of Piramal Enterprises
Piramal said, "We would like to list also our Healthcare Insight and Analytics as an independent company in the US."
Edited excerpts: Q: First, let us take it to the big picture. You are an industry leader, we are at a time when there is heightened global tension when it comes to the trade war, we have seen rupee weakening for various reasons and also as India, we are entering into an election year. As a corporate leader, how do you see corporate India poised for this?
A: When you look at the whole scenario now globally, there are trade wars. But to some extent, India is not going to be as affected as the rest of the world. Our domestic economy is pretty robust. Almost 55 percent of our GDP is only domestic and that is an advantage that we have.
In this whole tension with trade wars, the rupee has weakened, but it's not the rupee weak as much as the dollar has strengthened. Overall, we should come out better in this, because with respect to all other emerging markets I look at, the Indian economy is stronger and there is still a lot of interest in Indian economy. In fact, I see that after this crisis in July, if you look at the foreign portfolio investments, it's showing a positive after several months of showing a decline.
Q: Over the last few years, your financial services business has aggressively expanded, a lot of it coming in from real estate portfolio and funding in that particular area. Now, I have seen Piramal Group as one of the most agile groups when it comes to change in strategy with changing times. What is the next phase of restructuring and strategy for you?
A: What I see in the future is that we will see that the portion of our, other than real estate loans going up significantly, we will see that housing finance and hence our entry into retail will go up. In addition, I think we are also going to get some platforms for consolidation of certain assets. In financial services, we also have a stressed asset fund, which is a joint venture with Bain and I see many opportunities.
Q: You talked about the focus in the retail space when it comes to home finance. Of course, a large part of your portfolio was in the real estate funding, over 80 percent, now it has come below 75 percent. Now this migration to more retail focus than wholesale, that has not gone down well when it comes to the profitability angle. So is it a temporary phenomenon, how do you see the profitability bit panning out?
A: Because of getting a retail housing for instance, we have seen that we have had a credit upgrade. So our rating upgrade has gone up and therefore, the net interest margin in any housing portfolio would be lower, but the costs have also come down to some extent.
Secondly, I think, again because of housing, we can get a higher debt equity ratio. So our returns on equity, which is what is really key for us, will again come back to the levels that we are aiming for which is 20 percent.
Q: But the last three years, major aggression has come in there, now you have a sizeable loan book, Rs 47,000 crore is where you ended last quarter. Now what next? Now you have a size, does it mean that the strategy is now to take it a level higher and maybe inorganic, what is the next strategy?
A: So far as financial services is concerned, yes, we are looking at growing the book. However, my own belief in this has always been that it's better to do organic growth, because in the lending business, especially, it is really the culture and the values of the team that is the most important. I found that very often when you do just an acquisition on inorganic growth, the cultures are so different, the values are different, that you do not succeed.
This is a people’s business and I feel that the basic strength comes from your own people as you grow them. So, my focus will be on organic growth rather than inorganic.
Q: What I was also hinting at is you have a large chunk of investment in Shriram Capital. How do you see that panning out? There have been talks of merging all the listed entities into one listed entity as well. In that you will be one of the larger shareholders only after the trust. So what is your strategy on that front?
A: The Shriram Group strategy is actually independent of what happens in Piramal Enterprises. I think in Shriram, there are several options that are being examined and today, we have not yet come up to a final conclusion, the boards, and the management team are discussing what various options are which would create long term value for the group in the long term.
Q: What I wanted to ask, you said that they both have independent growth paths, but there was also talk at one point in the last few years that is to grow your financial services business under Piramal Enterprise’s umbrella to a sizeable level and then merge it with Shriram Capital. Is that at all on the table now that you have attained size and it is not going to be as dilutive for Piramal Enterprises?
A: My belief again is that in financial services, it's people that matters. If you were to go in for any large scale merger, which would mean that at least one or two years would be spent in just trying to organise people to see that they are aligned, they have the same vision, they have the same set of values, and which would mean that at that time, growth will take a backseat. So my view is that in the next few years, you should just focus independently both the groups, the Piramal as well as Shriram are doing well, there are enough opportunities to growth, let us grow it to a sizeable number and then we should see.
Q: Are you seeing that integration issues can be a hurdle to any sort of merger?
A: In a group, we have done several mergers and acquisitions over several years and I have found that whenever there are just people involved, it becomes much more difficult than when it is of products, or it is of plants. All those are relatively easier to do. If growth is coming on its own, today both the platforms as I said whether it is Piramal, whether it is Shriram, have a good runway ahead, why bring in any other obstacle today?
A: As we have said, we will do it at the right time in the mid-term and that is all that I could say today. It will be in the mid-term, where we would have financial services separately, we would have the pharma separately, and we would like to list also our healthcare insights as an independent company in the US.
Q: In the short term, how do we see the entire structure of Piramal Enterprises? There has been a thought process, you have been vocal about it that financial services will be a separately listed company. Now, it has been subsidiarised, when will the time be right for doing that?