Despite a track-record of more than 30 mergers and acquisitions over 10 years, Piramal Healthcare's decision to pick-up 5.5 per cent in Vodafone's India-arm created a stir – sitting as it does, on kitty of Rs 10,000 crore.
However, the minority stake in Vodafone India does not mark an entry into telecom, nor does it indicate an exit from the pharmaceutical business, Chairman Mr Ajay Piramal told media-persons in a hastily-called interaction at the company's board-room.
Returns-driven
Piramal Healthcare's surplus funds will be utilised to pick minority stake in global companies in India and high growth sectors for the short to medium term, to ensure better returns, he said, outlining the guiding principle behind the deal, besides reiterating the company's commitment to pharmaceuticals.
In the Vodafone deal too, Piramal expects to get returns between 17 and 20 per cent, he said, which would be higher than keeping the funds in a fixed deposit, for instance, he added.
Piramal Healthcare will fork out Rs 2,856 crore towards its minority stake in Vodafone's India arm, and this does not include a seat on the board of directors, he said.
The investment horizon is over 12 to 24 months, as Vodafone has indicated that it would go in for an initial public offering in that time, Mr Piramal said. If there is no IPO, then the company could sell back its stake, he said, clarifying that he could sell to a third party too.
The deal does not require FIPB (Foreign Investment Promotion Board) approval, he clarified, as it is between two Indian companies – Piramal Healthcare and ETHL Communications Holdings Ltd (Essar).
The projected return, of 17 to 20 per cent on investment, factors-in risks such as the existing tax case that Vodafone faces in the country, he said, adding that Piramal Healthcare had “knowingly done it (the deal)”.
Tapping opportunities
Underlining the “special value” that cash has, against the backdrop of uncertainty and volatility in the market, he said, the company was poised to tap opportunities that emerge in the local and global arena. The guiding principle is that Piramal Healthcare would look at a minority equity status, not be involved with the management and look for high returns with minimal risk to the shareholder, he said.
Pharma commitment
Piramal Healthcare will invest Rs 7,000 crore in its pharmaceutical business over five years, he said, adding that they were looking acquisitions too in the country and overseas.
It will invest in its existing areas of operation – drug-related research, custom manufacturing for overseas partners, critical care and over-the-counter products. The company is sitting on Rs 10,000 crore after distributing Rs 2,700 crore to shareholders in the last six months, he said.
Last year, Piramal Healthcare had sold its domestic formulations business for Rs 17,000 crore to multinational drug-maker Abbott, and subsequently sold its diagnostics business too for about Rs 600 crore.