Ajay Piramal's problem of plenty: Market wants Piramal to start dealing with cash chest of Rs 10,000 crore

Source :13 SEP, 2011, 10.49AM IST, DEEPALI GUPTA,ET BUREAU 


For restless public shareholders of Piramal Healthcare, seeking direction on how their company was going to deploy its mountain of cash, its latest move did little to put them at ease.


 Since it sold its prized domestic generics business to Abbott Laboratories for $3.7 billion in September 2010, the company stock has been in steady decline, losing 40% in a market that has fallen by 5.6%. 

Last month's announcement by chairman Ajay Piramal that the company would invest $640 million to buy 5.5% of telecom company Vodafone-Essar did nothing to restore the market's sagging confidence. 


On Monday, the stock was trading at Rs 354 - almost half its cash per share of Rs 600. In other words, if an investor bought the Piramal share today and the company was liquidated the same day, the shareholder would make a 41% return from the cash alone. 

"We have adequate safeguards to ensure our money (in Vodafone-Essar) will come back (in two years) with expected returns of 17-20%," says Ajay Piramal, sitting in his large 10th floor office in Mumbai. "Investments like this will help us yield better results than fixed deposits or such investments." 

Despite his assurance, the market is taking a dim view of Piramal's ability to deploy the cash quickly and profitably. It doesn't like the fact that, following the sale of Piramal's drug formulations business to Abbott Laboratories, what is left of it is a patchwork of small or fledgling businesses. One year after he closed the deal, Piramal has still not decided how he will deal the cash hoard, which is now mostly invested in low-yielding debt instruments. 

So far, Piramal's choices have not delivered much to shareholders. He spent about Rs 120 crore paying a special dividend of Rs 6 per share, which was dwarfed by the inflow from the business sale. He spent Rs 2,500 crore this March, buying back the company's shares at Rs 600, which failed to cushion the fall. And the latest investment is in a sector - telecom - that has lately been under acute competitive stress and is mired in controversy. 

Last month, a report put out by Mumbai-based institutional research firm IIAS sums up the shareholder quandary: "Having invested in a healthcare company, shareholders find large parts of the pharma business sold, and cash being invested in telecom, financial services and reality. They have no clarity on what is coming on the balance sheet next nor do they have any say in this matter... investors no longer know what to expect." 

Neither does Piramal. "There is so much uncertainty," he says. "I myself don't know where I will invest." Except, unlike the market, Piramal is unruffled by this uncertainty of not being anchored or knowing his next destination. He's built his fortune by entering and exiting businesses. Unlike traditional entrepreneurs, who feel emotionally attached to businesses they create, Piramal is dispassionate. "My husband buys low and sells high," says Swati Piramal, director strategic alliances and communications, Piramal Healthcare. Ajay Piramal says he's here to create value for his shareholders. "Whether I do it by running one business or selling it is not the question. I have no ego about it." And, he says, he's not changing.