The opportunity will determine things: Ajay Piramal

Ajay Piramal, Chairman, Piramal Healthcare , talks to Geetanajali Shukla.

On shareholder discontent
There are two ways in which we have rewarded shareholders. In addition to the dividend that we paid out for the year ending March 2011, we also had a big buyback - Rs 2,500 crore worth of money was given back to shareholders.

On why the formulations business was not demerged before being sold to Abbott
It would not have been possible. We got a valuation that was nine and a half times of the topline and 30 times the EBITDA. Nobody in the world has got that for a branded generics company. Why did we get such a significant valuation? Abbott wanted a company where they could control 100 per cent. They wanted a transaction which was clean and without any liabilities. They also wanted a quick and quiet transaction. If you talk of doing a de-merger, it will take a minimum of six to nine months as you need shareholder approval, court approval, and so many other things. The maximum that we could have given them was 52-53 per cent of our equity, they would have made an open offer for another 20 per cent, but they would not have in any circumstances got 100 per cent. They would necessarily have liabilities and they would have had to do an audit. Though the price has gone down, in the long-run, we feel, this is in the better interests of the shareholders. Hopefully we will be able to invest this money in the right manner and get a higher return.

On demerging and merging Piramal Life Sciences
What is different between 2007 [when it was demerged] and now is that a lot of molecules have gone ahead in terms of clinical trials. As a molecule moves from one stage of the clinical trial to another, the risk keeps reducing, and the probability of it being successfully launched keeps increasing. Piramal Healthcare's financial position is totally different from what it was four years ago. We have a large amount of money that has come in over the last one year. The risk is now much more quantifiable and we also have enough funds that we can put in. One of the advantages that we see is that we will have a significant tax loss available to us to adjust against the profits. In research we get a weighted deduction of the losses.

On allocating funds for the strategy units
It is difficult to make an allocation because it depends on the opportunity that one gets. Approximately 60 per cent will still go towards the pharma space. For the right opportunity there will be enough funds. We can raise funds from within; we can also raise funds by raising some debt. I think it is the opportunity that will determine things.

On sectors and regions in which it will invest
I would say that the US is our number one priority. The ongoing turmoil in the Eurozone may give us opportunities which could create significant value. Therefore, there is a bit of fuzziness. But if we do something in Europe, we will have to look at it very carefully, because Europe, I feel, will go through a much more difficult time than the US. The basis of this opportunity is that there is a large market existing in India which is not being served today. So we could acquire a business which could serve the Indian market. We could also acquire a business which has a potential market - not all businesses or products or services are available in India- so we can do something more. Or it could be that it has a strong supply chain angle from India, so we can manufacture something which is sold globally which is manufactured in India at a cheaper price. Or we could manage the entire supply chain in terms of procurement and so on. So we are looking at several opportunities now.

On IndUS Growth Partners
The connection is Nitin Nohria [the dean at Harvard Business School], who has been a very close advisor to us. …Before he was the dean he was involved very closely with us. That exposed us a lot to Harvard. I have also been to Harvard. Shikhar Ghosh is my son's professor. He spoke very highly of him, Nitin spoke highly of him. Therefore we got him on board. He knew Jonathan Sandler. The fact that Shikhar had also worked for several years with him helped. Vivek Sharma has joined this team, he is from the PE firm TH Lee. Nitin came in touch with him and recommended that we look at him. We have two other younger fellows, one of whom has just graduated from Harvard and my son knew him. Shikhar was also his teacher and he also spoke very highly of him. And other one was in a hedge fund in New York.