13 Sep 2015

Tracking Indian Value Investors – Ajay Piramal

Billionaire Ajay Piramal runs a successful listed company in India. He has generated massive 26% returns for his shareholders over the long term – 28 years to be precise. In the latest annual report of his operating company, he talks about his thoughts of generating long term value for shareholders in the future.
Following are the key takeaways for investors from his latest annual report:
1.      Virtual Companies: Mr.Piramal’s operating company is currently in three businesses – pharmaceuticals, information management and financial services. According to him, they have now grouped these three businesses as three virtual companies. This mindset has helped in a) execution discipline in the form of focus on achieving near term goals, milestones and budgets in each of these virtual companies, and b) Prioritization in use of available capital.

2.      Efficient Capital Allocation: The cornerstone of value creation is efficient capital allocation . Piramal is committed to efficiently allocating capital while undertaking controlled risk, to consistently generate higher profitability and deliver superior shareholder returns. The company has undertaken various steps during the year towards this like a) bolt-on acquisitions in different businesses, b) enhanced minority stake in Shriram Group, c) Deleveraged balance sheet, d) Returned capital to shareholders and e) Significantly scaled down the high-risk high-reward New Chemical Entity Research Programme.

3.      Partnerships: Piramal highlights that he company is the first port of call for global majors for partnerships in various businesses and co-investments. He highlights that since its inception, they have practiced and maintained the highest standards of ethics, integrity and corporate governance in each of its business dealings. The result is that the company has forged relationships with global partners like CPPIB (for co-investment in real estate funding), APG Asset Management (co-investment in Infrastructure funding), Vodafone (historically invested in Vodafone India), Abbott (sold pharma business to Abbott) and Allergan (has a local JV for pharmaceutical business).

4.      Minority but ‘Strategic’ Investments: While Mr.Piramal’s about $700mn minority investments in the Shriram Group appear passive, they have been repeatedly been referred to as ‘Strategic’, along with the mention that Mr.Piramal is now the non-executive chairman of Shriram Capital, the financial services holding company of Shriram Group. Thus, there may be an intention to take active participation in these minority investments in future.

Important quote from the annual report highlighting long term shareholder value creation:
“Over the last three decades, we have demonstrated our entrepreneurial abilities by allocating capital efficiently in high-potential businesses and operating them well, thereby creating long term value for our shareholders.  In 1988, we moved out of textiles and into pharmaceuticals through the acquisition of the 48th ranked pharma company. Over the next two decades, we transformed into a top 5 pharma company through both organic and inorganic means. Five years ago, we sold our Domestic Formulations business at an attractive valuation to Abbott to generate substantial value for our stakeholders, a large part of which was returned through dividends and buyback.”

Further reading: 
You can read a fantastic post on Ajay Piramal by Prof Sanjay Bakshi titled 'The Grand Strategy of Ajay Piramal'

1 comment:

  1. oday "cash flow generation" has become quite the vogue, but "even as people talk about cash flow...they only give it lip service. Our industry is obsessed with earnings and that's fine...because people aren't paying attention to measures that gives us an informational advantage". This honestly is a fortunate thing, in that HOLT shares the same fate as index funds: it wouldn't work as well as it does if everybody used it. Because that's the irrefutable fact; following HOLT's valuation model actually helps you in the performance derby, confirmed in numerous studies (see this month's Enhancing the Investment Process paper by Axioma for example).
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