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Big Deal

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Flush with funds after the sale of his formulations business for Rs 17,000 crore, Ajay Gopikrishna Piramal has made yet another investment — this time to raise his flagship Piramal Healthcare's stake in Vodafone.

On 4 February, Piramal Healthcare announced its decision to purchase an additional 5.5 per cent equity stake in telecom major Vodafone India from Essar's ETHL Communications Holdings for Rs 3,007 crore. In August 2011, Piramal Healthcare had bought a 5.5 per cent stake in Vodafone for Rs 2,856 crore. The transaction follows the settlement of a dispute between Vodafone and Essar over the sale of Essar's 33 per cent stake in Vodafone, which is estimated to have gross assets worth Rs 59,200 crore as of 31 March 2011. Piramal Healthcare raised Rs 1,800 crore through commercial paper besides using Rs 1,200 crore cash-on-hand to fund its latest acquisition.

Although the additional stake purchase will ensure a board seat for Piramal Healthcare in Vodafone, the company views the deal only as a short-term portfolio investment. "This is part of our financial services investments and we will exit through an initial public offer or sell the stake to another company after 12-18 months,"  says Piramal.

Despite the current chaos in telecom, Piramal believes consolidation is imminent in the sector, which will boost the valuations of players like Vodafone. He expects a 17-20 per cent return on his investment. But for Piramal, a larger objective is make his eponymous group a conglomerate. After selling the formulations business to Abbott for $3.8 billion in 2010, Piramal Healthcare got an upfront $2.12 billion, followed by assured annual payments of $400 million each for the next four years. It has so far spent Rs 2,500 crore for buyback of shares, Rs 2,856 crore for the earlier Vodafone investment and another Rs 3,500 crore as tax on the Abbott deal.

Experts say Piramal could invest heavily in the pharma sector, mainly in drug discovery. "Piramal Life Sciences (drug discovery company) has some 13 molecules in the pipeline and can afford to take some of these molecules to the commercialisation stage, rather than outlicensing them," says Ranjit Kapadia, senior vice-president at Centrum Broking.

Though it has no cash left in hand after the second round of investment in Vodafone, Piramal is set to receive close to Rs 2,000 crore each by September 2012 and 2013. That will be used for further investments in new growth sectors such as pharmaceuticals, real estate, financial services, security systems and defence, says Piramal. More news will follow, including acquisitions, assures Ajay Piramal. 

(This story was published in Businessworld Issue Dated 20-02-2012)