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Piramal Group sets eyes on demerger of pharma business After acquisition of DHFL

Billionaire Ajay Piramal has sealed the takeover of stressed Dewan Housing Finance Corporation (DHFL) after a year-long battle with global funds that would position the family to realise its decade-old dream of making it big in the retail financial services and set in motion the listing of its pharma business separately.

Piramal is poised to make his financial services  which is a diversified one with a wider choice of retail lending although it would be predominantly positioned in the affordable housing loans.

``We have decided to be a diversified, digital retail player,’’ said Anand Piramal, Executive Director, Piramal Group who leads the financial services business. ``We aim to make the wholesale one-third of the book,’’ he said, adding that even the builder loans could turn profitable due to recovery in the construction business.


Investors are bidding up Piramal Enterprises NSE -1.54 % on hopes that there would be two separate companies focusing on those businesses, narrowing the discount of diversified business. Piramal Enterprises, which is listed on the bourses, has two lines of business – Piramal Capital & Housing Finance and Piramal Pharma Ltd, which is an 80% owned subsidiary and the remaining owned by buyout firm Carlyle Group.
``It will be in the near future….. which is not going to be far,’’ said Piramal on pharma listing.

But folding DHFL into the company would provide it the avenue to grow the high yielding affordable home loans and a million customers would provide it the opportunity to sell other products through the digital platforms that are being built.

The group will be merging DHFL into Piramal Capital & Housing Finance in a couple of weeks.

The merger offers Piramal's financial services company 287 branches. At present, it has merely 14 branches and 23,286 customers. The merger would also help in improving the asset liability portfolio and boost the share of retail loans.

The group has on Wednesday paid Rs 34,250 crore to creditors in the first ever resolution in the financial services space using the Insolvency and Bankruptcy Code and the biggest one this fiscal. The group also has interest in real estate.

"It's a defining milestone," group chairman Ajay Piramal said. "This gives us the opportunity to address the financing needs of the under-served `Bharat' market in the affordable (housing) segment."
The total size of the resolution is Rs 38060 crore, which is about 46% of the total dues to the creditors. Out of this, Rs 34250 crore is being paid by the group and the balance Rs 3810 crore is cash balance lying with DHFL.

The payment by the group includes an upfront cash component of Rs 14,700 crore and issuance of 10-year non-convertible debentures worth Rs 19,550 crore carrying a coupon of 6.75% per annum.

Depositors of DHFL got around 23% of their money back. In absolute terms, they received a total of Rs 1250 crore out of Rs 5400 crore of deposits as per the resolution plan approved by the regulators.

The merged entity is likely to have a loan portfolio of around Rs 65,000 crore. The final calculations are yet to be completed, the group chairman said.

"We will use technology to become competitive," Piramal said. Majority of DHFL's borrowers are non-salaried in the tier 2 and tier 3 cities. There will also be a 130 basis points reduction in average borrowing costs.

Piramal Capital & Housing raised Rs 18,000 crore of equity in the last two years by selling its stake in companies and through issuing fresh shares.
 

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