Stock down 37% since Abbott deal
Sixteen months after billionaire Ajay Piramal sold the domestic formulations business of his flagship Piramal Healthcare to US-based Abbott Labs for $3.7 billion (Rs 17,000 crore), the Mumbai-based drug maker’s stock seems to have gone out of institutional investors’ radar.
The open-ended equity schemes of India’s top fund houses such as Reliance MF, UTI MF, SBI MF, DSP BlackRock MF and Fidelity MF had completely exited from the counter as of June 30 after the Abbott deal, showed data from Value Research, a Delhi-based mutual fund tracking agency. Only six open-ended equity schemes of five fund houses owned 548,000 shares of the company as of June 30, compared with 28 open-ended equity schemes of 14 MF houses owning 4.17 million shares as of April 30, 2010.
Domestic MFs, which owned 3.28 per cent in Piramal Healthcare as of March 31, 2010, reduced their holding to just 0.59 per cent as of June 30, according to shareholding data on the Bombay Stock Exchange (BSE) website. Even foreign institutional investors pared their holding in Piramal Healthcare stock, to 21 per cent as of June 30 from 26 per cent as of March 31, 2010. The holding of insurance firms in the company has slightly declined to 5.3 per cent from 5.5 per cent during the same period.
MF managers, who spoke on condition of anonymity as they are not authorised to talk about individual stocks, say most fund houses have chosen to exit the stock as there was a risk after the promoters sold the main business and the money was not returned to the shareholders. “The deal was structured in such a way that the cash remained with the company and did not come to the shareholders. The promoters can play with the cash in the company as they wish. Minority shareholders would have no say in that,” said an MF manager, whose firm owned Piramal Healthcare shares before the Abbott deal.
Since the deal was announced on May 21 last year, Piramal Healthcare shares have slumped 37.2 per cent till its Wednesday's close of Rs 356 on the BSE. During this period, the company’s stock was the worst performer in the 18-stock BSE Healthcare index, which has gained 12.6 per cent.
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This is in stark contrast with the performance of Piramal Healthcare stock prior to the Abbott deal. In 2010, these had rallied 61.3 per cent till May 20, clocking the best performance in the BSE Healthcare index, which had gained 6.5 per cent during the period.
Reasons, developments: “There is no clear direction for the company. No clear picture is available on the future plans, whether they will focus on the over-the-counter (OTC) business or real estate or private equity, etc," said Ranjit Kapadia, senior vice-president at Centrum Broking. "Whoever wanted to invest in pharmaceutical space will avoid Piramal Healthcare. Also, the investors have shown their desperation following the company's investment in the telecom sector."
In the Abbott deal, Piramal received $2.12 billion (Rs 10,000 crore) as an upfront payment and was to receive the rest of the money in four annual payments of $400 million each.
Rough calculation suggests the first tranche of Rs 10,000 crore has been almost used. Piramal Healthcare has paid about Rs 3,700-3,800 crore as long-term capital gains tax on the entire deal value. The company has also spent about Rs 100 crore for giving a Rs 6 a share special dividend to shareholders, Rs 2,510 crore to buy back 20 per cent of shares and $640 million (Rs 2,856 crore) to acquire 5.5 per cent stake in Vodafone Essar. It has also spent Rs 225 crore for acquiring the complete stake in a group-owned real estate private equity fund, Indiareit Fund Advisors and Indiareit Investment Management.
Deviating from its core business, Piramal Healthcare has also committed to invest Rs 1,000 crore to set up a non-banking financial services company. Iinvestors are not enthused by these moves.
"Minority shareholders, who had invested keeping in mind the healthcare business of the firm, did not participate in the gain received by the sale of the division. They have to wait for the wisdom of the promoters to deploy the funds," said Hinesh Doshi, a chartered accountant and vice president of Investors' Grievances Forum. "All minority shareholders should have been given an option to exit without a cap."
Reaffirming commitment to the pharma sector, a company spokesperson said, "With the advantage of cash balance, we are strengthening the Piramal Healthcare business. In the pharma solution business, we are investing Rs 2,700 crore by 2015-16. In the critical care and OTC business, another Rs 1,500 crore and Rs 2,500 has been committed, respectively, till FY16. In the drug discovery space, we will invest around Rs 600 crore by 2013-14."