Piramal Enterprise and Piramal Pharma: The most awaited demerger.

The multi-sector conglomerate gets the final approval for the demerger of the company into two segments Pharma and Financial services. The demerger will birth two new entities namely, Piramal Enterprises Limited (PEL) and Piramal Pharma Limited (PPL). The two companies will operate as separate entities with its own dedicated Board members and management that will strengthen the governance architecture, create optimal revenue, empower and grow (organically and inorganically) independently and create greater value for their shareholders.
In the Pharma business, PPL will be amalgamated with the existing two subsidiaries, Hemmo Pharma Private Limited and Convergence Chemical Private Limited. While on the financial Service business side, PHL Finvest Private Limited will be amalgamated with PEL and be turned into a listed NBFC. However, DHFL will remain as the wholly-owned subsidiary of PEL.

Both PEL and PPL will be separately listed on NSE and BSE. On the shareholding pattern front, PEL shareholders will get 4 shares of PPL for every 1 share of PEL in addition to their existing PEL holding. There would not be any cross-holdings and minority stakes.

Post the demerger, PPL will have Equity of Rs. 68bn allocated to it while Rs. 110bn will remain with PCHFL. PEL would have a Balance equity of Rs. 170bn against which is would be holding assets worth Rs. 90bn - 100bn. Even post the merger, PEL will continue holding cash and cash equivalent worth Rs. 70bn which it did even before. PCHFL’s net debt to equity ratio will be 3.5x in near term post the integration with DHFL.

On the tax front, there will be no incremental tax liability with the merger and demerger of companies.

Cash worth Rs. 125bn from DHFL balance sheet will be used to pay off its creditors. DHFL’s network will be leveraged for cross-selling of existing retail products in the future

PCHFL will also inherit the life insurance from DHFL which is under scrutiny and the firm is analysing various options available.

However, this demerger plan is yet to get approvals from the shareholders, creditors and regulatory bodies. This process is expected to take 9-10 months to come to completion. The target price has been revised to Rs. 2933/share from Rs. 2797/share as the demerger will boost the valuations of the enterprise.