Ajay Piramal's Value Investment

Ajay Piramal - the Chairman of Piramal Healthcare, is all over the news today for selling off the formulations business of his company to Abbott Labs for a mind-boggling valuation of USD 3.7 bn.

As I read about the deal, and the evolution of the company, I was struck by the similarities between value investing, and the approach taken by Ajay Piramal in building and then selling off the formulations business of his company.

Key takeaways:
Buy business only if they are available at a Margin of Safety: In 1988, when Piramal entered the formulations business, the company had a market cap of Rs 6 cr. Piramal came from a family with interests in textile manufacturing, which was under severe strain due to the strike by mill-workers led by Datta Samant. Piramal bought over the formulations business from Nicholas India Ltd. (an Australian firm which was exiting India). As such, he got the business at very cheap valuations, apart from getting an established business which he could grow.

Adopt a Contrarian Approach:At the time Piramal entered the business, the market for branded generics in India was very small. Major Indian pharma companies preferred to tap into the export opportunity, i.e. exporting generic drugs to developed markets.

When Valuations get very high - Sell: Abbott Labs offered 9x the Annual Sales of the formulations business of Piramal Healthcare, which was much higher than the 4x offered to Ranbaxy by Daiichi-Sankyo. The EBITDA multiple for the deal is 30x, as against Ranbaxy's 22x.


Ajay Piramal's patient investment in his company has provided a compounded annual appreciation of 44%, a record which even Warren Buffett would be hard-pressed to match over such a long period.