Chairman's Message

Dear Shareholders,

My warm greetings to all of you.

At Piramal Enterprises, creating value for all stakeholders, including our shareholders has been a defining element of our identity. Over the past 29 years, since the acquisition of Nicholas Laboratories, we have delivered annualised shareholder returns of 30%, a milestone very few Indian companies have achieved. The consistency of our performance is the outcome of an integrated value creation model, wherein multiple parameters and metrics work in tandem with financial and operating performance to realise sustainable growth for the long-term. Our performance is underpinned by a values-driven culture, efficient capital allocation, strong corporate governance and an entrepreneurial spirit. We are in a state of continuous transformation through a strong drive for innovation, while remaining focused on talent development, quality, compliance and effective risk management. Our unblemished track record and our integrity in dealing with stakeholders are key factors that inspire multiple global collaborations with reputed partners, across our businesses.


ANOTHER YEAR OF STRONG FINANCIAL PERFORMANCE

Our Company continues to consistently deliver excellent set of results during the year. Revenue for the year was 34% higher at ` 8,547 Crores. Our net profits increased by 38.4% to ` 1,252 Crores for the year. Consistent improvement in our performance is a clear reflection of the strength in our businesses and the focus on execution of our long-term growth plans. We announced a dividend of ` 21 per share for the year.

Ajay G. Piramal
Chairman
We remain committed in acting as trustee to create long-term value for our stakeholders.

FINANCIAL SERVICES

The Financial Services segment delivered robust growth during the year. Our loan book grew 87% to ` 24,975 Crores. Significant growth in our loan book is attributable to the consistent expansion of the product portfolio. During the year, we started providing construction finance and lease rental discounting in commercial space. Construction finance is now 60% of our real estate lending portfolio. Under Corporate financing, we started providing sector agnostic lending beyond the infrastructure space and moved down the risk curve by introducing products such as senior lending, etc. We also announced our plan to enter Retail Housing Finance. The Company entered a strategic partnership with Ivanhoé Cambridge, a real estate subsidiary of CDPQ, to provide long term equity capital to blue chip residential developers. Also, during the year we launched a distressed asset fund in a joint venture with Bain Capital Credit, the credit arm of Bain Capital.

We have built stringent controls to maintain our asset quality. These controls, amongst others, include bringing industry experts on Investment Committees, following strict criteria on developer and project selection, ensuring independence of legal and risk functions, building project developmental capabilities within the platform, and having independent local asset monitoring teams to monitor projects and detect early warning signals. Also, Brickex, our in-house real estate distribution arm, provides contextual market intelligence and independent perspective on all real estate financing deals. With these effective controls, our gross non-performing assets stood at only 0.4%. Robust growth and superior asset quality performance have enabled this business segment to deliver an ROE of over 25% during the year.

Our partnership with the Shriram Group has enabled us to diversify across retail segments of Financial Services. We continue to work with the Shriram team in developing a long-term strategy for the financial services businesses.

PHARMA

Our Pharma businesses continue to deliver significant year-on-year growth. Since the Abbott deal, this business has grown at a CAGR of 17%. We continue to maintain a strong focus on customer centricity, quality and compliance. The quality team works independent from operations and reports directly to a Board member. In the last one year, there were 28 regulatory agency inspections, including 5 USFDA audits across plant locations. All of these audits were cleared successfully without a single day of production stoppage.

During the year, we added two niche differentiated product portfolios in our Global Pharma products business. We acquired a portfolio of five branded products in the injectable anaesthesia and pain management area from Janssen and a portfolio of intrathecal spasticity and two pain management products under development from Mallinckrodt LLC. We continue to work towards adding more products to better leverage our global distribution network. We also plan to launch first generic version of Desflurane, the latest generation inhalation anaesthesia product, in FY2018.

We continue to build our capacities for future growth. During the year, we acquired the Ash Stevens facility at Michigan, US, which specialises in manufacturing of High Potency APIs (HPAPIs). Our recent capacity expansion at Grangemouth and discovery services facility is witnessing commercial success. We also expanded capacity at our API plants to handle higher volumes and the Phase I expansion of our injectables capacity at Lexington is nearing completion. The team is working towards further expanding its capacity in Lexington.

The India Consumer Product business expanded its geographical presence to 4.2 Lakh outlets across 2,000 towns of India. To leverage this large distribution network, we have added more products both organically and through acquisitions. During the year, we acquired four consumer product brands from Pfizer. We also launched new brands such as Stop AllerG All day, Quikkool-D, Polycrol Paan, Tetmosol Total and i-Pill Daily. All three acquisitions done in past two years (i.e. product portfolios from MSD, Pfizer and Little’s) have been successfully integrated and have surpassed their erstwhile annual sales within 8 months of their launch.

HEALTHCARE INSIGHT AND ANALYTICS

Globally, healthcare spending as a percentage of GDP has been rising. The increasing cost of bringing drugs and devices to the market and greater regulatory scrutiny are resulting in an increased demand for high-quality information and analytical decision support tools. DRG is progressing well on its strategy to position itself as a leading provider of data & analytics, research and knowledge-based services.

During the year, we started increasingly delivering our products and services through user-centric technology platforms. Our delivery modality has shifted from large, static research reports to digitally delivered, modular content that enables clients to obtain ‘just in time’ answers. Our new, dynamic, web-based ‘Ask DRG’ Insights and Content Platform provides 9,000+ users both the ease of web browser-like searching and the ability to drill deep into the Company’s proprietary data sets.

Over the past few years we have increasingly invested in technology, data assets and analytics capabilities. These investments are expected to enable us to increase our penetration and growth within the addressable market of USD 16 billion. During the year, we continued with our initiative to transform a global talent pool by expanding further in India. With two offices in Bengaluru and one office in Gurugram, the business now employs over 250 people in India. This deep and diverse talent pool enables the Company to accelerate growth and increase our capabilities beyond existing products and services, improve customer delivery and response time and realise cost efficiencies.

STRENGTHENING SUPPORT FUNCTIONS

At PEL, employees are given the opportunity to accelerate their growth and development to the next level through the ASCEND and SUMMIT Platforms. Today, we have 170 high performers who have undergone the ASCEND development journey. 51 of them have been identified as ‘high potentials’ across PEL and are being groomed for roles at the next level. The SUMMIT leadership program focuses on preparing senior leaders to become successors to the CEOs of PEL Businesses. 31 senior leaders have undergone the SUMMIT program in the past one and a half years.

PEL has initiated project ASPIRE to help achieve the objective of IT-enabled business transformation. As PEL leverages its technical knowhow, IT is transforming the organisation by focusing on strengthening the core systems, innovation and digital transformation. Significant investments are being made to upgrade infrastructure across the sites and strengthen core business applications. Digital Transformation journey will enable us to leverage emerging technologies such as Internet of Things (IoT), Mobile, Analytics and Cloud. This will enable PEL to transform its operations, enhance the customer experience, improve partner & vendor relationships and generate new revenue models.

Risk and Legal teams strengthened their independent roles in evaluating various transactions. During the year, our Risk Management and Treasury teams further strengthened the Asset-Liability Management process for Financial Services.

DOING WELL AND DOING GOOD

Our purpose at the Piramal Group is Doing Well and Doing Good.

During the year, the Piramal Foundation has further expanded the scope and depth of its projects to create sustainable impact for the communities that it seeks to serve. Our teams currently serve around 1 million beneficiaries every day, across 21 states through a combination of direct field support, remote health advisory and community outreach programmes.

Piramal Swasthya now caters to beneficiaries across 11 states besides operating the National AIDS Helpline and implementing projects with the World Diabetes Foundation (in Assam) and Plan International (in Rajasthan). A Public Private Partnership (PPP) in Andhra Pradesh – Chandranna Sanchara Chikitsa – serves beneficiaries in over 13,000 villages every month. Two pilot projects that Piramal Swasthya has undertaken in Araku, Andhra Pradesh (on tribal maternal health) and in Digwal, Telangana (on non-communicable diseases) are helping build replicable models that can address these complex problems.

Piramal Foundation for Education Leadership (PFEL) and its associates continue to work with over 3,400 government schools and over 558,000 students, delivering significant improvement in Student Learning Outcomes. PFEL continues to attract high quality talent through its Fellowship and its alumni are making meaningful contributions through their organisations in other sectors. During the year, PFEL has deepened its relationship with the government and is closely working with various agencies in strengthening the focus on education leadership across multiple states.

Piramal Sarvajal is serving over 3.8 lakh beneficiaries every day through a network of over 610 purification units and 200 water ATMs. During the year, Piramal Sarvajal implemented an urban PPP project in Bhubaneshwar providing safe drinking water to the common citizen through a network of 40 ATMs in the city.

The Foundation is investing serious efforts in creating a technology backbone for all its initiatives, which we believe, can positively contribute to the sector in the mediumterm. We have, also, continued to expand our partnership portfolio, domestically and internationally, in our mission to create innovative and meaningful solutions.

We remain committed in acting as trustee to create long-term value for our stakeholders. I thank our shareholders and other stakeholders – employees, customers, partners and Government – for their continued trust and support.

Sincerely,

Ajay G. Piramal
Chairman