Chairman's Message

Dear Shareholders,

My warm greetings to all of you.

The Piramal Group has re-invented itself multiple times in the last three decades. In 1988, we entered pharmaceuticals space and in over a period of two decades, we became one of the top pharma companies in India. Consequent to the sale of our Domestic Formulations business to Abbott in 2010, we have once again demonstrated our ability to successfully re-invent and transform our business model. Apart from scaling our existing healthcare businesses, both organically and through acquisitions, we entered into new businesses, grew them significantly, and attained leadership position in their respective areas. This exciting journey has enabled us to deliver an annualised shareholder return of 28.5% over last twenty-eight years, a track record achieved by few companies in India.

Another year of strong financial performance

Our Company has achieved another set of excellent results for FY2016, delivering strong revenue and profitability performance during the year. Revenue for the year was 29% higher at ₹6,610 Crores. We have generated net profit of ₹951 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 paid a dividend of ₹17.5 per share for the year. The total cash outflow on account of dividend payment (including dividend distribution tax thereon) was ₹363.5 Crores.

Financial Services – High growth and superior asset quality delivering strong returns

The Financial Services segment delivered robust growth during the year. Our loan book grew 174% to ₹13,048 Crores. A significant portion of this increase in loan book is attributable to our entry into Construction Finance in 2015. Total funds under management of the Company stood at ₹8,717 Crores as at the year end.

With the scale achieved during the year, we are now placed among the top providers of capital for residential real estate projects in India, with ability to provide capital across all stages of the life-cycle of a project under a single platform.

We continue to work towards expanding our product suite under this segment. During the year, we extended our real estate financing platform from residential real estate to commercial projects. Under Special Situations, we commenced financing to the sectors beyond infrastructure. We now have a strong team of 140 members within our Financial Services businesses across investment, asset monitoring, fund raising & investor relations, risk management, legal and other functions.

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. With these effective controls, our gross nonperforming assets stood at only 0.91%. 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 wholesale and retail segments of Financial Services. As you are aware, last year, I took additional responsibility as the Chairman of Shriram Capital, the holding company of Shriram Group’s Financial Services businesses. We are currently working with the Shriram team to assist them in developing a long-term strategy for the financial services businesses of the Shriram group.

PEL has achieved another set of excellent results for FY2016, delivering a robust revenue and profitability performance during the year. Revenues for the year were 29% higher at ₹6,610 Crores and the net profit was ₹951 Crores.

Healthcare – Significant growth with continued focus on quality and compliance

Our Healthcare businesses continue to deliver significant year-on-year growth. In the last five years, these businesses have grown at a CAGR of 17%. We continue to maintain a strong focus on quality and compliance. The quality team works independent from operations and reports directly to a Board member. In the last one year, there were 25 regulatory agency inspections, including 4 USFDA audits across plant locations. All of these audits were cleared successfully.

The Pharma Solutions business has been awarded at multiple world class forums for their strong performance. Apart from being awarded ‘CMO Leadership Award’ in terms of reliability, regulatory and quality in 2014 and 2015, the business head was recognised as ‘CEO of the Year’ at the CPhI in 2015.

At Pharma Solutions, we continue to build our capacities for future growth. We recently expanded the capacity at Grangemouth, API plants and Discovery Services facility. The US-based Coldstream facility, which we acquired last year, has seen significant traction during the year. The team is working towards expanding its capacity.

At Critical Care, our global market share has increased from 3% in FY2009 to 12% currently. The Critical Care business entered the UK market during the year and gained a market share of 42% for Sevoflurane. Sevoflurane’s market share in Japan also went up to 56%. We continue to work towards adding more products to better leverage our global distribution network. We plan to launch Desflurane, the latest generation inhalation anaesthesia product, in 2017.

The Consumer Product business expanded its geographical presence to 3.5 Lakh outlets across 1,500 towns of India as compared with 2.3 Lakh outlets in 481 towns last year. Leveraging this large distribution network, we have added more products both organically and through acquisitions. During the year, the business launched new brands such as Throatsil, Stop AllerG and Untox. It also consummated three brand acquisitions, i.e. Little’s (a babycare brand portfolio), five brands in Gastro- Intestinal segment from MSD & Organon and four brands from Pfizer.

Continuing our focus on efficient capital allocation, we divested a non-core Bio-orthopaedics division to Smith & Nephew.

Information Management – Delivering on strategy of enhancing growth and profitability

Globally, 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.

In the last one year, there were 25 regulatory agency inspections, including 4 USFDA audits across plant locations. All of these audits were cleared successfully.

We have now evolved as a diversified conglomerate with strong presence in Healthcare, Financial Services and Information Management. It is our intent to simplify the structure going forward and create focused businesses.

During the year, DRG entered into two new segments by expanding its services to Payer and Provider markets. DRG acquired HBI, a provider of services to over 1,400 hospitals across the US, enabling our entry into the Provider segment. DRG also acquired Adaptive Software to foray into the Payer segment of insurance companies. The entry into these two new segments is expected to increase DRG’s addressable market size significantly.

The Company opened offices in Bengaluru and Gurugram, hiring over 160 high quality employees comprising PHDs, data scientists and statisticians. This initiative will enable the Company to accelerate growth by accessing talent and realising cost efficiencies.

Simplification of structure to unlock value

We have now evolved as a diversified conglomerate with strong presence in Healthcare, Financial Services and Information Management. It is our intent to simplify the structure going forward and create focused businesses.

Strengthening support functions

We had launched a comprehensive HR Transformation Journey christened as SEEDS – Strategy for Employee Engagement and Development Support. We are progressing well on this initiative. We also launched two leadership development programs, the first batch of which comprises 150 top performers from middle to senior management levels across the Company. We believe that these initiatives will help identify future leaders for continued success of our businesses.

We brought in significant focus on improving our technology infrastructure. We laid down our technology roadmap for the next three years in supporting growth and digitisation of our businesses.

Risk and Legal teams strengthened their independent roles in evaluating various transactions. During the year, our Risk Management and Treasury teams also 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 – Making a positive difference, serving people and living our values.

Piramal Swasthya now caters to beneficiaries across 11 states besides operating the National AIDS Helpline. Piramal Swasthya has been awarded a 3-year project to operate 275 Mobile Medical Units across the state of Andhra Pradesh covering 13,900 villages every month for serving more than 60 lakh patients every year. During the year, the team also renewed its partnership with the World Diabetes Foundation (for Assam) and launched a new project with Plan International (India) in 17 districts of Rajasthan.

Piramal Foundation for Education Leadership (PFEL) and its associates continue to work with over 1,000 government schools and over 300,000 students, delivering significant improvement in Student Learning Outcomes. PFEL has attracted high quality talent through its Fellowship, having received over 4,000 applications for 250 positions in FY2016. During the year, PFEL supported other NGOs towards implementation of the Principal Leadership Development Program (PLDP) and entered into 4 MoUs with Rajasthan and New Delhi governments in implementing their CSR commitment.

Piramal Sarvajal is serving over 2.9 lakh beneficiaries every day through a network of over 406 purification units and water ATMs. Piramal Sarvajal has actively collaborated with the Government of Rajasthan in developing a Public Private Partnership model to serve remote villages through an active partnership with private and not-for-profit organisations.

The Foundation continued to be recognised for its initiatives in addressing key social issues.

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