Executive Director, PEL
"PEL continues to deliver strong revenue performance during the year. The consistency in our performance reflects the strength of our business model and the successful execution of our proven growth strategy. The Company continues to progress well on its strategic initiatives across various businesses that will help it to deliver a better growth in the years ahead."
Business-wise revenue performance
PEL’s consolidated revenues grew by 33.9% to ` 8,546.8 Crores in FY2017 as compared with ` 6,381.5 Crores in FY2016. The rise in revenues was driven by growth across business segments, where 51% of PEL's FY2017 revenues were generated in foreign currencies.
The Pharma business revenue increased by 14% in FY2017 to ` 3,972.9 Crores1 vis-à-vis ` 3,485.9 Crores1 for FY2016, on account of both organic and inorganic initiatives during the year. PEL acquired injectable anaesthesia and pain management products from Janssen Pharmaceutica NV; intrathecal spasticity and pain management products from Mallinckrodt LLC; HPAPI facility of Ash Stevens Inc.; and four over-the-counter (OTC) brands from Pfizer India.
Income from the Financial Services business expanded by 92.6% to ` 3,351.5 Crores in FY2017 as compared with ` 1,739.7 Crores in the previous year. This growth was primarily on account of growth in loan book from ` 13,339 Crores in FY2016 to ` 24,975 Crores in FY2017. Moreover, new product offerings under Corporate Finance loans and launch of lease rental discounting helped strengthen PEL’s loan book.
Revenue from the Healthcare Insight and Analytics business grew 5.7% to ` 1,222.4 Crores in FY2017 vis-à-vis ` 1,155.9 Crores in FY2016.
Financial highlights (Consolidated)
Operating profit and margin
In FY2017, operating profit grew by 93.5% to ` 3,732.9 Crores vis-à-vis
` 1,928.9 Crores in FY2016. Higher revenue growth across business segments primarily led to this growth. OPBITDA margin was higher at 42.5% in FY2017 compared to 29.1% in FY2016.
Finance costs for the year were higher by 111.8% at ` 2,031.0 Crores as compared with ` 959.1 Crores in FY2016. This was mainly due to increase in borrowings for growing the lending business and for funding acquisitions.
Depreciation for FY2017 was higher at ` 381.7 Crores vis-à-vis ` 255.5 Crores in FY2016. This was largely due to increased capitalisation of the amounts invested for acquisitions of pharma and healthcare insight and analytics businesses.
Tax expenses increased to ` 228.1 Crores in FY2017 as compared with ` 49.5 Crores in FY2016, primarily on account of an increase in profits largely from our financial services business.
Net profit after tax
Net profit after tax for FY2017 grew 38.4% to ` 1,252.3 Crores vis-à-vis ` 904.7 Crores in the previous year. Strong profitability was mainly on account of improved performance across business segments.
The Company paid a final equity dividend of ` 21 per share.
Total borrowings as on March 31, 2017 were ` 30,451.0 Crores as compared with ` 16,278.8 Crores as on March 31, 2016. During the year, increase in borrowings was largely on account of higher investments in the Financial Services segment and for funding acquisitions.
During FY2017, total fixed assets increased by ` 3,030.2 Crores, primarily on account of acquisitions and organic expansions in pharmaceuticals space.
Book Value of Investments as on March 31, 2017 was higher at ` 25,180.6 Crores vis-à-vis ` 16,316.7 Crores as on March 31, 2016. This increase was largely on account of higher investments under the Financial Services business.
CFO, Piramal Group
"PEL has seen a consistent improvement in its profitability over last many quarters. The consistent growth in net profits is backed by strong performance across business segments. Also, we have made significant capital allocations over last few years across businesses that will be yielding strong results in years to come."
Managing Director, Piramal Finance & Piramal Housing Finance
"I am extremely pleased with the progress made by the platform in achieving the twin objectives of overall growth and diversification over the past year. With the addition of Lease Rental Discounting earlier in the year followed by the introduction of our equity funding platform alongside Ivanhoe Cambridge, we are finally able to offer a complete suite of funding alternatives within the real estate space. We have also greatly enhanced our capability to grow within the Corporate Finance Group, adding newer products and sectors to the mix. We also announced our entry into retail by applying for a housing finance licence and strongly feel that our existing wholesale business, coupled with a unique service delivery proposition, will help us achieve scale in the near term. With these changes, and further aided by an opportune market environment and ever deepening relationships with our funding counterparts, the platform is poised for robust growth in the months and years to follow."
PEL's Financial Services segment offers a complete suite of financial products to meet diverse needs of its customers. The Company has created its unique positioning in financial services space through its strong presence in the following sub-segments:
Post demonetisation and introduction of the Real Estate Regulation (and Development) Act (RERA) in FY2017, the Indian real estate industry has matured considerably with enhanced transparency – a key aspect valued by both domestic and foreign investors.
PEL’s portfolio withstood the impact of demonetisation without any incidence of non-performing asset (NPA). This was largely due to an already established set of extremely conservative underwriting and monitoring parameters that the Company follows.
RERA brings certain customer-friendly covenants which could to some extent, curtail a developer’s flexibility to ‘phase’ a project and cater to ever-changing market demands. However, PEL believes that RERA is a step in the right direction towards a more mature, transparent and customer-friendly marketplace. It presents a unique opportunity for PEL that plays to the strengths of its end-to-end platform and that can offer a unique solution designed to facilitate the transition of developers towards RERA registration. This solution in a way can minimise the impact of any associated conditions under RERA that may restrict the developers’ ability during the initial stages of a project.
Retail housing as an asset class has always been representative of the significant economic potential demonstrated by India’s growing middle class with the individual home loan segment tracking healthy growth. The mass appeal of affordable housing lies with its lower development costs, improved sales velocity amid an environment of muted real estate demand and infrastructure status accorded in the 2017 Union Budget. These factors have heightened interest from both private equity and NBFCs alike. The demand for the affordable housing loans are driven by multiple factors like the ‘Housing for All by 2022’ and Pradhan Mantri Awas Yojna initiative of the government. The Central Government’s initiative of providing credit subsidy schemes to middle and lower income groups witnessed great response with a deluge of applications for various credit linked subsidised housing loans. The huge opportunity under affordable housing along with the initiatives (substantial tax benefits) taken by Central Government has already started showing signs of being the next big opportunity for both developers and investors. In addition to various initiatives taken by the Central Government for ‘Housing for All’, a large underserved non-salaried market creates a huge potential for the Company in the housing finance space.
In India, corporate lending covers a wide variety of funding requirements. Historically, such funding has been catered to by the banking system. However, over the last few years, the banking system has been struggling with non-performing assets and NBFCs have stepped in to fill up the gap. PEL, through CFG, will include opportunities that play this transition. This includes project finance (due to budgetary impetus to renewable energy and roads/highways), brownfield expansion (historically funded by banks), growth funding for companies of certain size (minority private equity funding is usually not available), holding company financing (to fund as equity into subsidiaries). Additionally – banks cannot finance certain situations such as acquisition finance, promoter financing, etc. which are exclusively financed by NBFCs, thus providing an opportunity for CFG.
Also, in recent years, the rising bank non-performing loans have put a strain on capital adequacy and credit growth and there exists stressed assets across sectors including power, steel, construction and textiles, among others. Reserve Bank of India (RBI) has also introduced various guidelines to banks on ways to handle stressed assets and methods to improve financial conditions of banks. The Company believes that there could be strategic investment opportunities in such an economic climate and intend to seek out and participate in such opportunities through its Distressed Asset Platform.
Seamless product innovation amid changing paradigm is what defines the Financial Services business of the Company. From 2006, when the platform started offering private equity to real estate projects through Indiareit, new product introductions and the agility to meet changing market expectations have been the group’s strategy. The idea was to provide its developer partners with solutions that could help them ride through India’s dynamic real estate environment.
Real Estate Developer Financing
Corporate Finance Group (CFG)
The Company is building a sector agnostic corporate lending book through the Corporate Finance Group (CFG). While CFG started by providing structured credit solutions to the infrastructure vertical, PEL has now started to provide credit solutions to non-RE corporates with a yield expectation of 12-18%. The Company targets situations of general corporate lending, structured credit solutions, promoter funding (for private equity take out, equity infusion, loan against shares and so on), project financing, capex funding, and special situations, among others.
CFG philosophy is to identify particular sectors and work closely with clients to develop credit solutions that tie-in to the underlying cashflows of the business. Accordingly, the team started with infrastructure and renewable energy in FY2014 and over a period of time, has added cement, auto components, logistics, entertainment, etc. to its focus area. Within these sectors, the Company provides an entire gamut of credit solutions.
The Corporate Finance Loan book grew by 73%, to ` 3,767 Crores in FY2017 from ` 2,172 Crores in FY2016.
During FY2017, the Corporate Finance Group took several initiatives to transform and significantly expand the potential of this platform:
In the recent years, rising bank non-performing loans (NPLs) has put a severe strain on capital adequacy and credit growth, besides inhibiting fresh private sector capital formation. Over the last few years, the Government and RBI have introduced various measures to drive adequate and timely recognition of stress, and also create an enabling regulatory environment to drive eventual resolution.
There could be strategic investment opportunities in such an economic climate in distressed assets and to seek out and participate in such opportunities, Piramal Enterprises Limited and Bain Capital Credit (the credit arm of Bain Capital, one of world’s leading multi-asset alternative investment firms with approximately USD 75 Billion in AUM globally) have entered into a Joint Venture. The sponsors believe that there is over an USD 1 Billion investing opportunity in this space over the next few years. The sponsors plan to fund this partly through their own funds on joint contribution basis and raise the balance of the funds from various institutional investors from global and domestic markets.
The Distressed Asset Investment platform will invest capital directly into businesses and/or acquire debt of distressed businesses to drive restructuring with active participation in turnaround. The platform’s mandate is to look at all sectors other than real estate as an asset class. Within these, the platform’s preference is to invest in businesses that have fundamentally strong growth prospects linked to India’s infrastructure and consumption needs and require restructuring. The platform will drive a resolution plan focused on specific financial and non-financing solutions with dedicated management oversight, while looking to protect the sustainable debt value and maximise stakeholder value. From an acquisition perspective, the focus will be on acquiring large borrower assets from banks and financial institutions and work towards their revival and turnaround.
The platform has completed key management hires covering investing, credit, legal and compliance. The platform has also received the Alternative Investment Fund (AIF) licence from SEBI. The investment team has established a robust pipeline of deals; and is at various stages of diligence and negotiations with banks, financial institutions and ARCs.
DISTRESSED ASSET PLATFORM’S DIFFERENTIATED POSITIONING & STRATEGY
Income from Financial Services was 93% higher at ` 3,352 Crores for
FY2017. The growth in income was primarily driven by increase in size of
Loan Book. Loan Book grew by 87% to ` 24,975 Crores as on March 31,
` 13,339 Crores as on March 31, 2016. The growth was aided by robust growth in both the Real Estate and Corporate Finance portfolio and introduction of new products like Flexi LRD and Construction Finance for commercial assets. Construction Finance constitutes 60% of the Real Estate loan book. The Company has significantly diversified its existing wholesale lending portfolio with the addition of these new products, entry in retail housing finance, widening the CFG platform and launch of Distressed Asset Fund, thereby reducing the overall risk profile of the loan book. The portfolio withstood the near term impact of demonetisation without any incidence of NPA. GNPA ratio improved further to 0.4% as compared with 0.9% in FY2016, driven by the stringent underwriting parameters and strong asset monitoring systems built by the Company. Gross Assets under Management was at ` 7,157 Crores as on March 31, 2017. The Financial Services business continued to deliver a RoE of 25%+ during the year.
Real Estate lending in Tier I cities of Mumbai, Pune, Bengaluru, Hyderabad, Chennai and NCR
Portfolio comprising of Grade A Developers
Deals with a ‘Minimum Selling Price’ clause ensuring collection of sales value into our Escrow A/C
Deals with underwriting assumptions based also on delay in velocity by 6 to 12 months
Deals with Escrow A/C
Deals with fixed IRR & obligation to pay without any linkage to market performance or sales realisation
Developer sales MIS monitored per month
Project escrow A/Cs monitored per month
Transactions covered every month in Project Monitoring Meetings
Projects approved, above the ground, significant portion sold out and financial closure achieved
Asset Quality and Risk Management
PEL has a strong risk management framework to ensure robust asset quality in its financial services business. The risk management framework is established to span across the pre-qualification stage and pre-approval stage of a financing project. Besides, it encompasses constant asset monitoring throughout the life cycle of the project.
At the pre-qualification stage of its financing projects, the Company is very selective of the developers to which it provides funding. It takes into consideration factors, such as the developer’s track record, market reputation, balance sheet and the status of such developer’s projects. It mostly selects projects, which are located in select micro markets in Tier-1 cities of India.
The Company maintains independence among the risk, legal and investment teams such that investment decisions can be over-ruled by its risk or legal teams if required. In addition, its investment committees include independent directors and third party external experts who keep an independent check on the quality of the transactions.
At the pre-approval stage, the Company analyses the potential investment by leveraging on Brickex to verify price, ticket size and sales velocity assumptions. Moreover, every potential investment is subject to a standard risk scoring system by the Risk team to measure risks associated with the investment. PEL believes that its strategic alliances with large funds like CPPIB and APG, who independently assess each investment, also serve as an external validation of its investment thesis and decisions. It structures its financing services and offerings in a manner that links the disbursements of loans to the milestones linked to sales/collection of rental income etc.
Constant Asset Monitoring
As part of its constant asset monitoring efforts, the business has set up dedicated local teams in cities where it has investments. The local teams constantly assess the performance of each project from the time of its initial investment up to the Company’s exit or completion of such investment. Most importantly this helps the business continuously ‘cure’ its investments by proactively measuring actual progress versus underwriting assumptions and immediately react to any deviation, no matter how small, by taking a range of remedial measures such as increasing security, modifying business plan, adopting a new marketing strategy, changing the sweep ratio of the designated escrow accounts or proactively seeking a refinance in some cases. This is the single most important ingredient in maintaining a low incidence of Gross NPA ratio.
Some measures it adopts in respect of the asset monitoring include:
The risk team also periodically assesses the risk levels of its investment portfolio by measuring a project’s performance against certain factors including: sales velocity, pricing of the project, approval timelines, ability to meet principal and interest obligations and site visit findings. Depending on the results of such assessment, the portfolio may fall under one of four categories of performance: namely (i) no issue with no action required over next six months, (ii) no issue but to closely monitor for next six months, (iii) stress envisaged over next six months or (iv) default. This allows the teams to map and monitor the portfolio risk levels and accordingly adjust overall exposure in each city or region.
Healthy security and balanced portfolio
FOCUS AREAS OF KEY FUNCTION
ASSET MANAGEMENT TEAM
RISK MANAGEMENT TEAM
FINANCE & COMPLIANCE TEAM
Over the years, the Company has successfully established itself as one of the most recognised and respected names in the global pharmaceutical industry. Its 13 development & manufacturing units are located across North America, the UK and India. PEL’s culturally diverse team of over 5,000 people from over 20 countries is its key strength. The Company has reported a strong trend of revenue growth across its Pharma businesses. In the last six years, the overall Pharma revenues have grown at a CAGR of 17%, touching ` 3,893 Crores during FY2017.
The pharma vertical of Piramal Enterprises is uniquely positioned with a strong presence both within and outside India. The pharma vertical is divided into two large businesses: the global pharma business that sells pharma products and services globally; and the India consumer products business that sells OTC products in India.
FOCUSED CAPITAL ALLOCATION STRATEGY
The Company remains focused on its strategy of efficiently allocating capital, while undertaking controlled risks, to consistently achieve higher profitability and deliver superior shareholder returns. In the last two years, the Pharma segment efficiently deployed around half a billion dollar of capital for future growth through various organic as well as inorganic initiatives.
In the Global Pharma business, the Company has:
The pharmaceuticals industry is among the largest industries in the world and comprises companies that are involved in the development, production and marketing of pharmaceutical products. Globally governments are increasingly focused on improving healthcare infrastructure that provides people with greater access to treatment and medication. This has contributed to the growth of the pharmaceuticals industry across the world. Global spending on medicines is expected to reach USD 1.4 trillion by 2020. Spending on specialty therapies will continue to be more significant in developed markets than in emerging markets.
Contract Manufacturing Organisation (CMO) services can range from pre-clinical services, to clinical services, to post-approval services. These CMO services may include providing small amounts for pre-clinical research and development (R&D), supply of clinical trials with drugs or the supply of drugs for commercial purposes. Initially, the pharmaceutical CMO industry was such that CMOs were short-term suppliers to pharmaceutical companies in the event that in-house resources were insufficient. However, in the last two decades, this sector has evolved and CMOs are a mainstay of the industry. Now, they provide a wide range of essential services to the pharmaceutical sector. Pharmaceutical companies are now outsourcing regularly a wide range of manufacturing services to CMOs, such as manufacturing of small molecules, biologics for generics and branded drugs. The benefits of outsourcing in the pharmaceutical market are lower costs, access to specialised equipment and flexibility. In addition, pharmaceutical companies can enter new market sectors with fewer risks and costs, as CMOs provide them with expertise on new sectors and regional market areas. The global pharmaceutical contract manufacturing market (in terms of revenue) amounted to USD 65.3 billion in 2016 and is forecasted to increase to USD 83.9 billion by 2020.
The global sterile injectable market was approximately USD 367 billion in 2016. The two largest segments in it are the biologics and small molecule. The United States was the largest market for sterile injectables in 2016, contributing 40.6% of the global demand, while Europe’s share contributed to 23.8% for the same period. The Company has now entered into a USD 20 Billion hospital generics market from merely a USD 1.1 Billion inhalation anaesthesia market that it continues to cater.
(Source: Global Medicines Use in 2020 dated November 2015, published
by IMS Institute for Healthcare Informatics)
(Source: Pharmaceutical Contract Manufacturing Market 2016-2026 dated March 2016, published by VisionGain)
The Company is progressing well on its initiatives to reduce costs and add high value niche products and services to its portfolio to improve its EBITDA margins.
The Company has executed well on its strategy of moving up the value chain. It acquired two high margin niche branded generic product portfolios from Janssen and Mallinckrodt. The combined strong product portfolio that has been created post the two product acquisitions will effectively leverage Piramal’s large global sales force and distribution network. The acquired products have a high entry barrier as they are complex in terms of manufacturing, selling, or distribution resulting in limited competition. Through addition of these niche products Piramal’s addressable market size expanded from USD 1.1 Billion in the Inhalation Anaesthesia market to a USD 20 Billion generic hospital product market. These acquisitions are margin accretive and will improve the overall profitability.
The Company also acquired niche high value HPAPIs facility (Ash Stevens) in North America. Ash Stevens acquisition is expected to fill gap by providing manufacturing capabilities for high potent molecules. It also integrates well with the injectable capability as it will help in cross selling opportunities to sell API’s to clients working with Coldstream facility.
Debottlenecking of API plants and capacity expansions at various sites like the one at Coldstream, Phase I expansion is nearing completion and Phase II to operationalise by end of CY2018.
PEL continued high focus on quality and successfully cleared 28 regulatory
audits including 5 USFDA Audits. Mahad plant cleared its first ever USFDA
audit without any observation.
Revenue grew by 10% Y-o-Y for FY2017 to ` 3,517 Crores on account of organic and inorganic initiatives. Inorganic initiatives include addition of differentiated hospital branded generic products portfolio. In FY2017, the Company achieved EBITDA margins of around 20% for Global Pharma business vis-à-vis 17% in FY2016.
Revenue and EBITDA Margins of
CEO, Pharma Solutions
"Over the last few years, we have taken several initiatives to expand our capabilities to support the growth requirements of our customers while continuing to move up the value chain. These initiatives include acquisition of niche facilities in the US that enable us to handle Cytotoxic Injectable and High Potent APIs. We have continued to invest in capacities in the growing segments of Antibody Drug Conjugates, Discovery services and APIs. Our strong focus on customer centricity together with great track record on quality and our end-to-end offering have enabled us to attract several customers looking to source integrated projects from a single CDMO. This puts us in a good position to deliver strong performance in the years ahead."
CEO, Critical Care
"The Company is well positioned to reach to a large number of hospitals around the world. Leveraging this strength, during the year, we made a significant progress in executing our strategy to add differentiated products that are difficult to produce, make, or distribute. These product niches have less competition than many other generics. Looking ahead, we will continue to work towards adding more hospital generic products to better leverage our global distribution network. We also plan to launch the first generic version of Desflurane, the latest generation inhalation anaesthesia product, in FY2018. These initiatives are expected to improve pharma topline and bottomline performances in the years to come"
Over the years, Piramal has built a robust quality framework that is implemented in 13 facilities over three continents. The quality architecture ensures that, the Company is both, ahead of its competition, and has a differentiator that is attractive to customers looking for preferred partners with strong regulatory credentials. The Company is consistently strengthening its quality systems by introducing improvement initiatives and hiring world-class talent.
Addressing regulatory requirements
The dynamic regulatory landscape coupled with greater scrutiny by regulatory authorities has been a key challenge for a number of pharmaceutical manufacturers. Piramal addresses the evolving regulatory requirements by establishing even higher internal standards that ensure perpetual inspection readiness. Over the past six years, the Company has cleared 28 USFDA audits, 78 other regulatory inspections and 568 customer inspections. With 100% success rate for inspections at all its facilities, Piramal has set an excellent track record. Finally, Piramal firmly believes that quality should not be limited to inspection clearance and product approvals; and considers patient safety a key driver for quality.
Quality assurance across manufacturing sites
At Piramal, ‘quality’ is viewed as an essential part of the Company’s identity. Quality is the most important aspect of its brand and dictates the Company’s culture, hires and policies. Piramal employs the concept of ‘Global Vision, Local Execution’, which enables each site to serve customers at their location with Piramal’s global standard of quality.
Risk Mitigation Strategies
Piramal’s quality team has developed multiple proprietary tools for quality health evaluation and risk mitigation. These tools are used within the organisation for quality control and risk aversion at the site level. Some of the Company’s proprietary tools include:
A strong governance and escalation mechanism is the foundation of Piramal's quality management infrastructure. The Company’s quality management system is independent of its businesses, and reports directly to a Board member. This autonomy in the quality organisation ensures that business pressures do not dictate quality standards. IDEATE, a self-policing initiative serves to guide building a robust governance model at Piramal:
In addition, the Company has multiple layers of vigilance, which include surprise corporate inspections of manufacturing sites by the QA team. These inspections lead to proactive identification of risks and their mitigation in a timely manner.
At Piramal, quality is a collective responsibility, and it is woven into the fabric of the organisation. Thus, the Company is moving on quality advancement journey from 'Quality for Compliance' to 'Quality as a Culture' with a focus on systems, processes, and people.
GLOBAL PHARMA: BEST IN CLASS QUALITY GOVERNANCE
6 BRANDS AMONG TOP 100 OTC BRANDS OF INDIA
Piramal’s India consumer products portfolio currently comprises 18 brands with products spanning across categories such as skin care, pain management, oral care, respiratory and lifestyle problems. It aims to be among the top three over-the-counter (OTC) product companies in India by 2020.
India's self-care market has grown at a compounded rate of 12% over 2010-2015 period, to ` 15,633 Crores. The market is experiencing strong growth trends owing to rising income levels, increasing consumer confidence in self-care along with easy access to information, rural penetration and channel development. Market is competitive, with limited differentiation among the offerings on a product level. This, however, means there are enough opportunities for players who go the extra mile to address consumer needs. Piramal, through its range of products, targets specific consumer needs. This has made our Consumer Product business one of the fastest growing players in the domestic consumer healthcare market.
During the year, the Company faced some headwinds in the form of the fixed dose combination (FDC) ban and demonetisation. In FY2017, 344 FDC drugs were banned with immediate effect by the Government, including Saridon. Due to our proactive measures, we could reduce the impact of the ban and convince outlets to continue to stock and sell Saridon.
Despite demonetisation, the Company’s growth continued. Piramal proactively extended temporary credit to channel partners to help them tide over the cash crunch. The Company’s portfolio of niche consumer products largely caters to routine needs and being non-discretionary in nature, their sales were not much affected by demonetisation. It was Piramal's large field force, which focused to cover each outlet seven times during the Nov-Dec’16 period, thereby increasing sales, despite scarcity of capital with the customers.
Executive Director, PEL
"FY2017 was truly a remarkable year for our consumer product business. We saw an exceptionally strong performance by the business despite events such as demonetisation and FDC ban. Also, all three brand portfolios that we had acquired have been able to deliver much better than our expectations. Hence, our ability to perform well under difficult circumstances and to execute on our strategy of effectively leveraging our distribution through adding brands both organically and inorganically, gives us a greater confidence that the business will become one of the top three players in the Indian OTC market in coming years."
During the year, the Company successfully completed integration of all three acquisitions – Little’s, five MSD brands and four Pfizer brands. All three acquisitions have crossed their erstwhile annual sales within a short span of time, post their launch. Besides, Piramal expanded its distribution network from 350,000 outlets to 420,000 outlets.
PEL also launched quite a few products/brand extensions – I-pill daily range, Polycrol paan flavour variant, Stop AllerG, Stop AllerG All Day, Quikkool-D, Tetmosol Total etc. The Company made strategic investments in conventional & digital media platforms targeting new consumers.
NEW PRODUCT LAUNCHES
Despite FDC ban and demonetisation, the Company delivered strong growth in Consumer Products division. Revenue grew by 44% to ` 375 Crores for FY2017. Existing portfolio witnessed a 26% Y-o-Y organic growth for FY2017.
IN LAST TWO YEARS
For the India consumer business, Piramal will continue to develop new brands and products, along with evaluating inorganic opportunities. The Company’s focus is to further grow the India consumer business through improved margins by (a) reinvesting profits into scaling the business, (b) lower manufacturing costs by using third-party vendors, (c) leveraging our India-wide sales distribution network and (d) continuing to develop and acquire new brands and products.
Over the last 15 months, the business has invested significantly in various growth levers. The Company’s strategy of expanding product portfolio and distribution network has worked well and the Consumer Products business is evolving into a strong player in India’s over-the-counter (OTC) market.
COO, Consumer Products
"Our exceptional performance despite events like demonetisation and FDC ban clearly shows the strength that we have built in our business model over last few years. The well designed business model with significant India-wide presence across 2,000 towns, a portfolio of niche consumer products largely non-discretionary in nature, our pro-activeness of extending credit to our channel partners and our higher urban & minimal rural exposure enabled us to perform much better than the industry. Over and above, the effective integration of new brands that we added organically and inorganically has enabled us to deliver exceptional performance during the year."
"DRG sits at the intersection of the most extraordinary business trends of our time – Healthcare, Data, Analytics and Digital Innovation. With healthcare costs approaching 20% of GDP in many Western nations, there is tremendous pressure on Health Care Providers and Pharmaceutical and Device Manufacturers to reduce cost, manage access and prove value. At the same time, science is unleashing a huge range of potential solutions for diseases that we once thought were untreatable. DRG has the opportunity to be part of the solution to this seemingly intractable problem. By applying subject matter experts, analysts, data scientists, and machine learning to leading edge proprietary and purchased data sets, DRG is answering challenging, yet critical questions for our healthcare clients. In doing so, we are adding value to our clients, and creating dramatic value for our shareholders."
PEL’s Healthcare Insight & Analytics business, Decision Resources Group (DRG), is a best-in-class, decision support platform in the healthcare information services space. DRG leverages core data assets, teams of disease and drug experts, data scientists and machine learning to help Life Sciences, Medtech, Provider and Health Insurance companies answer the following questions:
These answers, enabled via a variety of value-added data and analytics, research reports and knowledge-based services, increasingly are provided through technology-enabled content delivery platforms.
The healthcare market today faces enormous changes and challenges. The increasing cost to bring drugs and medical devices to the market, a marked shift in focus from volume to the value and efficacy of treatments provided, ongoing and greater regulatory scrutiny and a tidal wave of digital healthcare data have resulted in an increased demand for high-quality information and analytical decision support tools and services. Life Sciences companies and healthcare payers and providers more than ever require current, relevant and easily accessible solutions that progressively leverage multiple data sources and analyses to enable key business decisions. For example:
These myriad needs, coupled with DRG’s recent expansion in the payer
and provider end markets, have increased the business’ total addressable
market from USD 2 billion (at the time that PEL acquired DRG in 2012) to
USD 16+ billion:
Enhanced Data and Analytics Capabilities
PEL has invested in core technology and analytic methods to manage, clean, link, and nimbly utilise massive healthcare data assets.
Over the past 3 years, the business has compiled and organised a leading data repository – its real world evidence data set is among the largest in the U.S., placing it in the top tier for healthcare analytics providers. The repository covers over 90% of the healthcare ecosystem, enabling the business to deliver deep and contextually relevant insights organised by key areas of client interest (patient journey, drug, disease, device, and stakeholder dynamics). Few, if any, other industry participants can integrate financial (claims) and clinical (EHR) data with proprietary data, such as drug formulary and restrictions status, and convert the data into useful business insights.
Investments in tech-enabled delivery platforms
The Company is increasingly delivering its products and services through user-centric technology platforms. It’s delivery modality has shifted dramatically from large, static research reports to digitally delivered, modular content that enables clients to obtain ‘just in time’ answers. For example, in FY2017, the Company combined 11 different legacy brands under a new, dynamic, web-based ‘Ask DRG’ Insights and Content Platform. It provides clients with an easy-to-use portal to access all of its expert forecasting, market sizing, and gold-standard epidemiology for over 140 diseases. This best-in-class technology gives its 9,000+ users both the ease of web browser-like searching and the ability to drill deep into the Company’s proprietary data sets.
M&A and Strategic Combinations
Acquisitions and strategic initiatives are fundamental to business information services companies’ growth, both of which have been an essential component of DRG’s development. This strategy fortifies existing offerings, fosters product innovation, adds capabilities and expands reach to new markets. DRG targets businesses with additive data sets and analytics capabilities, as well as complementary product offerings, that would fit well into DRG’s distribution network.
Additionally, the Company is increasingly focused on strategic investments, partnerships and joint ventures to enhance product innovation, data capabilities, and sales in new channels. Recent key transactions include:
Revenue from Healthcare Insight & Analytics business grew to ` 1,222 Crores in FY2017 from ` 1,156 Crores in FY2016, registering 6% Y-o-Y growth. The Company’s modest growth reflects, in significant part, shifting customer demand away from traditional syndicated market research toward data and analytics-driven, technology-enabled offerings. In recognition of this shift, over the past few years the Company has increasingly invested in technology, data assets and analytics capabilities that enable it to provide user-centric solutions directly targeting high-value client problems. These investments are expected to enable the Company to increase its penetration and growth within its addressable market of USD 16 billion. During the year, the Company continued with its initiative to transform its global talent pool by expanding further in India. With two offices in Bengaluru and an office in Gurugram, the business now employs over 250 people in India. DRG India, with a deep and diverse talent pool, enables the Company to accelerate growth and increase its capabilities beyond existing products and services, improve customer delivery and response time and realise cost efficiencies.
Clients increasingly are seeking data and analytics services, particularly in the pharma, biopharma and medical technology sectors, to understand and solve their most pressing business challenges. And, as a result of the Company’s investments in this service segment, its data and analytics revenue grew significantly in FY2017, with continued strong demand for its services expected in FY2018 and beyond. As per industry estimates, the Company’s potential revenue opportunity for its data and analytics capabilities across the Life Sciences, Payer and Provider segments is USD 8.4 billion.
Enterprise Risk Management
A well-defined risk management framework is integral to any business. PEL has an independent and dedicated Enterprise Risk Management (ERM) system to identify, manage and mitigate business risks. Risk management, internal controls and assurance processes are embedded into all activities of the Company.
PEL's ERM framework is designed by integrating COSO* framework at its core.
The Risk Management Group (RMG) establishes the risk policy and processes for risk evaluation and measurement; and business units focus on developing and implementing mitigation measures, while taking controlled risk. Specific risk approaches are in place for financial and non-financial businesses.
The Company ensures a seamless interaction between the Strategic Business Units (SBUs) and RMG to assess the real risks and their severity on the business. The RMG is independent of SBUs and reports directly to the Board. PEL believes that risk management is a culture to ensure sustainable growth of the organisation. In this regard, every function performs certain duties to ensure risks are managed and mitigated at enterprise level.
The Board oversees PEL’s risk management programme. It regularly reviews and evaluates the programme to ensure adequate policies, procedures and systems are in place to execute the strategy and manage related risk. Board level ‘Audit and Risk Committee’ reviews the micro-level risks and reports it to the Board.
Periodically, the Board dedicates a separate meeting with RMG to review the risk profile of the business verticals in non-Financial Services (non-FS) businesses and portfolio health in Financial Services (FS) vertical.
Business head and teams
Business head and operational teams assess the risk profile of their business/transactions and propose mitigants for the same. Besides, they work closely with RMG to provide requisite information about the transactions or business environments to assist RMG to execute its role effectively.
Financial Services Business
The Risk Management Group (RMG) independently assesses all investments of PEL’s Financial Services business. The Group uses customised risk assessment models to evaluate credit, market and concentration risks embedded in any deal. Based on the risk assessment, the group recommends plans to mitigate or to eliminate the identified risks in the investments.
Risk Assessment Approach
The approach involves identification and measurement of risk for each investment. Risks are classified into quantifiable and non-quantifiable risks.
The risk team considers various factors like historical performance, execution capability, financial strength of the promoter and company, competitive landscape in the industry and specific segment, regulatory framework and certainty, impact of macro-economic ‘changes’, etc. while assessing the deal. The security structure is assessed for value, enforceability, and liquidity.
Portfolio Revaluation Process
All executed deals are re-valued by the Group at regular intervals, to provide the Management with current overview of the portfolio performance. The portfolio performance results are used to identify action plans, if required. These are then duly executed by business teams to mitigate or eliminate the identified risks. Also, the insights are used for better credit underwriting in future.
Asset Liability Management Policy
The Risk Management team and the Treasury team had initiated the ALM process for the Financial Services business. The Board has approved the Asset Liability Management Policy and the formation of Asset Liability Management Committee (ALCO). The ALCO includes the Company’s senior management and an external industry expert; and defines the strategy for managing liquidity and interest rate risks in the business.
Non-Financial Services Businesses
Risk assessment at Non-Financial Services Business units is carried out using risk registers. Risks across different business units; their probability, impact and mitigation plans are properly documented at regular intervals. These risks are then aggregated, and key risks across each business units along with the proposed mitigants are presented and reviewed by the Board on periodic basis.
The major risks perceived by PEL along with the measures taken to mitigate the same are highlighted as follows:
Over the last year, PEL's Human Resource (HR) function has focused on generating and delivering ‘value’ in the areas of Knowledge, Action, Care and Impact on employees across geographies.
In 2014, PEL’s HR function embarked on a comprehensive HR Transformation journey called SEEDS (Strategy for Employee Engagement and Development Support). The SEEDS project focused on transforming multiple areas of HR from building people capability across levels to focus on technology driven HR. Up till 2016, the SEEDS project focused on establishing basic systems to enable the kind of transformational change that the HR function wanted to bring in.
During the past year, the HR function has focused on building on these base systems to help employees derive ‘value’ both professionally and personally from these changes.
Today, through it's HR Function, the Company offers its employees value in the following ways
learning needs delivered across 50+ unique
courses through Piramal’s Learning University.
At mid management were
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At senior management were
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PEL has been ranked amongst the
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engagement by Towers Watson
Some of the key contributions that the HR function brought in through SEEDS were:
Integrating Piramal Values with people systems of the organisation through introduction of the Piramal Success Factors. The Piramal Success Factors form a framework of behaviours that each PEL employee is expected to display across levels. Over the past two years this framework has been integrated with the Recruitment, Performance Management and Capability Building systems of the HR Function to ensure consistency and clarity for all employees.
Digitising people practices by setting up the Human Resource Management System in partnership with Oracle. Over the last 2 years, the HR function has focused on systematically migrating employee data and systems to the digital platform on Oracle across PEL.
Early identification of high potential talent through the ASCEND programme at middle management level and SUMMIT programme at the senior management level and nurturing them through relevant training.
Hiring the right people by bringing in more science to the art of recruitment. The HR team ensures that a potential employee’s value system, behavioural and functional traits are aligned with that of the Company. This is achieved through psychometric assessments, logical reasoning tools and structured behavioural interviewing methods.
ENABLING EMPOWERMENT THROUGH 'MY PIRAMAL' 'My Piramal' is PEL's HR Management System which allows employees to take charge of the HR systems that impact them.
Overall the 'My Piramal' system has opened up information and made it transparent and accessible to employees across the organisation. This is a big step in ensuring 'Integrity' and giving 'Empowerment' to employees.
STRENGTHENING LEARNING CULTURE THROUGH GREATER EMPLOYEE INVOLVEMENT
One of the key values that the Piramal Learning University has focused on in the past year has been to build in a culture of shared ownership between business leaders and HR towards driving capability building across levels.
In line with this objective, custom calendars were built in consultation with leadership across PEL’s sites and functional teams through the constitution of ‘Learning Councils’. The Learning Councils at the site level consisted of the entire site leadership team which participated in deciding the learning needs for the year. At the central level, these councils included representation from both functional and business leaders to ensure the process was democratic and there was built in ownership from all the key leaders.
As a result custom learning offerings were built for each of PEL’s businesses.
Over the past year, 15,000+ learning needs were delivered across 50+ unique courses through Piramal’s Learning University.
Additionally, there has been increased involvement of ‘Leaders as Teachers’ specifically through ‘Discover Piramal’ – PEL’s business induction programme where senior leaders have been meeting new joinees across PEL businesses to help them understand the culture, values and future plans of the business.
Piramal’s Learning University has been building select courses and training in-house leaders to take on the role of teachers. Some of the courses run by in-house leaders have been on building financial acumen, language and communication upskilling, feedback and coaching for ‘teams’, etc.
The ASCEND Programme also had senior leaders taking on the role of facilitators to train participants on people and business skills. These programmes which were driven by in-house leaders become amongst the highest rated programmes in terms of feedback (3.85 on a scale of 4).
PEL’s leaders have also been involved in the campus hiring and campus branding initiatives.
BUILDING A TALENT POOL
At PEL, employees are given the opportunity to accelerate their growth and development to the next level through the ASCEND and SUMMIT Platforms.
The ASCEND platform gives high performing employees at the middle management level, the opportunity to be selected and groomed for senior leadership roles. The programme is offered across PEL’s global employee base. The selection process uses the Piramal Success Factors at its base. The selection process is conducted by leading firms specialising in leadership assessments.
High Potentials who qualify through ASCEND undergo a 1 year structured development process where they are exposed to multiple experiences – such as working on a cross business project under the leadership of a senior mentor and CEO, working with a cross business cross functional team to deliver results in an unfamiliar environment, being exposed to leadership coaches to transform their personal behaviour, classroom interventions, and more.
They also undergo unstructured development through virtual learning platforms in partnership with Harvard Business School.
Today, the Company has 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.
Post the development journey, the HR function has focused on building a career management system for high potentials to ensure succession plans could be made to groom them for specific senior roles. This financial year, the function implemented a talent review process for all identified high potentials across businesses to take stock of their future potential, fitment and roadmap for the journey ahead.
A 360o Feedback process initiated after the first batch of ASCEND was concluded. The results showed that 81% of employees undergoing the programme had shown improvement on the Piramal Success Factors.
As a result of the process, in the last two years, 33% high potentials have been promoted to higher roles and 75% high potentials have had role expansions or role changes to aid their development.
The SUMMIT leadership programme focuses on preparing senior leaders to become successors to the CEOs of PEL Businesses. Through the SUMMIT journey, senior leaders are given the opportunity to define their own ‘business mandate’ – to act as true Entrepreneurs of their business units or functions. The programme also inter-connects the senior management by encouraging peer feedback, peer support groups and inputs from CEOs on each leader’s business and personal mandates.
31 senior leaders have undergone the SUMMIT programme in the past one and a half years. To ascertain the impact of their transformation post this journey, a 360o feedback was initiated. 73% of the stakeholders taking the survey reported visible changes in behaviours of these leaders and 70% of the stakeholders reported clear to dramatic impact on work as a result. About 97% of the participants undergoing the programme reported positive progress.
26% of these senior leaders have been promoted to higher roles. 45% of them have taken expanded roles in preparation for the future.
DIVERSITY AND INCLUSION
As a Group, PEL is present across industries as diverse as Pharma, Financial Services, Healthcare Insight and Analytics and Social Enterprise. PEL’s customer base comes from over 100 countries and represents multiple regions, religions, ethnic backgrounds, genders, social identities, thought processes etc. PEL’s employee base covers employees from 19 nationalities based in 32 global offices. PEL’s senior leaders are from 8 different nationalities.
PEL's philosophy towards diversity and inclusion is to build an employee base which is as diverse as its customer base to ensure it is able to deliver value to its diverse customers.
Close to 57% of PEL’s employee base represents millennials. Across PEL, generational diversity is well represented allowing seamless transition across age groups from employees as young as 18-21 years to as old as 60-65 years.
Connect talent pools across levels
As a part of PEL’s focus on diversity, the ‘Piramal Konnect’ initiative was launched. ‘Piramal Konnect’ is a 2-way mentoring programme where high potential talent pools from mid and senior management are partnered with each other in a 2-way mentoring relationship. ‘Piramal Konnect’ aims to encourage learning across levels and businesses through a formal mentoring partnership. In line with PEL’s values of Expertise and Innovation, it encourages diverse and breakthrough thinking and in line with its value of Humility, it seeks to break the barriers of hierarchy by encouraging a culture of cross level learning.
Through 'Piramal Konnect' – 20 two-way mentoring partnerships were launched this year.
Being an equal opportunity employer
At the heart of PEL’s diversity agenda is the commitment to being an equal opportunity employer. The PEL’s code of conduct emphasises the Company’s commitment towards supporting diversity in hiring and promotions across levels. The PEL’s ‘High Potential’ philosophy also emphasises the Company’s stand on giving all high performers an equal opportunity to grow and accelerate and not allow discrimination on the basis of gender, age, background or any other demographic factors while identifying high potentials.
Today, 29% of identified high potential employees from the ASCEND programme are females. This Programmeme represents employees from India, US, UK, Canada, Germany and Sri Lanka working for various PEL businesses. The high potential population through ASCEND also represents a diverse age group with an age range of 27 – 45 years.
UNDERSTANDING THE PULSE OF THE EMPLOYEES
'Bandhan' is PEL's employee engagement initiative. Through 'Bandhan', employees are given the opportunity to share their thoughts and feedback with the leadership, through the annual employee engagement survey.
PEL has been ranked amongst the top 5% in the world in terms of employee engagement by Towers Watson. 93% of employees who participated in the survey opined that they feel engaged with the organisation.
The 2017 survey results showed that 93% of employees across PEL believed strongly in the goals and objectives of the Company. 94% of those taking the survey felt they had clarity on their job responsibilities and felt that their strengths were being utilised.
Additionally, the HR Leadership team has actively engaged in personally connecting and understanding the individual development needs of all identified high potentials of the Company through structured connects twice a year. They have met all 170 employees undergoing the ASCEND programme and the 31 leaders undergoing the SUMMIT programme to ensure they were in touch with the needs of their employees.
BUILDING A SUPPORTIVE WORK ENVIRONMENT FOR EMPLOYEES
The HR Function re-evaluated some its policies and employee benefits to ensure that the work environment was conducive and supportive towards personal and professional needs of its employees.
Flexi work hour policy
Through the flexible work hour policy, employees are now empowered to work as per their convenience and choose when they would like to begin and end their working day. Employees also have the choice to work from home for two days in a month as per their need.
Crèche Facilities for working parents
The HR and Admin functions have collaborated with child–care facilities in
a 5 km radius of PEL offices in Mumbai. This will give working parents the choice and comfort of having their children taken care of in a safe environment.
Flexible Maternal and Paternal Leave
PEL offers 6 months of maternal leave and up to 7 days of paternal leave for new parents. It also offers the flexibility to work part-time during the growing years of the child.
VISION AND STRATEGY
In this era of 'digital enterprise', Information Technology (IT) has the opportunity to become a key contributor to revenue and business improvement. All businesses in PEL have an aspirational 2020 goal. In order to help each business achieve its goal, the Company has aligned IT Vision & Strategy to play the role of a key business enabler.
Vision: 'To become a Strategic Business Partner by providing high value IT solutions at optimised cost'
PEL has initiated Project ASPIRE to help achieve the objective of IT-enabled business transformation.
Technology is redefining the competitive landscape. It is creating new business models, value chains and revolutionising the way a company engages with customers, partners and employees. PEL has increased its capital investments in strengthening the core systems and various technology-led transformation initiatives across businesses. These are preparing PEL for non-linear business growth and making it future-ready.
As PEL leverages its technical knowhow, IT is transforming the organisation at all three levels of system of record, system of differentiation and system of innovation. The synergy is evident in the way the Company delivers its projects, and its commitment towards the core values and Piramal Success Factors.
To further strengthen its leadership position in global markets, PEL has adopted ‘Global Technology Led Business Transformation’ bilateral strategy. Its first aspect is, focusing on strengthening the core systems, and the other, innovation & digital transformation. Significant investments are being made to upgrade infrastructure across the sites and strengthen core business applications. Digital Transformation journey will enable the Company 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, partner and vendor relationship and generate new revenue models.
BUSINESS SPECIFIC INITIATIVES
In addition to taking care of common business needs through the above group initiatives, the Company is equally focused on individual business priorities to enable them achieve business specific goals.
Financial Services business
In its Financial Services business, PEL has challenged itself with significant non-linear growth, increasing revenue considerably, without linearly increasing manpower. To achieve this, the Company has embarked upon technology enabled business transformation initiative. The aim is to have end-to-end business process automation and enhanced productivity, adopting global best practices followed by the world’s leading financial institutions.
This technology enablement is currently in the final stages of Best-in-class technology solution rollout. Its expected key benefits include:
In Pharma business, the Company has focused on innovative technology solutions considering the business dynamics, regulatory requirements, scalability and its inorganic & organic business growth. Its technology solutions have yielded higher stakeholder value by creating better operational efficiency, improved margins and higher customer satisfaction.
Some of the key technology initiatives implemented this year are expected to garner several benefits for the business:
Healthcare Insight and Analytics
The world is changing rapidly, and so are businesses. At PEL, Information Technology will continue to play a very important part of its business transformation journey. Disruptive technologies, globalisation, economies of scale and more value for less, are the needs of the hour. Technology is going to be at the core and a driving force behind business transformation. The world is changing rapidly and so is business.
For PEL, 'sustainability' is at the core of what it does, and integral to its strategy. 'Care' is one of the values of PEL, and as a responsible company, it is committed towards protecting the environment where it operates, besides focusing on promoting health, safety and well-being of all employees, stakeholders and society at large.
At PEL, Environment, Health and Safety (EHS) are three crucial pillars for sustainable growth of its businesses. The corporate EHS team develops policies and guidelines, providing technical support and assistance to all sites to maintain compliance with the EHS policies. The EHS function ensures that products are manufactured in a safe environment and in compliance with national and international regulations and customer expectations. Regular audits at sites ensure compliance and provide a robust system for continuous improvement. In addition, continuous audits of various locations by PEL’s global customers help raise standards even further.
HEALTH AND SAFETY
The Company’s mission is to protect and enhance the well-being of its employees, visitors and partners. Safe working is non-negotiable for PEL. The Company follows global safety standards at all its operations. Its safety practices ensure that all possible safety hazards are identified and eliminated, not only at the workplace but also during travel. The Company strives for a holistic safety culture to improve safety of employees beyond their work.
Piramal has been achieving continuous improvement in safety performance through a combination of systems and processes as well as co-operation, involvement and support of all employees. The total recordable injury rate witnessed a reduction during the year. Each and every safety incident at the sites is recorded and investigated. Safety receives the highest attention from all levels of management. All official events in the Company, whether it’s a CEO address to a large group of employees in townhall or an internal small meeting addressed by a factory manager of a remote unit, every meeting begins with a safety briefing. All Managing Committee members personally review the EHS performance on a periodic basis.
To prevent serious injury and fatalities, the Company has implemented the following programmes:
Developing an EHS learning culture
The Company invests its resources and efforts in training and hardware upgradation to improve its safety performance every year. Total training Man hours has increased from 24,277 hours in FY2016 to 40,888 hours in FY2017.
PEL is committed towards conserving its resources as it recognises the importance of preserving the environment. Quality environmental performance is a key component of PEL’s facility operations. During the year, the Company’s manufacturing sites maintained their applicable environmental regulations. The Company has adopted ‘reuse and recycle’ mantra for natural resources; and thus, has developed adequate infrastructure to treat and re-use the waste water. Following are some of the key areas of environmental protection that PEL undertook during the year: