Business-wise Revenue Performance
PEL's consolidated revenues grew by 29% to ₹6,609.9 Crores in FY2016, compared with ₹5,122.6 Crores in FY2015, driven by growth across all business segments. 61% of PEL's FY2016 revenues were generated in foreign currencies.
The Healthcare business grew 14% in FY2016. Within this, Piramal Pharma Solutions business grew by 14.1% to ₹2,290 Crores, compared with ₹2,007.7 Crores in FY2015. This was owing to good traction in both the Active Pharmaceutical Ingredients (API) and Formulations businesses, besides contribution from the Coldstream facility acquired in FY2015. Revenue from the Critical Care business grew 15.7% to ₹875.8 Crores as against ₹756.8 Crores in FY2015 on account of access to new geographies, growth of market share in existing geographies and positive impact of Indian Rupee depreciation. Sales from Ophthalmologythe Consumer Products business was at ₹392.6 Crores as compared with ₹356.7 Crores in FY2015, registering a 10.1% growth, driven by various organic and inorganic initiatives undertaken during the year.
Income from the Financial Services business grew by 98.9% to ₹1,863.8 Crores in FY2016 as compared with ₹937.1 Crores in the previous year. This growth was primarily on account of increase in the size of the loan book from ₹4,766 Crores in FY2015 to ₹13,048 Crores in FY2016.
Revenue from the Information Management business grew 13.4% to ₹1,156.2 Crores in FY2016 as compared with ₹1,019.6 Crores in FY2015, driven by growth across entire range of products and services.
% Change in Consolidated Revenues FY2016 vs. FY2015
TOTAL OPERATING INCOME BREAKUP
(₹Crores or as stated)
|Revenue break-up||% Sales||FY2016||FY2015||% Change|
PEL forayed into the healthcare space in 1988. Over the years, the Company has successfully established itself as one of the most recognised and respected names in the healthcare industry. Its manufacturing units are located across India, Europe, the US and Canada. PEL's culturally diverse team of over 5,000 people from over 20 nationalities, is its primary strength. The Company has reported a strong trend of revenue growth over years across all Healthcare businesses. In the last five years, the Healthcare revenues have grown at a CAGR of 17%, touching ₹3,558.3 Crores during FY2016.
Healthcare revenues in FY2015-16
The Healthcare segment broadly operates in four businesses:
1. Pharma Solutions
The Pharma Solutions business is amongst the few large integrated Contract Development and Manufacturing Organisations (CDMOs) in the world, offering both APIs and Formulations.
2. Critical Care
PEL's Critical Care business is the third largest player in the global Inhalation Anaesthesia market, with products sold across 118 countries. It is the world's only company with a complete product portfolio of all generations of inhalation anaesthetics.
3. Consumer Products
The Company's Consumer Products business is primarily an India-centric consumer healthcare business with a strong brand portfolio. Most of its brands feature among the top two in their respective markets and product categories.ext
The Company's lead commercial stage product, NeuraCeq (INN: Florbetaben) received approvals from US FDA in March 2014, European Commission in February 2014 and MFDS (South Korea) in December 2014. The business is selling its commercial doses in the US, Germany, France, Austria, Spain, the Netherlands and Italy.
Focused capital allocation strategy
The Company remains focused on its strategy of efficiently allocating capital, while undertaking controlled risk, to consistently achieve higher profitability and deliver superior shareholder returns. During the year, the Healthcare segment efficiently deployed the capital for future growth through various organic as well as inorganic initiatives. Key initiatives taken during the year include:
In line with PEL's strategy to rationalise the overall business structure, it decided to exit the businesses which were either non-strategic/non-core in nature or required investments for a longer time horizon, involving higher risk. In January 2016, the Company sold its Canada-based cartilage repair product, BST-CarGel® to Smith & Nephew.
Market scenario and business positioning
The global pharmaceutical industry continues to face headwinds on both topline growth and profitability. Factors like patent expiry of blockbuster drugs, a leaner development pipeline, and reducing exclusivity period due to aggressive generic penetration have resulted in revenue deceleration. On the other hand, increasing drug development expenses and higher regulatory scrutiny has resulted in additional compliance and quality assurance costs, thereby impacting the bottom line, while increasing the time it takes to bring a New Chemical Entity into the market. The industry continues to embrace strategies that optimise costs and increase efficiency to mitigate the impact of these factors. These strategies include increased outsourcing (in functions such as research, manufacturing, and clinical trial management), adopting novel R&D models, and migrating of non-core business functions to low-cost countries (like China and India).
The global pharmaceutical outsourcing market is expected to grow at a CAGR of 8.7% to reach US$ 215 billion by 2022 (Source: Research and Markets). With high quality development and manufacturing assets (located both in eastern and western parts of the world), strong scientific talent, solid client relationships, immense trust from innovators and an excellent regulatory track record, PEL is well-placed to gain from this growing outsourcing trend.
Excellent global reputation
PEL's Pharma Solutions (PPS) business is among the leading Contract Development & Manufacturing Organisations (CDMO) with an excellent reputation in the global market. It has also received numerous global recognitions.
In FY2016, PPS was recognised at CPhI, one of the largest global trade shows for the contract manufacturing business. The Company won two prestigious awards– (a) the business CEO was awarded the 'CEO of the Year-2015' and (b) the Company was recognised for 'Excellence in Global Supply Chain-2015'. Besides, the Company's efforts to maintain quality have been well recognised in the pharma space. The Global Head of Quality was recognised as one of '50 most Influential People in Quality' by the World Quality Congress, 2015.
The Company won 'API Supplier of the Year' award at the Global Generics and Biosimilar Awards during FY2016.
The consistent focus of PPS on customer centricity, quality, and innovation has established the business as the partner of choice for both large pharma and biotech firms. It was voted among the top global contract manufacturing organisations (CMO) for both 2014 and 2015 in categories of quality, reliability and compliance. PEL's leadership in Anti-body Drug Conjugates (ADCs) has also been widely recognised in the industry.
These recognitions not only reflect the Company's constant desire to improve but also highlight the trust that clients have placed on the business.
Strong operating performance during the year
Strong focus on Quality
PEL's quality management model is based on four key pillars:
Governance: Quality is part of the Key Result Areas (KRAs) of employees including the business CEO and the entire leadership team. The Company has a strong quality governance model, with the Quality function reporting to a Board member. This autonomy provides quality with the necessary authority to focus solely on compliance and product safety. The Global Head of Quality determines the resource and capital allocation for the Quality function, which are subsequently placed for approval to the Board.
People: The best strategies still need the best people. To achieve the vision of quality leadership, PEL has always focused on bringing the best global talent on board to build a Quality function that stands out both on its experience and execution. The quality leadership at the Company's various manufacturing and development sites have a team that is in line with the organisation's vision. The team is trained on a regular basis to keep them abreast of the latest regulatory developments.
Execution: Four well-defined work flows track PEL's quality practices: technology, process, systems, and people. Each of these is led by a subject matter expert from the Quality Leadership team. Over the years, the Company has improved upon these workflows, both by incorporating industry best practices, and developing novel internal solutions.
Review: The Company has a well-defined and regular review and escalation process. Each site is assigned to a designated corporate coordinator who keeps a close track of quality processes and identifies areas for improvement (if any). Any significant quality deviation that requires escalation is promptly shepherded through a defined protocol, and then acted upon with highest priority.
This focus has led to an excellent track record with the regulatory authorities. Over the last many quarters, the Company's sites have been inspected by global regulatory authorities including USFDA with no major observations. The Global Head of Quality was recognised as one of the '50 most Influential People in Quality' by the World Quality Congress, 2015.
PEL remains focused on continuous improvement and recognises that its primary obligation is to customers and patients. Quality Empowering Strategic Transformation (QUEST) – an organisation-wide initiative – enables the Company to further imbibe 'Quality as a Culture'.
Market scenario and PEL's positioning
PCC is a leading player in the global anaesthesia market. With a varied range of inhalation anaesthetic products, PCC provides customers with an access to superior quality critical care drugs across the world.
The global inhalation anaesthesia market is estimated at US$ 1.1 billion. 2/3rd of this is concentrated in the US and Europe. Sevoflurane, Desflurane and Isoflurane make up for more than 99% of the global inhalation anaesthesia market. PCC is one of the top three global players in inhaled anaesthetics.
ONLY COMPANY WITH ENTIRE PORTFOLIO OF INHALATION ANAESTHESIA
*Only Inhalation Anaesthesia products of AbbVie and Baxter have been compared
Increasing strong presence in Sevoflurane – capturing around 70% of the market
Sevoflurane, the current generation product, accounts for ~ 70% of the global inhalation anaesthesia market. The US and Europe are the largest markets for this business.
PCC already has a large share in the US Sevoflurane market and gaining traction in key European and emerging markets. At present, it ranks as the second largest seller of Sevoflurane by volume. Last year, after the Company's entry into the UK, its market share has grown to 42%. The Company's Sevoflurane market share, in terms of volume has grown significantly in the US, from 20% in 2011 to 30% currently. During the year, Sevoflurane's market share in Japan surged to 56%. New Sevoflurane contracts were won following the registrations and launches done in last few quarters in several new markets, including Saudi Arabia, Germany and Malaysia.
Strong operating performance during the year
Revenues from PCC business grew 16% Y-o-Y to ₹876 Crores in FY2016 from ₹757 Crores in FY2015. This development was on account of access to new geographies, growth of market share in existing geographies along with positive impact of Indian Rupee depreciation. PCC became the largest player in Isoflurane in the US and increased the sales volume of Sevoflurane. The Company is progressing well on the initiatives to reduce costs and improve EBITDA margins.
Investments made in the Bethlehem site are yielding results. The execution of capacity and yield improvement project is on track. The focus on manufacturing and operational excellence has enabled the Company to maintain its cost leadership through productivity improvements and volume growth.
During the year, PCC also entered into a co-promotion agreement with Cumberland Pharmaceuticals Inc., a specialty pharmaceutical company focused on hospital acute care and gastroenterology. As part of this agreement, PCC started promoting two branded hospital products, Caldolor® and Vaprisol® to top customers in US. PCC will help expand Cumberland's reach for these products by providing coverage to an additional group of hospitals where its sales force has relationships. The multi-year collaboration is expected to enhance sales promotion for these two brands with increased communication to medical professionals to support patient care across the US.
PCC is in the process of registering and launching its next-generation product, Desflurane, by 2017. Desflurane has untapped market potential with only one competitor. PCC's strong customer relationships, global reach and cost competitiveness are likely to make Desflurane another success story for PEL's Critical Care business. Going forward, its core focus areas will continue to include:
Note: All market data is based on internal estimates
Bethlehem: Sevoflurane turnaround
Piramal Critical Care (PCC) acquired the inhalation anaesthetics (Sevoflurane) facility from Minrad Inc. in 2009.At the time, there were several issues with manufacturing. The processing and packaging lines were manually operated and product chemistry was not well understood. This made production and quality variable. In addition, operations were inefficient due to frequent breakdowns and morale was low. The resulting unreliable product supply and high cost limited our ability to gain market share.
Under PCC, a transformation began. The initial focus was to build the knowledge base at the facility and establish a level of expertise. The fixed cost of the facility was so high that unless the productivity was raised significantly it would have been difficult to remain competitive. The transformation process can be viewed in three phases:
Phase 1: Addressing known issues with minimal capex
The first phase focused on increasing productivity and improving regulatory compliance largely with the existing team and equipment. The team focused on reducing quality failure rates by adjusting critical manufacturing process parameters. It also changed the configuration of the equipment to debottleneck key process steps. Finally they implemented a maintenance program to improve critical equipment reliability to reduce unplanned outages. These steps collectively resulted in a significant increase in production capacity and quality without any major investments.
Phase 2: Going to the next step of process innovation by involving shop floor people
The success achieved in Phase 1 was tremendous. It encouraged us to further tap the human element to look for innovative ideas to further improve productivity and reduce costs. It was clear that we would need to train the production crew to look for opportunities beyond the obvious. This would help us migrate to the next level in cost leadership. PEL's Operational Excellence team helped to rollout the 'Shop Floor Transformation Initiative' program at the site – training people on how to identify and analyse problems, and help find solutions. The site team then conducted an ideation and value stream mapping exercise to come up with improvement opportunities. Plant operators were motivated and encouraged to come up with creative and innovative ideas. For instance, a shift supervisor came up with a suggestion to run a bottleneck step semi-continuously instead of batch. This increased the output instantaneously without any major investment. These changes further increased capacity and also reduced the amount of raw material needed per ton of finished product.
Phase 3: Investing in a new line
Having earned the right to invest based on the success achieved in the initial phase; the team came up with innovative ideas for a new line incorporating all the learnings from the last five years. The objective is to ensure an enhanced plant capacity to service significantly higher share at globally competitive costs with consistently high quality. The team designed a process for continuous manufacturing two important bottleneck steps, which were previously in batch manufacturing mode. This was an important innovation in the new line. These changes required an investment in new custom equipment which is under implementation. Once operational, the line will provide a number of benefits including enhanced capacity, better yield, lower production costs, higher automation and lower cycle time.
The first two phases of the transformation have increased the annual production by a factor of more than seven times in five years without any increase in personnel in the production area. The third phase of transformation will boost this further.
The size of the Indian self-care market is over ₹15,000 Crores with 12-13% annual growth. The market is witnessing exciting times with strong trends owing to rising incomes levels, increasing consumer confidence in self-care along with easy access to information, rural penetration and channel development. The market is competitive, with limited differentiation among the offerings on a product level. This, however, means that there are enough opportunities for players who go the extra mile to address consumer needs. PEL, through its range of products, targets specific consumer needs. This has made the Consumer Product business one of the fastest growing players in the domestic consumer healthcare market.
Joint Venture with Allergan
Allergan India, a 51:49 Joint Venture between Allergan Inc. and PEL, for ophthalmic products, commenced commercial operations in 1996. It has emerged as the market leader in the fast-growing ophthalmic category, with the successful launches of a series of high-technology medication and devices for diseases like glaucoma, dry eye, infections and inflammations. Today, Allergan India is the partner of choice for majority of the country's ophthalmologists, and is poised to grow at a rapid pace. It is an undisputed leader in the eye-care pharma market with dominance in all major disease segments.
Strong operating performance during the year
Revenues from OTC and Ophthalmology business grew by 10% during the year to ₹393 Crores, compared with ₹357 Crores in FY2015. Allergan India continues to remain India's leader in ophthalmology with 21% market share. The Company undertook several organic and inorganic initiatives during the year to boost growth and ensure future profitability. It commenced exports of few brands to nearby countries that have reach to Indian media. Besides, the Company is increasing its digital presence with an exclusive launch of Untox ™ with Snapdeal. Products and brands launched earlier are now showing traction. The Salesforce automation programme was successfully rolled out during the year in India, across all channels. This has enabled improved productivity at each retailer level under direct coverage.
Saridon continues to maintain number one rank in headache category. Lacto Calamine and i-pill continue to sustain their demand in their respective categories by adapting a focused geographical approach strategy. 'Quikkool' became a respected brand for mouth ulcer in less than a year of launch. Caladryl doubled its distribution during the year.
Note: All market data and positioning are based on independent syndicated research providers.
How PEL plans to become a top 3 player in the OTC market by 2020?
PEL's Consumer Product business developed a strategy in 2012 and has grown substantially over the last few years as a result of successful execution of the same.
There are four levers to the Company's strategy including:
Over the last 15 months, the business has invested significantly in growth levers. The strategy has worked well and the Consumer Products business is evolving into a strong player in the Indian OTC market. PEL's ambition is to become one of the top three OTC player by 2020 and create strong value for all stakeholders in the business.
PEL's Financial Services segment offers a complete suite of financial products to meet diverse needs of its customers.
Revenues in FY2015-16
The Company has created its unique positioning in financial services space through its strong presence in the following sub-segments:
₹13,048 Crores of lending to real estate developers and under special situation opportunities in sectors, including infrastructure, renewables, cement, transportation, among others.
Alternative Asset Management
₹8,717 Crores of alternative Assets Under Management through private equity funds that invest in real estate sector, and special situation investments under the Company's strategic alliance with APG Asset Management. The Company currently manages 7 funds, 3 third party mandates and 2 managed accounts. It is one of the first institutions (earlier named as INDIAREIT) in India to enter in real estate fund management business.
Investments in Shriram Group
₹4,583 Crores has been invested in Shriram Group of Companies. This has enabled the Company to enter into a long-term association with Shriram Group and strengthen its presence in the financial services space, by diversifying into various areas. These include retail and Small and Medium Enterprises (SME) lending, life and general insurance, broking and retail asset management. Following were the key milestone transactions of the Company's investments in the Shriram Group :
PEL'S FINANCIAL SERVICES BUSINESS
Complete suite of products to meet diverse customers' needs
Note: 1. Excludes our investment in Vodafone India, which was exited during
FY2015 and includes special situation investments
Areas of operation
The Company has its Financial Services businesses operating in following areas of national and economic significance:
Piramal Fund Management (PFM), an arm of PEL, is one of the largest deployers of capital across all stages of the life-cycle of residential real estate projects in India. During the year, it announced entry into financing of commercial space. It deploys both internal and third party capital in most attractive opportunities in real estate to provide attractive returns for all its stakeholders. With ₹21,765 Crores of loan book and assets under management, it is one of the India's largest real estate funding platforms. PEL is the only Indian company to have an integrated platform providing an exposure to the entire capital stack across real estate, including private equity, structured mezzanine equity, structured debt, senior secured debt and construction finance. The unique combination of a debt and equity practice within the same platform facilitates engagement with development partners across their entire capital requirement through the project life cycle, right from longer tenure/initial stage equity
REAL ESTATE: END-TO-END DEVELOPER FINANCING PLATFORM
funding to more mature/shorter tenure construction finance. PFM is uniquely positioned to deliver superior risk adjusted returns to investors, by leveraging its unparalleled skill sets, sector experience and industry relationships.
Special Situation Investments
PEL believes that mezzanine capital can play an important role in the capital structure of companies and it is well positioned to offer composite financing solutions to cover multiple situations. It believes structured solutions work well in situations such as last mile refinancing, promoter financing, acquisition financing etc. In FY2016, the Company expanded the coverage of its Special Situation arm to include sectors other than infrastructure.
Indian Infrastructure space is now seeing a recovery after a long slump. There is a definitive pick up seen in government capex with increased allocation of ₹2.2 trillion to infrastructure in the FY2017 Budget. Moreover, to meet its infrastructure targets India will need to spend US$ 450 billion over the next five years. Additionally, with increasing focus on renewable energy, there is significant requirement of equity, mezzanine capital and debt. PEL will continue to focus on this segment through the APG platform.
The Company's evaluation of sectors other than infrastructure tends to be situation specific. As the economy turns around, companies would need financing to increase their capacities and hence would need providers of long-term capital, who are able to work with them as partners. The Special Situation arm of the Company will look to provide financing solutions to such companies.
PEL stands among the top providers of structured mezzanine funding in India. A series of transactions have been entered under Special Situation in FY2016. The total amount deployed from the Company's balance sheet under this segment is ₹1,515 Crores as on March 31, 2016.
Strategic Investment Alliance with APG Asset Management
PEL and APG Asset Management, (a Dutch pension fund asset manager in the Netherlands with an AUM of €417 billion as on March 2016), has a strategic alliance for investing in rupee denominated mezzanine instruments issued by India's infrastructure companies. PEL and APG, both have initially committed US$ 375 million for investments under this strategic alliance. This is one of the largest private sector commitments to the infrastructure sector in India. This alliance accentuates the confidence reposed by institutional investors in Piramal Group's capabilities. This strategic pool of capital is focusing on operational and near-completion projects with limited execution risks and high visibility of cash flows coming from a portfolio of projects. Under this 50:50 strategic alliance, PEL and APG have jointly invested ₹1,050 Crores till March 31, 2016. Of this amount, ₹525 Crores have been disbursed by APG under the alliance.
Launch of Piramal India Resurgent Fund
The Piramal Group has a long standing history of spotting early trends and acting decisively on them. The Company believes that this is a perfect time to explore the thematic opportunity of investing in turn around assets – especially as banks are actively working on resolving the issue of high level of restructured / non-performing assets in their portfolio. Further, the recently introduced bankruptcy code will bring in efficiency, both, in terms of associated timelines and costs in default / insolvency resolution framework thereby significantly assisting lenders in decision-making.
Given PEL's strong operating and financing credentials, the Company believes it can effectively tailor a strategy centered around the turn around potential in good quality assets and sound businesses that require both financial and operational restructuring. To explore, evaluate and invest in such opportunities, the Company is considering to look at investing in specific assets through multiple tiers of capital and vehicles. This is done in a manner such that the fungible capital and structure helps meets the requirements of various stakeholders in each of these potential transactions. The investment will be done through a dedicated fund or co-invest structure in partnership with institutions/investors of global repute.
Investments in Shriram Group
To strengthen its presence in the financial services industry, PEL aimed at being in a well-diversified play. Wholesale lending is done in-house and exposure to retail is through its investments in the Shriram Group of Companies. PEL's long-term partnership with Shriram diversifies its exposure into the retail and SME customer segments through its lending business, life and general insurance, distribution, broking and retail asset management.
Strong operating performance during the year
Income from Financial Services was 99% higher at ₹1,864 Crores for FY2016, from ₹937 Crores in FY2015. The growth was primarily driven by increase in the size of loan book. Loan book grew by 174% to ₹13,048 Crores from ₹4,766 Crores in FY2015, aided by entry into Construction Finance. Construction financing now constitutes 42% of the Real Estate loan book. Asset quality continued to remain robust with a GNPA ratio of just 0.91%. Gross Assets under Management grew to ₹8,717 Crores during the year. The Company exited almost 100% of corpus in all 3 vintage funds.
Going forward, the Company plans to continue its strong growth momentum in financial services. The future growth will come through expanding product portfolio, effectively leveraging the balance sheet by targeting a diversified liability mix and exploring down-selling opportunities, and thereby enhancing returns to shareholders. Construction Finance would continue to remain the main growth driver in real estate financing. The Company announced Construction Financing in commercial space as well. It will continue to look for more long-term partnerships like CPPIB and APG that will enable the Company to get access to patient capital and generate more fee income. It will continue to strengthen its system and processes to handle the potential scale and keep the asset quality under check. The Company will continue to remain nimble to new and attractive opportunities in identified business segments that arise as an outcome of the prevailing market environment.
EXPANDING PRODUCT PORTFOLIO TO BOOST GROWTH
How PEL ensures a healthy asset quality?
Diligence before transaction
Due Care whilst Underwriting
Unrelenting focus on Monitoring and Asset Management
Healthy security and balanced portfolio
PEL's Information Management business, Decision Resources Group (DRG), is a market-leading decision-support platform in the healthcare information services space. DRG provides indispensable insights to life sciences companies as well as healthcare providers and payers through a variety of high value-added data and analytics, research reports, and knowledge-based services. These offerings enable customers to make informed investment, cost containment and strategic business decisions in their chosen markets. DRG's products and services are built around proprietary data, algorithms, primary research and domain expertise. Most of its branded product lines have a leading market share in their respective niches.
Revenues in FY2015-16
Robust Industry Outlook
In the US, national health expenditures surged to US$ 2.6 trillion in 2010 from US$ 1.4 trillion in 2000. It is further expected to grow at a rate of 6% to touch US$ 4.6 trillion in 2020 (Source: Centers for Medicare & Medicaid Services). Regulations like 'The Patient Protection and Affordable Care Act' (PPACA) of 2010 are expected to expand coverage to 32 million uninsured individuals (Source: Congressional Budget Office). In the wake of the PPACA and the increasing healthcare spending trends, the primary constituents in healthcare are changing the way healthcare costs are reimbursed. The focus is shifting from volume of services to the value and efficacy of the services offered.
The preceding factors, the increasing cost to bring drugs and devices to market, and greater regulatory scrutiny have resulted in an increased demand for high-quality information and analytical decision support tools. Besides, third-party insight from experts has gained importance to navigate the healthcare industry's increasing market and regulatory complexity. DRG, through its proprietary data, strong analytical capabilities and industry insight, enables stakeholders across the healthcare value chain to solve critical business questions and challenges. This, in turn, will enhance the value of their products and services.
PEL acquired the DRG core business in 2012, which served a US$ 2 billion market, providing syndicated content to life sciences customers. Since the acquisition, the business has expanded its addressable market to US$ 16 billion life sciences, payers and providers market, as per Company management estimates. With escalating global healthcare expenditures (driven by, among other factors, ageing populations in G7 countries), new regulations and the expansion of improved treatments, DRG expects that demand and market for its products and services will witness a steady increase.
SIGNIFICANT FOCUS TO BOOST GROWTH
Expanding Into New End Markets, Products and Geographies
Strong operating performance during the year
Revenue from Information Management business grew to ₹1,156 Crores in FY2016 from ₹1,020 Crores in FY2015, registering 13% Y-o-Y growth. The acquisitions of Activate, HBI and Adaptive increased the Company's addressable market size to US$ 16 billion, enhanced the depth of offerings and created new market opportunities.
During the year, the Company continued with its initiative to transform its global talent pool by expanding to India. It opened offices in Bengaluru (January 2015) and Gurugram (February 2016) and hired over 160 employees. This initiative will enable the Company to accelerate growth through accessing talent, increasing capabilities beyond existing products and services, improving customer delivery & response time and realising cost efficiencies.
Note: All market data are based on proprietary market research and internal estimates.
DRG India – A new transformational initiative
In July 2014, DRG launched a new initiative to transform its global talent pool by investing and expanding operations in India. In January 2015, the business opened its first office in Whitefield, Bengaluru. Subsequently, in February 2016, it expanded to Northern India with a new office at Cyber City, Gurugram. By mid of FY2017, DRG is expected to have nearly 20% of its staff in the new Bengaluru and Gurugram offices.
DRG has set a goal to substantially its revenue in the coming years. This would require operational and strategic investments, scaling its India operations quickly with clear goals to:
Over the years, DRG has grown rapidly with multiple acquisitions as well as organic growth. DRG India follows a strategic 'build from scratch' initiative, enabling the Company to expand and develop capabilities that fuel and fortify all business segments of DRG. The India team's work is an extension of DRG's operating model across various product lines. With cross-team synergies and 24/7 capabilities, DRG India enhances the DRG's global delivery excellence and ability to create future products and services in a shorter time.
DRG is a knowledge business, built on a foundation of the best knowledge workers in the business, spread across the globe in 17 offices and six countries. The latest additions to this knowledge workforce along with the Company's new teams in India have transformed DRG into a global player from a talent prospective. India has a young, dynamic, growing, educated and knowledgeable workforce. Approximately 30 million college students graduate every year and enter the workforce. Besides, around 3.2 million people work in the off-shoring industry, a sector that contributes to 8% of India's national GDP. For the past decade, the healthcare information sector of India's knowledge industry has boomed with significant talent being developed at leading multinationals as well as innovative start-ups. Therefore, DRG's strategic imperative has been entering into India and recruiting the country's best talent.
DRG has created vibrant new offices in Whitefield, Bengaluru and Cyber City, Gurugram to attract the industry's best talent. These offices provide a dynamic, high-energy culture and compelling career opportunities at all levels of the organisation. DRG India is fortunate to employ exemplary college graduates and top quality professionals for nearly every product and service line. The employees include PhDs, doctors, and masters in pharmaceuticals and other disciplines with relevant industry experience with leading healthcare players.
Through this talent pool, DRG has augmented its existing product and service capabilities, thereby driving both revenue and profit growth for PEL. DRG India will be the source for many new ideas and product prototypes in coming years, and will play an invaluable role in fuelling long-term profitable growth. India has become an integral part of DRG's present and future.
Evolution of Information Management Business
In June 2012, PEL entered into Information Management business through the acquisition of DRG. In 2008, DRG had 10 offices across 5 countries. The business has expanded significantly over years and now has 17 offices across 6 countries. Post the acquisition of DRG, the business was further strengthened through various organic and inorganic initiatives. Growth through acquisition is fundamental to such businesses and has been an essential component of DRG's evolution. The Company has made few acquisitions over last few years that enabled it to expand its offerings and addressable market size. From providing services to the Lifesciences industry earlier, the Company now also caters to the provider and payer markets.
*Retention rate not tracked for this time period.
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 makes the Company aware of potential risks and helps the Board as well as the senior management to align their strategies accordingly. A clear distinction is maintained between Risk Management Group and business units. While the Risk Management Group establishes the risk policy and the processes for risk evaluation and measurement, 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.
Over the period, the Risk Management Group has managed to streamline risk processes and present a holistic view of risks to the management.
Business-specific Risk Management Approaches
Financial Services Business
The Risk Management Group independently assesses all investments of PEL's Financial Services business. The Group used customised risk assessment models to evaluate credit, market and concentration risks embedded in any deal. All executed deals are re-valued by the Group at regular frequency to provide the Management with an updated view on the portfolio performance.
The next focus area is to improve portfolio analytics and use the insights for better credit underwriting. The Risk Management team and the Treasury team have 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. It 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 frequency. These risks are then aggregated and top three risks across each business units along with the proposed mitigants are presented and reviewed by the Board on periodic basis.
MEASURES TAKEN BY THE RISK MANAGEMENT GROUP
The major risks perceived by PEL along with the measures taken to mitigate the same are highlighted below:
|CLIENT AND PRODUCT CONCENTRATION RISK||PEL's primary businesses are based on contracts with customers. In few businesses, a large portion is transacted with a few major customers. Therefore, any setback at customers' end may adversely affect the Company's financials.
While some particular products generate a significant portion of the Company's overall revenue, any drop in demand for these products may adversely affect profit margins.
|PEL's business development teams continue to actively seek to diversify the client base and products to mitigate concentration risk.|
|PRODUCT AND QUALITY RISK||PEL is expected to maintain global quality standards in manufacturing. Some of PEL's products are directly consumed / applied by the consumers. Therefore, any deviation with regards to quality compliance of products would impact the consumers worldwide and hence, adversely affect the Company's performance.||A dedicated corporate quality assurance group actively monitors the adherence to prescribed quality standards.|
|DEFAULT AND CONCENTRATION RISK IN FINANCIAL SERVICES BUSINESS||In the Financial Services businesses, the risk of default and non-payment by borrowers may adversely affect profitability and asset quality.
The Group may also be exposed to concentration risks across sectors, counterparties and geographies.
|At PEL, each investment is assessed by the investment team as well as independent risk team on the risk-return framework. The combined analysis of these teams is presented to the Investment Committee for investment decision.
The risk is being partly mitigated by setting up a concentration risk framework, which incentivises business units to diversify portfolio across counterparties, sectors and geographies.
|ADVERSE FLUCTUATIONS IN FOREIGN EXCHANGE RISK||PEL has significant revenues in foreign currencies through exports and foreign operations. Therefore, the Company is exposed to risks arising out of changes in foreign exchange rates.||The centralised treasury function aggregates the foreign exchange exposure and takes prudent measures to hedge the exposure based on prevalent macro-economic conditions.|
|INTEREST RATE RISK||Volatility in interest rates in PEL's investment and treasury operations could cause the net interest income to decline. As a result, this would adversely affect profitability of the Financial Services business.||ALCO actively reviews the interest rate risk and ensures that interest rate gaps are maintained as per ALCO's interest rate view.|
|TENOR MISMATCH||Early redemption or delay in coupons and principal payments from Financial Services businesses can cause mismatch in the tenor of assets and liabilities.||ALCO reviews the gap statements and formulates appropriate strategy to manage the risk.|
|REGULATORY RISK||PEL requires certain statutory and regulatory approvals for conducting businesses. Any failure to obtain, retain or renew them in a timely manner, may adversely affect operations. A change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of investment and / or change the competitive landscape. Also, PEL is structured through various subsidiaries across various countries in a tax-efficient manner. Changes in regulations in terms of repatriation and funding may lead to adverse financial impacts.||The applicable regulatory framework is continuously tracked by various teams within PEL. Appropriate action as necessary is being undertaken to ensure compliance with all regulatory requirements.|
|INVESTMENT RISK||PEL has equity investments in various companies in India. Like any other equity investment, these are subject to market conditions.||The Company continue to effectively evaluate various risks involved in underlying assets, before and after making any such strategic investments.|
PEL, derives its strength from its Values – Knowledge Action and Care. These values drive Pel's overall organisation's purpose of Doing Well and Doing Good, which forms a core of its people practices across the Group.
To live the purpose of 'Doing Well and Doing Good' and to be able to deliver on the organisation's growth blueprint, PEL has been focusing on strengthening its talent pipeline. Besides, it emphasises on culture and capacity building. PEL's HR function has evolved rapidly over the last few years. In line with the ambitious business mandates, PEL's journey has been around five people imperatives:
Significant efforts have been undertaken in last few years on all these areas, resulting in positive movements on employee engagement, HR satisfaction survey scores and business metrics, including customer satisfaction indices.
Evolution of People Processes and Capability
In last few years, PEL's HR focus remained on building the fundamentals, deliver quick wins and create a strong base to transform the Company into a truly global conglomerate. A year back, PEL embarked on a comprehensive HR Transformation Journey called SEEDS (Strategy for Employee Engagement and Development Support), along with its business stakeholders and the senior leadership team. This structured journey covers five people imperatives. The focus was on diagnosing the existing situation, identifying the gaps and implementing improvements to address the same. Now, the focus will be on reviewing sustainability of these improvements, measuring impact and making necessary adjustments to drive accelerated growth.
The SEEDS Governance Structure
The SEEDS Governance structure consists of the following elements:
An overview of five people imperatives
Additionally, PEL is also in the process of building a structured entry level management trainee programme through a group-level 'future leaders programme' and a 'business level management trainee programme'.
PEL has aligned its Information Technology Strategy to its long-term vision. Information Technology is an important part of the business transformation journey, where innovative technology solutions (including digital transformation) are enabling the Company to achieve its business goals.
PEL increased its capital investments in various technology-driven transformation initiatives across businesses. The Company is preparing itself for non-linear business growth and making it future ready.
In today's digital era, technology is playing an important role in the healthcare sector. The healthcare industry relies on technology for process management, content management and data analytics. Besides, it focuses on identifying cost-effective ways to connect with the customers. The emphasis is on innovation and building new products, providing better technology foundation.
PEL is focused on providing innovative technology solutions considering the dynamic and ever improving regulatory requirements as well as scalability, considering the inorganic as well as organic business growth. Its technology solutions have yielded higher stakeholder value by creating better operational efficiency, improved margins and higher customer satisfaction.
PEL has implemented comprehensive and cutting-edge technology solutions that have enabled it to strengthen offerings and meet customised requirements of global clients across the value chain.
For plant staff members, PEL has taken up multiple productivity and efficiency improvement initiatives on its core ERP system as well as other enabling systems. This ensures that the business process automation level increases year-on-year and the Company is able to improve its productivity per employee.
PEL has also initiated many technology initiatives to transform its supply chain processes, which will not only help improve internal performance but also support its suppliers.
With technology solutions and processes, PEL has been able to manage current regulatory and compliance requirements. It has been continuously upgrading technology solutions to meet future needs of computer system validation and data integrity.
Few of the key technology initiatives implemented this year are expected to bring following benefits to business:
PEL has been managing the Financial Services business with high productivity per person. PEL has challenged itself to achieve significant non-linear growth, where the aim is to increase the Company's revenue considerably, without significant increase in its manpower. To achieve this, PEL embarked upon a business transformation initiative to ensure end-to-end business process automation.
PEL adopted a thorough approach that involved understanding long-term growth plans, assessing current state architecture for operations and technology, and then designing the target state operations and technology architectures. Detailed cross-functional business requirements were codified from the optimised business processes, and a best-in-class technology solution was selected following a rigorous evaluation of global market-leading technology solutions.
A detailed roadmap has been created for implementing changes required to move to the end-state architecture for operations and technology.
The target technology platform is envisioned to cover the entire business system of the real estate financing business, including fund administration, CRM for investors, distributors and investee companies, workflows, document management, asset monitoring operations, compliance, collections, accounting, portfolio management, data analytics and risk management, adopting global best practices of the world's leading financial institutions.
Currently, in the midst of the solution implementation, the business is targeting to go live during FY2017. Once implemented, the key benefits expected from this technology-enablement include:
In the DRG business, PEL maintains a large number of existing products and launches new products each year. To continuously evolve and enhance these products, and bring new products to market, the technology that underpins them must similarly evolve with them. As such, the DRG technology team focuses on both streamlining existing investments and building new infrastructure.
Below are the key technology initiatives implemented during the year:
PEL evaluates and justifies technology investments in different ways.
Sustainability is at core of what PEL does, and is 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 businesses. The Corporate EHS team develops policies and guidelines, providing technical support and assistance to all sites to maintain compliance with EHS. 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 not only ensure compliance but also provide a strong and robust system for continuous improvement. Besides, continuous audits of various locations by PEL's global customers help raise standards even further.
The EHS management system's overall performance is regularly evaluated and reviewed throughout the year. The system's effectiveness can be reaffirmed by the fact that PEL is in compliance with all Indian and global standards.
Recognising the importance of preserving the environment, PEL remains committed towards conserving resources. Quality environmental performance is a key component of PEL's facility operations. During the year, PEL's manufacturing sites maintained their applicable environmental regulations. 'Reuse and recycle' of natural resources is one of the primary objectives for which adequate infrastructure to treat wastewater and reuse it has been developed.
Various initiatives were undertaken to upgrade the infrastructure for environment management at the manufacturing sites. PEL is focused on the upgradation of Waste Treatment Plant to reach beyond compliance. Besides, installation of online monitoring system for process emissions and ambient air quality and switchover from fossil fuel to carbon neutral fuel are some other initiatives to ensure environment management.
In 2016, PEL started feeding condensed and hot water generated during the heat operations to the boiler, in order to increase boiler efficiency and cut fossil fuel consumption. Site construction activities are carried out with utmost safety, while recycling and reusing old facility waste material. Leftover usable redundant chemicals of R&D were reused by donating to colleges for study and analysis.
Most of PEL's facilities are sustaining various certifications such as ISO-14001 Environment Management System and OHSAS-18001.
Occupational Health and Safety
PEL actively promotes a policy and culture of workplace risk elimination and prevention to guarantee a safe and healthy work environment. As a company, it has undertaken numerous initiatives to enhance safety standards at manufacturing sites/office premises to ensure that all stakeholders, including employees feel safe at PEL.
As an acknowledgment of these efforts, the Ennore Plant received 'Safe organisation of the year award 2015' from the OSHAI association and the Mumbai R&D facility received 'Lowest Average Accident Frequency Rate' and 'Longest Accident Free Period' Award from National Safety Council - Maharashtra Chapter. PEL also received four National EHS Awards in the following areas:
Organisational EHS Initiatives
Following are some of the organisational EHS initiatives undertaken by PEL to ensure the safety of all its employees and stakeholders:
EHS Training Statistics
At PEL, EHS training is an important aspect to follow the Piramal values of Knowledge, Action, and Care. The total EHS training hours grew to 35,513 man-hours in FY2016 from 29,480 man-hours in FY2015.
Piramal Foundation is the philanthropic arm of the Piramal Group. It develops innovative solutions to resolve issues that are critical roadblocks towards unlocking India's economic potential.
The Group's core values of Knowledge, Action and Care guide the organisation in carrying out its responsibilities towards society. It believes that considerable positive change can occur, when we collaborate with like-minded partners and nurture projects that are scalable, ensuring a long-term impact.
Piramal Foundation transforming Health, Education, Water and social sector ecosystems through high impact solutions, thought leadership and partnerships.
Piramal Swasthya is Piramal Foundation's health initiative working towards making healthcare services 'accessible, affordable and available to all'. Piramal Swasthya's services are spread across 11 states in the country. Piramal Swasthya's technological and management strengths, along with medical expertise have benefited over 54 million beneficiaries. It offers three distinct services including:
Piramal Foundation for Education Leadership (PFEL)
PFEL acknowledges the importance of imparting knowledge to school principals to inculcate the 'right' mindset and leadership skills. This positively impacts the education quality in public schools. To improve student performance, it's necessary to create a vision for schools, manage stakeholders, resolve problems and conduct reviews and assessments. Currently, PFEL is working in 15 blocks across four districts in Rajasthan, benefiting ~90,000 students.
PFEL runs the following programmes:
Piramal Sarvajal's mission is to provide affordable, accessible, and safe drinking water to populations in India, where water quality is poor and availability is limited. It is committed to providing pure and safe drinking water for the under-served at an ultra-affordable price. Sarvajal provides affordable clean drinking water to around 290,000 people on a daily basis. It primarily conducts business through a franchise format, wherein it identifies, appoints, and trains village level entrepreneurs to operate state-of-the-art water treatment systems. Franchisees sell water to customers in one of three ways – through sales outlets, door-step delivery, or through electronic point-of-sale technology (using its latest innovation, the Water ATM).
Sarvajal employs patent-pending proprietary technology in monitoring and controlling machine operations. A PLC-based device called the 'Soochak' is installed on each of Sarvajal's Water Treatment Plants to monitor the source water quality, product water quality, litres produced (both rate and total), the overall health of the machine, and the amount of effluent created in the process. Using this technology, Sarvajal is able to assure a great amount of machine usage uptime and ensure durability of machines.
Currently, Sarvajal operates in 13 states including Gujarat, Rajasthan, Madhya Pradesh, Uttar Pradesh, Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Chhattisgarh, Bihar, Jharkhand, Karnataka and Maharashtra. It has dispensed over 9.19 billion litres of clean drinking water.
Located at Bagar in Rajasthan, Piramal Udgam is a full-fledged state-of-the-art BPO that provides top-quality BPO services to global clients at competitive prices. It empowers rural women with employment opportunities. Despite being an educational centre hosting about 35 schools, Bagar has very limited job opportunities. Udgam aims to break this anomaly by creating opportunities for these women to learn, grow, achieve financial and social freedom, and earn renewed respect of the community. It provides comprehensive and rigorous training programme wherein all associates undergo two modules of training – core training in computer skills, and soft skills training. Over 450 associates have been trained and have earned a livelihood in Piramal Udgam.
Piramal Uttarakhand Rehabilitation Project (PURP)
PURP works towards providing relief to disaster-affected communities in the villages across Kalimath Valley. This project's primary objective is to promote income generation activities for women in flood-affected areas. These women are between the age group of 18-35 years. PURP enables them to develop skills in four key areas comprising agriculture, food processing, enterprise development and animal husbandry. PURP works through Self Help Groups (SHGs). Currently, PURP is present in eight villages, engaging 152 members in food processing and agriculture.
Successful partnerships have been the driving force behind Piramal Group's success.
Piramal Foundation's objective to address large social problems through innovative solutions makes it indispensable to partner with governments and like-minded organisations. Piramal believes that partnerships can create meaningful impact through synergistic efforts, and optimise limited resources.
For example, public-private partnerships in the social space have also resulted in improving efficiency, while utilising an existing network and infrastructure that has been set up by successive governments over decades.
Over the last many years, the Foundation has been engaged in implementing solutions to address specific focus areas. The experience and expertise built up by the team is now combined with a deep understanding of factors that help drive change in the community. A combination of innovative solutions, smart deployment of technology, driving change of behaviour among stakeholders and a committed passionate team is making this happen.
In the course of its implementation, the Piramal Foundation has endeavoured to build a learning organisation. Lessons learnt from both successes and failures are analysed to evolve new solutions or replicable models.
Engaging with government policymakers, based on practical experiences brings a level of trust and integrity to the relationship, which is reflective of the core value of the Piramal Group.
Current Partner List
|Profit and Loss Account|
|Profit Before Tax||267||373||341||500||16,415||121||-193||-435||3035||894|
|Profit after Tax||228||334||316||482||12,736||115||-227||-501||2850||951|
|Earnings per Share||10.3||15.9||15.1||21.4||572.2*||6.6||-13.2||-29.1||165.2**||55.1|
** Includes gain on account of sale of the healthcare solutions business and sale of subsidiary - Piramal Diagnostics Services Private Limited
** Majorly includes gain on sale of 11% equity stake in Vodafone India and amount written down on account of scaling back of investments in NCE research
|Reserves and Surplus||1,006||1,051||1,275||1,643||11,803||11,208||10,689||9,287||11,701||12,388|
|Net Deferred Tax||89||90||73||57||48||50||-46||-41||-27||-14|
|Net Fixed Assets||1,224||1,259||2,039||2,113||1,582||2,089||6,081||6,682||7,342||8,367|
|Net Current Assets||563||580||669||891||9,584||4,297||4,419||2,704||3,934||5,529|
1. Redemption of 15,00,000 Preference Shares of ₹100 each.
2. Redemption of 15,00,000 Preference Shares of ₹100 each and 2,33,72,280 Preference Shares of ₹10 each along with proportionate dividend.
3. Buyback of 4,10,97,100 Equity Shares of ₹2 each at ₹600 per Equity Share.
4. Net increase in Equity Share Capital on account of :
- Allotment of 53,52,585 Equity Shares of ₹2 each to the shareholders of Piramal Life Sciences Limited (now known as Piramal Phytocare Limited) on demerger of its R&D NCE division into PEL.
- Buyback of remaining 7,05,529 Equity Shares of ₹2 each. With this, total number of shares bought back aggregate to 4,18,02,629.