Piramal Healthcare, Ajay Piramal & Value Investing

Piramal Healthcare stock idea is a very well known one in value investing universe and it has been told eloquently here (PHL ).

The idea of putting this post came after reading another of Mr. Piramal's interviews. This post is not to prove that whether PHL is a good investment or not, but to showcase why Ajay Piramal classifies as a classic value fund manager. His past records clearly indicate that he is one of of the best known capital allocator in Indian context.
But, what I find equally fascinating is how he tackles various behavioural biases and shows traits necessary for one to be successful investor. Given below are excerpts from few of his interviews which showcase these traits.

Interview 1: Outlook Business

Overconfidence and Ego : On the groups strategy he says, "Also, when you adopt an acquisition-led strategy like we did, you have to keep your ego aside. I think many people overpay because when you make acquisitions, you hog the limelight. Across the world, most acquisitions don’t succeed because the CEO’s ego comes in the way — I have to do this and become numero uno. You have to be objective. If I lose an acquisition, I don’t lose sleep. If I gain one, I don’t go over the moon. Then, acquisitions don’t succeed if you don’t have a deep understanding of the industries, how this acquisition fits into your plan, and how can it create value for you."

Interview 2: Hindu Business line

Incentive Bias: Ajay Piramal, stays clear of advisors/ investment bankers as he believes they are motivated by their own incentives and not clients. To quote him 
"According to me in an acquisition, you have to understand, as your advisor, what is the vested interest of an investment banker …an investment banker, by and large how is the investment banker incentivised? Irrespective of whether he is selling to you or he is acting on your behalf , the way he is remunerated is if he does the deal. It doesn't matter. It is in his interest and his progress in his organisation also is – either his bonus or his promotion is dependent on how many deals he does. So he doesn't bother whether it's in your interest or not, he wants to get the deal done, so therefore he cannot offer you honest advice…I believe that you have to take your own decision.”

Interview 3: Business Standard 

Contrarian Ideas: On being asked why Piramal Group has been buying trophy realty assets in Mumbai when the property markets are still very sluggish. 
He replies saying, "Our strategy has always been contrarian. Because the market is sluggish, there is opportunity and we are getting much lower valuations. Take the Mafatlal Mills case. That asset was quoting at twice the price of what we finally paid for. In Mumbai, we believe the demand will never come down. But the market has stayed sluggish because in the last 1-2 years, approvals have not come in for good reason. Under earlier regime, anybody could get an approval and many defied logic. We decided to stay out at that time. Since it is becoming more transparent we are willing to enter and explore projects a lot more proactively."

Interview 4 : Deccan Herald :

Integrity & Circle of Competence: After the Abott deal he talks about the people approaching him with various ideas and how he was not lured by them "Because people knew we had money, we had so many people approaching us for projects in the infrastructure sector," he said. "These people had no experience and no knowledge and no track record of having built a business in any area. And yet they were coming to us saying we have licenses and approvals. That just didn’t sound right or smell right.They’d name politicians from the centre and the state who had it all tied up for them. It didn’t sound right. Obviously there were things going on in the system.

Each day, they paraded through his office: The investment banker who decided to build a 500-megawatt power plant, the coal trader assured of a government coal allocation, small-time miners with pretty presentations promising land, licenses and financing.

Interview 5: Moneycontrol

Long Term Approach & Humility : One of the interviewers asks Mr. Piramal that athough company has derived value of Rs.850/ share,  shareholder's are getting much less value. To which his reply is

"So Mr Singhvi I understand your concern as a shareholder that you are only getting Rs 500 a share. But I would ask you to be patient, the deal is not even closed yet, we have not even got the money yet and we have assumed that this is the value that we have created and in fact you are saying that we have destroyed value after having received it. Probably you are being too harsh and you are not giving enough time. So please understand—what the board would like to do and what the management wants to do with this business. We can create value through the existing businesses that continue to remain with the company.
We have demonstrated that in the past and we will continue to demonstrate in that. Our belief is that we as a management can create greater value for the shareholder if the money remains with us than it is in the hand of the shareholder and with us as promoters having the largest share a of holding, we would be very conscious that we have to create value, that’s one thing. I have also said that we will definitely consider a special dividend.
The third thing I am saying is that if in the next two years, if we feel that we cannot create greater value than what shareholders can do then we will return the money. But you have to look at it as a long term play. We have always looked at business not in one or two months play but as a long term play. That’s what I would ask our shareholders to do as well."

To me investing your money in PHL is akin to investing your money with a value investor who knows what he is doing and clearly establishes a hurdle rate for himself.

Regards,

PS- Invested in PHL