Have you ever been in a situation where you were trying to do something good, but it backfired on you?
For example, you were just helping a little boy in crossing the road, but it turned out you just parted the kid from his mother, who was trying to catch hold of her son.

Diversified company Piramal Enterprises is undergoing a similar fate right now. Ever since it announced the demerger of its pharma business last year, the stock has come under pressure.

Piramal went through this demerger as its financial business was contributing over 50% of revenues, so it only made sense to separate the pharma business so it can flourish on a standalone level.

But the demerger plans have not excited investors. In the past one year, the share price of Piramal Enterprises has fallen by 26%. YTD performance shows the same performance.

#1 Demerger Fails To Enthuse Investors

Piramal Enterprises' board, in October 2021, approved a demerger of its pharma business. In August 2022, the said demerger was approved by the market regulator.

The demerger will result in a new entity 'Piramal Pharma'. Piramal Pharma will run businesses like Piramal Pharma Solutions, an integrated contract development, and manufacturing organiSation; Piramal critical care, and the India consumer healthcare business selling over-the-counter products.

Piramal Enterprises will focus on the finance arena of the conglomerate. Hence the demerger will simplify the corporate structure and create two industry-focused listed entities.

Piramal Pharma is expected to be listed in the third quarter of the financial year 2022-23. The existing shareholders of Piramal Enterprises will get four shares of Piramal Pharma for every share held in Piramal Enterprises.

The merger is set to be recorded today i.e., 1 September 2022.

It appears that while this demerger will have long term tailwinds, investors are not enthused about it at the moment. Ever since the demerger was announced, the stock has seen a decline.

Remember how HDFC Bank share price was falling owing to uncertainties about the merger? Piramal's demerger could be another such case.

#2 Poor Financial Performance

The financial performance of Piramal Enterprises has not been up to the mark.

On a superficial glance, it may look like the financial performance for the financial year 2021-22 was bright because its revenues increased by 12%.

Source: NDTV
#Piramal