Skip to content

    Piramal Enterp.

    PELGood
    Financial Services·23 Oct 2024
    Management Summary

    Piramal Enterprises continues its structural transformation, with the 'Growth' business now dominating the portfolio at 84% of AUM. While the company is navigating a challenging retail credit environment—particularly in unsecured and digital loans—it is successfully offsetting rising credit costs through NIM expansion and operating leverage. Management remains committed to running down the legacy wholesale book to under 10% of AUM by March 2025 and achieving a 3% ROA by FY28.

    Highlights

    8

    • Total AUM grew 12% YoY to ₹74,692 crores, driven by a 45% YoY surge in the Growth AUM.

    • Growth business now accounts for 84% of total AUM, up from 34% in March 2022.

    • Consolidated Net Profit reported at ₹163 crores, with the Growth business contributing ₹130 crores.

    • Net Interest Margin (NIM) improved to 5.1% from 4.9% in Q1 FY25, aided by the mix shift toward higher-yield growth assets.

    • Retail AUM reached ₹54,737 crores (+42% YoY), with the flagship mortgage business accounting for 68% of retail AUM.

    • Legacy discontinued AUM reduced by 49% YoY to ₹12,066 crores, representing 16% of total AUM.

    • Asset quality remains stable with GNPA at 3.1% and NNPA at 1.5%; Capital Adequacy stands robust at 23.3%.

    • OPEX to AUM for the Growth business declined by 80 bps YoY to 4.5%.

    Concerns

    1

    • Stress in Unsecured Retail Loans

    Key financials

    Single quarter

    06 metrics
    1. 01NIM5.1%+4%QoQ
    2. 02GNPA3.1%
    3. 03NNPA1.5%
    4. 04Total AUM₹74,692 Cr+12%YoY
    5. 05Consolidated Net Profit₹163 Cr

    Segment breakdown

    • Retail Lending₹54,737 Cr73.3%
    • Wholesale 2.0₹7,889 Cr10.6%
    • Legacy Discontinued₹12,066 Cr16.2%
    Donut· Share of AUM

    Guidance & targets

    5
    CategoryTargetPriority
    Other
    Legacy AUM as % of Total AUM
    <10%
    		High
    Profitability
    ROA
    >3%
    		Medium
    Profitability
    AIF P&L Gain
    ₹1,200 crores
    		Medium
    Volume
    Retail AUM CAGR
    25-26%
    		Medium
    Margin
    OPEX to AUM (Retail)
    3.5% to 4%
    		Medium

    Risks & concerns

    4
    RiskSeverity

    Stress in Unsecured Retail Loans

    Steepest risk deterioration seen in sub-₹50,000 loans and business loans (including microfinance). — Both acknowledged

    high

    Rising Credit Costs in Growth Business

    Gross credit cost for the Growth business rose from 1.6% to 1.8% QoQ; management expects this could inch up further in Q3. — Analyst acknowledged

    medium

    Complexity of Legacy Wholesale Recoveries

    Recoveries are complex with many moving parts, leading to non-linear quarterly performance. — Management acknowledged

    medium

    Areas of Evasion(1)

    • Specific details on the Shriram Group insurance stake sale were withheld for economic interest reasons.

    Q&A highlights

    3

    “One, that the reduction through the course of the year will be Rs. 7,000 crores or a little bit more than that... And two, that reduction would be on a net worth neutral manner.”

    Confirms that the aggressive rundown of legacy assets will not result in a net loss to the company's equity due to offsetting recoveries.

    asked by Abhijit Tibrewal

    2 min read5 chapters

    Detailed Narrative

    01

    Structural Shift to Growth Business Nears Completion

    Piramal's transformation into a retail-led NBFC is nearly complete, with the Growth business now representing 84% of the total ₹74,692 crore AUM. This is a massive shift from just 34% in March 2022. The Growth AUM itself grew 45% YoY, driven by robust performance in retail and the new Wholesale 2.0 book. Management expects the legacy discontinued book to drop below 10% of total AUM by March 2025, effectively ending the transition phase.

    02

    Retail Strategy: Mortgage Dominance and Digital Caution

    The retail book reached ₹54,737 crores, with mortgages (Housing and LAP) making up 68% of the mix. Asset quality in mortgages remains exceptional, with 90-day DPD at 0.5% for housing and 0.3% for LAP. Conversely, the company has deliberately constrained digital loan disbursements, which fell to ₹562 crores from a peak quarterly run rate of ₹1,300 crores in FY24, as a response to elevated risk in the unsecured segment.

    03

    Wholesale 2.0: Granular and Delinquency-Free

    The new wholesale book (Wholesale 2.0) has grown to ₹7,889 crores, up 75% YoY. Management highlighted that this portfolio has experienced zero delinquencies since inception. The book is characterized by a granular average ticket size of ₹75 crores and an effective interest rate of 14.3%, benefiting from strong economic tailwinds in the corporate and real estate sectors.

    04

    Navigating the Retail Credit Cycle

    Management acknowledged that the retail credit cycle has entered a challenging phase over the last two quarters. While gross credit costs for the Growth business rose to 1.8%, Piramal claims to be better positioned than peers due to underwriting cuts made 12-18 months ago. They noted that their exposure to the high-risk sub-₹50,000 loan category is minimal, at less than ₹750 crores.

    05

    The Path to 3% ROA by FY28

    The company reiterated its medium-term goal of achieving a 3% ROA by FY28. The primary levers for this expansion include a 1% improvement in the ROA from reduced OPEX (targeting 3.5-4% for retail) and NIM expansion as the negative-margin legacy wholesale book is replaced by higher-margin retail and Wholesale 2.0 assets. NIM already showed improvement this quarter, rising to 5.1%.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.