Piramal Enterp. — Q3 FY25 earnings call

Call held 27 Jan 2025

Management summary

Piramal Enterprises delivered a quarter characterized by a continued structural shift toward its 'Growth' businesses (Retail and Wholesale 2.0), which now comprise 87% of the total AUM. While consolidated profit remains modest at ₹39 crores due to legacy book haircuts, these were largely offset by significant AIF recoveries. Management is aggressively running down the legacy book while tightening credit standards in unsecured retail segments like microfinance to navigate a hardening credit environment.

Highlights

  • Consolidated Net Profit reported at ₹39 crores for Q3 FY25.

  • Total AUM grew 16% YoY, exceeding the full-year guidance of 15%.

  • Retail AUM reached ₹59,093 crores, up 37% YoY, now accounting for 68% of total AUM.

  • Legacy AUM reduced by ₹1,713 crores QoQ to ₹10,353 crores (13% of total AUM).

  • Consolidated business NIM improved by 60 bps QoQ due to a shift toward growth businesses.

  • Asset quality remained stable with GNPA at 2.8% and NNPA at 1.5%.

  • Recovered ₹551 crores from the AIF book, resulting in a P&L gain of ₹376 crores.

  • Capital adequacy remains strong at 23.7% with cash and liquidity over ₹8,000 crores.

Concerns

  • Legacy Book Haircuts

Key financials

  1. Consolidated Net Profit ₹39 Cr
  2. Total AUM ₹79,446 Cr +16%YoY
  3. GNPA 2.8%
  4. NNPA 1.5%
  5. Capital Adequacy Ratio 23.7%
  6. Cost of Borrowings 9.2% +0.1%QoQ

What they filed

Q1 FY26: revenue up 18.7%, net profit up 52.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY24Q3 FY24Q4 FY24Q1 FY25Q2 FY25Q3 FY25Q4 FY25Q1 FY26
Revenue2,193 2,476 2,473 2,227 2,288 +4%2,825 +14%2,854 +15%2,643 +19%
Net profit48 -2,378 137 181 163 +240%39 +102%102 −26%276 +52%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of AUM
₹78,362 Cr Total
  • Retail Lending ₹59,093 Cr 75.4%
  • Legacy AUM ₹10,353 Cr 13.2%
  • Wholesale 2.0 ₹8,916 Cr 11.4%

Guidance & targets

Other

  • Legacy AUM as % of Total AUM Other · March 2025 · High confidence < 10%

    From 13% today

    We reconfirm bringing this book down to less than 10% of total AUM by March 2025.

    — Ajay Piramal, Chairman

  • Merger Completion Timeline Other · September 2025 · Medium confidence September 2025
    We expect to complete the merger process, including the NCLT approval by September 2025.

    — Ajay Piramal, Chairman

  • Retail to Wholesale AUM Ratio Other · Medium Term · Medium confidence 75:25 to 80:20

    From 75:25 today

    I would say that our desire is for retail proportion to be 75% to 80%.

    — Jairam Sridharan, CEO (Retail Lending)

Margin

  • Opex to AUM Ratio Margin · Long-term · Medium confidence 3.5% to 4%

    From 4.5% today

    We aim to continue this trend in line with our long-term guidance of 3.5% to 4%.

    — Jairam Sridharan, CEO (Retail Lending)

Profitability

  • Steady State Credit Cost (Growth Business) Profitability · Steady State · High confidence ~2%
    See, we have stated in the past as well that the business that we are building is kind of roughly a 2% credit cost business.

    — Jairam Sridharan, CEO (Retail Lending)

Risks & concerns

  • Legacy Book Haircuts

    high

    The legacy book rundown involves significant haircuts (30% this quarter), requiring one-time gains to offset impact on net worth.

    Analyst acknowledged

  • Microfinance Delinquency

    medium

    90+ DPD in microfinance spiked to 5.5% from near zero a year ago.

    Management acknowledged

  • Unsecured Business Loan Stress

    medium

    Management saw a 'big steep fall' in business loans and is slowing disbursements in this segment.

    Both acknowledged

Areas of evasion (1)

  • Specific deal details for Shriram insurance stake exits were not provided beyond 'intent to exit'.

Q&A highlights

3 direct
Legacy Book Haircut Math Direct
Actually, if you just look at the quarter, the haircut is close to 30%, right? So roughly 30% haircut on INR 1,700 crores reduction.

Clarifies the actual loss taken on legacy asset sales and how it is being funded by existing provisions and AIF gains.

Asked by Avinash Singh, Emkay Global

Microfinance Asset Quality Stress Direct
Microfinance 90 days past due delinquency is at 5.5% versus virtually nothing 5 quarters ago.

Highlights a significant pocket of risk in the unsecured portfolio, though management notes it is only 2% of total retail AUM.

Asked by Kunal Shah, Citigroup

Branch Expansion Strategy Direct
For the next 1 year, 1.5 years, our focus is going to continue to remain on operating leverage... rather than continue to make any more investments.

Signals a shift from aggressive physical expansion to sweating existing assets to improve the Opex-to-AUM ratio.

Asked by Vikas Kasturi, Focus Capital

2 min read 5 chapters

Detailed narrative

Structural Pivot to Growth Businesses

Piramal Enterprises has successfully shifted its portfolio mix, with 'Growth' businesses (Retail and Wholesale 2.0) now accounting for 87% of total AUM, up from just 34% in March 2022. Retail AUM grew 37% YoY to ₹59,093 crores, driven by mortgage products which now make up 68% of the retail book. Wholesale 2.0 AUM also saw robust growth of 60% YoY to ₹8,916 crores, maintaining 100% collection efficiency since inception.

Legacy Book Rundown and AIF Offsets

The legacy discontinued book was reduced by ₹1,713 crores this quarter to ₹10,353 crores. Management took a ~30% haircut on these assets during the quarter, but the impact was mitigated by ₹551 crores in recoveries from the AIF book, yielding a ₹376 crore gain. The company remains on track to bring the legacy book below 10% of total AUM by the end of FY25, effectively cleaning up the balance sheet without impairing net worth.

Navigating Unsecured Lending Headwinds

In response to a worsening asset quality environment in the broader sector, PEL has proactively slowed disbursements in unsecured products. Unsecured disbursements were down 12% YoY, while secured products grew 24%. Specifically, digital loans saw a 25% AUM decline YoY as the company 'put some brakes' on the segment a year ago. Microfinance has emerged as a stress point, with 90+ DPD rising to 5.5%, prompting a shift toward branch-based origination and salaried customers.

Operational Efficiency and Merger Progress

The company is focusing on operating leverage, with the Opex-to-AUM ratio declining to 4.5% from 6.5% two years ago. Branch expansion has been moderated to 5-10 per quarter to focus on the productivity of the existing 514-branch network. On the corporate front, the merger of PEL into PCHFL is progressing, with name change applications filed and NCLT approval expected by September 2025, which will further simplify the corporate structure.

Liquidity and Capital Position

PEL maintains a very strong capital position with a Capital Adequacy Ratio of 23.7% and a net worth of ₹26,924 crores. The company has cash and liquidity exceeding ₹8,000 crores. Management also highlighted a new 'pocket of value' with an estimated $140 million in deferred consideration from the sale of Piramal Imaging expected in FY26, providing further buffer for the legacy book rundown.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Financial Services earnings calls