Piramal Enterp. — Q4 FY24 earnings call

Call held 8 May 2024

Management summary

Piramal Enterprises is undergoing a significant transformation, successfully shifting its balance sheet from legacy wholesale assets to a retail-heavy growth engine. The quarter was marked by a strategic decision to accelerate the rundown of the 'Wholesale 1.0' book, using one-off gains from Shriram and AIF write-backs to fund aggressive provisioning and write-offs. While this led to a loss in the legacy segment, the core growth business showed improved PBT and stable asset quality, supported by a major corporate reorganization to simplify the group structure.

Highlights

  • Announced a major corporate merger of PEL with its subsidiary PCHFL to simplify structure and meet 'Upper Layer' NBFC listing requirements by Sept 2025.

  • Growth Business AUM reached ₹54,273 crores, up 55% YoY, now representing 79% of total AUM.

  • Retail AUM grew 49% YoY to ₹47,927 crores, led by a 38% growth in Mortgage AUM (Housing and LAP).

  • Legacy (Wholesale 1.0) AUM reduced by ₹4,121 crores in Q4 to ₹14,572 crores; target to reach <₹7,000 crores in FY25.

  • Reported a consolidated Q4 PAT of ₹137 crores, despite a ₹1,351 crore loss in the legacy book due to accelerated rundown and provisioning.

  • Asset quality remained stable with GNPA at 2.4% and NNPA declining 30bps QoQ to 0.8%.

  • Capital Adequacy Ratio (CAR) stands robust at 25.6% with a net worth of ₹26,557 crores.

  • Management raised the FY28 AUM target to ₹1.5 trillion (from ₹1.2-1.3 trillion) with a steady-state ROA target of 3.0-3.3%.

Key financials

  1. Growth Business AUM ₹54,273 Cr +55%YoY
  2. Consolidated PAT ₹137 Cr
  3. GNPA 2.4% 0%QoQ
  4. NNPA 0.8% -30%QoQ
  5. Capital Adequacy Ratio 25.6%
  6. Cost of Borrowing 8.9% +0.2%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
₹1.17L Cr Total
  • Growth Business (Retail + Wholesale 2.0) ₹54,273 Cr 46.5%
  • Retail Lending ₹47,927 Cr 41.0%
  • Legacy Business (Wholesale 1.0) ₹14,572 Cr 12.5%

Guidance & targets

Volume

  • Total AUM Volume · FY25 · High confidence ₹80,000 crores
    On Slide 11, we discuss our AUM growth expectation of ~15% to INR80,000 crores in FY'25, despite the rundown in legacy AUM.

    — Ajay Piramal, Chairman

  • Total AUM Volume · FY28 · Medium confidence ₹1.5 trillion

    Previously ₹1.2-1.3 trillion → ₹1.5 trillion

    We now expect FY'28 AUM to be $1.5 trillion versus the earlier expectation of $1.2 trillion, $1.3 trillion.

    — Ajay Piramal, Chairman

  • Retail Growth CAGR Volume · FY28 · High confidence 26%
    If you look at the box at the bottom, we are guiding between here and FY'28, we are guiding a 26% CAGR on retail.

    — Jairam Sridharan, CEO Retail Lending

Profitability

  • Steady state ROA Profitability · FY28 · Medium confidence 3.0% to 3.3%
    Our steady state ROA target is unchanged to 3.0% to 3.3% in FY'28.

    — Ajay Piramal, Chairman

Margin

  • OpEx to AUM (Growth Business) Margin · Q4 FY25 · High confidence 4.6%

    Previously 4.9% → 4.6%

    OpEx to AUM in growth business... is expected to keep moderating by 4.6% by fourth quarter FY'25 versus 4.9% in fourth quarter FY'24.

    — Ajay Piramal, Chairman

Other

  • Legacy AUM Reduction Other · FY25 · High confidence <₹6,000-7,000 crores

    Previously ₹14,572 crores → <₹6,000-7,000 crores

    we expect the legacy book to further reduce to less than INR6,000 crores to INR7,000 crores or less than 10% of our total AUM in FY'25.

    — Ajay Piramal, Chairman

Risks & concerns

  • Legacy Book LGD Uncertainty

    medium

    Analysts questioned if the remaining 'chunky' assets in the legacy book would have higher LGD than the historical 30%.

    Analyst acknowledged

  • NIM Compression

    low

    Management noted an inch up in cost of funds led to some NIM compression in the growth business.

    Management acknowledged

  • Regulatory Approval for Merger

    low

    Management stated there is no indication of challenges regarding RBI approval for the NBFC-ICC license or the merger.

    Analyst downplayed

Areas of evasion (1)

  • Specific details on the 4 assets comprising the bulk of the ₹1,962 crore land and receivable book (referred to IR team).

Q&A highlights

3 direct
Logic behind massive ₹3,354 crore credit cost in legacy book Direct
We had a lot of positives come from the legacy book in the form of various one-off gains. We applied a lot of those positives to the same book in the other pockets where we believe losses might come... we have been able to self-fund a lot of that rundown.

Explains the strategy of using non-recurring gains (Shriram sale, AIF write-backs) to aggressively clean up the legacy balance sheet without eroding net worth.

Asked by Avinash Singh, Emkay Global

Historical Loss Given Default (LGD) on legacy book Direct
If you do that calculation, you will find that the hits that the company has eventually ended up taking, the loss given default has been of the order of 30%.

Provides a concrete benchmark (30% LGD) for analysts to model the remaining ₹14,000 crore legacy book's potential future hits.

Asked by Abhijit Tibrewal, Motilal Oswal

Sustainability of retail growth at current size Direct
I'm 100% with you that at this size at INR48,000 crores, we cannot possibly be growing the book at 45% to 50%... our guidance is for much slower growth in the coming few years... guiding a 26% CAGR.

Management acknowledges that the hyper-growth phase of retail is maturing and sets more realistic long-term expectations.

Asked by Abhijit Tibrewal, Motilal Oswal

2 min read 5 chapters

Detailed narrative

Strategic Corporate Reorganization

The Board approved a composite scheme of arrangement to merge Piramal Enterprises Limited (PEL) with its 100% subsidiary, Piramal Capital and Housing Finance Limited (PCHFL). This move simplifies the group structure into a single lending entity, renamed Piramal Finance Limited. The merger addresses the regulatory requirement for PCHFL, an 'upper layer' NBFC, to be listed by September 2025. Shareholders will receive one equity share of the new entity plus one 6.7% redeemable preference share of ₹67 for every PEL share held, with the process expected to take 9-12 months.

Growth Business Becomes the Core

The 'Growth Business,' comprising Retail and Wholesale 2.0, now forms 79% of the total AUM, up from 34% just two years ago. Retail AUM grew 49% YoY to ₹47,927 crores, with mortgages (Housing and LAP) making up 68% of the retail mix. Wholesale 2.0, focusing on real estate and corporate mid-market loans, grew to ₹6,347 crores. Management reported a Growth Business PBT of ₹1,044 crores for FY24, indicating that the core engine is now consistently profitable even as it continues to scale.

Aggressive Legacy Book Cleanup

Management took a strategic decision in Q4 to accelerate the rundown of the Wholesale 1.0 legacy book, reducing it from ₹18,693 crores to ₹14,572 crores in a single quarter. This acceleration involved taking ₹3,354 crores in credit costs and provisions, which were largely offset by one-off gains including a ₹871 crore gain from Shriram investment sales and ₹1,067 crore in AIF provision write-backs. The goal is to reduce this book to less than 10% of total AUM (under ₹7,000 crores) by FY25 and make it 'inconsequential' by FY26.

Asset Quality and Provisioning Buffer

Despite the aggressive cleanup, asset quality metrics remained healthy with a GNPA of 2.4% and NNPA of 0.8%. The company carries a provision of ₹2,516 crores against the remaining legacy AUM. Management highlighted that historical LGD on the legacy book has been approximately 30%, and they believe current provisions plus 'pockets of value' (like residual Shriram stakes and AIF recoveries) are sufficient to cover future hits. The mortgage book continues to show exceptional quality with a 90+ DPD of only 0.2%.

Revised Long-term FY28 Vision

Citing faster-than-expected progress, management raised its FY28 AUM target to ₹1.5 trillion, up from the previous guidance of ₹1.2-1.3 trillion. The target retail-to-wholesale mix is set at 75:25. Profitability targets remain ambitious with a steady-state ROA goal of 3.0% to 3.3% by FY28. To achieve this, the company is focusing on branch productivity (39% of branches are <2 years old) and moderating OpEx-to-AUM ratios, which are expected to drop to 4.6% by Q4 FY25.

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