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    Piramal Enterp.

    PELGood
    Financial Services·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

    8

    • 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%.

    What Changed1

    vs Q2 FY25

    Guidance items5 → 6 (+1)

    Key financials

    Single quarter

    06 metrics
    1. 01Growth Business AUM₹54,273 Cr+55.0%YoY
    2. 02Consolidated PAT₹137 Cr
    3. 03GNPA2.4%0%QoQ
    4. 04NNPA80%-30%QoQ
    5. 05Capital Adequacy Ratio25.6%

    Segment breakdown

    • Growth Business (Retail + Wholesale 2.0)₹54,273 Cr46.5%
    • Retail Lending₹47,927 Cr41.0%
    • Legacy Business (Wholesale 1.0)₹14,572 Cr12.5%
    Donut· Share of AUM

    Guidance & targets

    6
    CategoryTargetPriority
    Volume
    Total AUM
    ₹80,000 crores
    		High
    Volume
    Total AUM
    ₹1.5 trillion
    		Medium
    Volume
    Retail Growth CAGR
    26%
    		High
    Profitability
    Steady state ROA
    3.0% to 3.3%
    		Medium
    Margin
    OpEx to AUM (Growth Business)
    4.6%
    		High
    Other
    Legacy AUM Reduction
    <₹6,000-7,000 crores
    		High

    Risks & concerns

    4
    RiskSeverity

    Legacy Book LGD Uncertainty

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

    medium

    NIM Compression

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

    low

    Regulatory Approval for Merger

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

    low

    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

    “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

    2 min read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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%.

    05

    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.

    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.