PremiumPiramal Enterprises Ltd’s March quarter metrics have perhaps failed to enthuse investors. The company reported a consolidated quarterly loss or ₹510, much of it due to one-time tax adjustments. As such, the net loss has narrowed from the previous year.
Shares of the company have dropped more than 3% today. The concerns are understandably from its finance business where the company saw stress increase and a continued rundown of its wholesale loan book. Piramal’s gross bad loans rose to form 4.5% of its total portfolio from the 3.7% in the previous quarter and the company has a restructured loan pile of ₹1,740 crore or 4.4% of its wholesale loan book. Although the company did not restructure any loans in the March quarter, it has one of the highest ratio of restructured loans in the industry. Another concern has been its large exposure to select developers such as Omkar Realty and to the Lodha Group.
To be fair, the company has managed to keep its asset quality from worsening and the continued rundown of its wholesale loan book has helped as well. Further the revenues of large real estate developers that Piramal has exposure to have shown good growth in the March quarter. Collections in April were robust despite the second wave of the pandemic, the management said in an analyst call post earnings. Analysts also point out the sufficient provisions the company has made towards these risks which safeguards future profitability. As such, the company is morphing into a retail lender even as the financial arm grows to form a large part of the net worth.
The transition to a retail lender will get a boost once the acquisition of Dewan Housing Finance Corp. Ltd (DHFL) is complete. Regulatory approvals are in place and the nod of the National Company Law Tribunal (NCLT) is awaited. DHFL’s acquisition has given a boost to Piramal’s valuations and the company’s shares have outperformed the broad market on the back of this development. “Over the next five years, we expect the company to make meaningful inroads in the Retail lending segment. Its strategy of product diversification will help it deliver strong growth, while at the same time reduce concentration risk," wrote analysts at Motilal Oswal Financial Services Ltd in a note.
Meanwhile, the company’s pharmaceutical business showed a robust performance. Most segments including critical care and over the counter reported strong growth in revenues. “We remain positive on the company’s growth potential and expect pharma revenues to grow at a CAGR (compound annual growth rate) 16.0% over FY21-23," wrote analysts at ICICI Securities Ltd in a note. While the pharma business gives enough support to valuations, the company needs to manage its DHFL acquisition deftly to avoid a dent in its market value.
