Piramal Enterprises stock slumps over 8% after net profit drops 64% YoY in Q1: Buy, sell, or hold?

Piramal Enterprises, a prominent diversified non-banking financial company (NBFC), experienced a 8.10% decline in its shares during today's intraday trade, reaching ₹905.40 apiece. This drop followed the company's release of its Q1 FY25 on Tuesday, post-market hours.

The company reported a 64% decline in net profit for the June quarter, falling to ₹181 crore. This significant drop was primarily due to a high base effect from a one-off item in the previous year. Its core net interest income increased by 18% to ₹807 crore, supported by a 10% rise in total assets under management (AUM) to ₹70,576 crore. However, the net interest margin narrowed to 6.7% from 7.3% in the same period last year.

Retail AUM has surpassed ₹50,000 crore, now representing 72% of the total AUM. The company indicated that disbursements were affected in the June quarter due to regulatory changes concerning fair practices but expressed confidence in achieving its FY25 target of 15% AUM growth, aiming for ₹80,000 crore.

Fee income remained stable year-on-year at ₹97 crore. Operating expenses as a percentage of AUM decreased by 104 basis points year-on-year to 4.6%. Pre-provision operating profit (PPOP) rose 48% year-on-year to ₹375 crore, while other income declined by 21% to ₹167 crore for the April-June period compared to the previous year.

Brokerage firm downgrades rating

Following the company's June quarter performance, global brokerage firm CLSA downgraded its rating on Piramal Enterprises to 'Underperform' and reduced its target price to ₹860 per share. CLSA noted that the company experienced negative credit costs due to lower provisions on Stage 1 and Stage 3 assets. Additionally, one-off gains supported what was otherwise a weak operating profit.

The firm's assets under management (AUM) grew by 10% year-on-year, primarily driven by a 43% year-on-year growth in the retail book. However, CLSA expressed concerns about certain segments of the retail book, which are continuing to show a deteriorating trend in 90+ DPD. This trend could put pressure on both growth and credit costs, with management indicating near-term pressure on the cost of funds.

Jefferies also weighed in on Piramal Enterprises, maintaining an 'Underperform' rating with a target price of ₹805. The company's June quarter net profit did not meet the brokerage estimates.

It said that the company utilized ₹2.6 billion of overlay provisions in Q1, which helped boost profit. While retail loans are growing well, the legacy wholesale AUM is expected to shrink further, leading Jefferies to anticipate a slow recovery in earnings.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.