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Building a retail-led NBFC with an emphasis on risk management

Targets doubling of lending AUM and steady-state core RoA of 3.0-3.3% by FY28 We attended the Investor Day hosted by Piramal Enterprises (PIEL). The company was represented by the senior management team at PIEL including Mr. Ajay Piramal, Chairman and Mr. Anand Piramal, Non-Executive Director, Piramal Group. Key takeaways from the session are as follows:

* PIEL’s vision is to become a leading NBFC, which will not only remain a dominant player in Housing Finance but will also focus on scaling up its other product segments to build a diversified Retail book. It will continue to leverage its phygital strategy of “High Touch and High Tech” to serve customers in Tier 2/3 cities.

* Wholesale 1.0 will continue to be rundown and alongside the company will focus on building a diversified and granular Wholesale 2.0 book. Management team on multiple occasions emphasized the importance of M&A in PIEL’s scheme of things given the healthy acquisitive track record of PIEL.

* Management guided that lending AUM would double to ~INR1.2-1.3t with a 70:30 mix between Retail and Wholesale by FY28. This implies a Retail AUM CAGR of ~23% and total AUM CAGR of ~15% over FY23-28. It also guided for a consolidated core RoA of 3.0-3.3% and leverage of ~3.7x by FY28. Improvement in RoA will be achieved through improvement in the NIM profile, moderation in opex ratios and achievement of steady state credit costs of 1.7-1.8%. Details on Retail and Wholesale RoA tree are covered later in the report.

* Our earnings estimates are unchanged and we estimate an RoA/RoE of 2.1%/ ~6.0% in FY25. Using SoTP (Mar’25E-based), we value the lending business at 0.9x Mar’25E BVPS, investments in Shriram insurance businesses at our estimated value, and Pramerica Life Insurance and alternatives at 0.4x trailing EV and BV, respectively. Reiterate BUY with a revised TP of INR1,280.

High Touch and High Tech retail strategy; credit risks still remain benign

* Jairam Sridharan (CEO – Retail), introduced his experienced and strong team wherein all individuals in the leadership team had strong credentials and illustrious careers in their previous organizations/roles.

* DHFL has been fully integrated with PIEL with everything from across branches reactivation, tech integration and conversion into multi-product branches being now complete. Disbursals in erstwhile DHFL branches have also accelerated with quarterly disbursals per branch at INR100m.

* Retail lending involves a High Touch and High Tech model across sourcing, underwriting and collections. Strong blend of personal discussions, property appraisal, parallel processing through integration of diverse data sources into machine learning (ML) models forms the backbone of underwriting decisions. It has a large collections team of ~1,200 employees and works with >160 agencies for collections. PIEL has >28K cases where SARFAESI is in progress and it also has >1,150 properties that were repossessed (including DHFL and POCI cases).

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