IGI Logo

Past good, bad and ugly overshadows present progress

Akin to previous 3Qtrs, Q4 for PIEL was about multiple positive & negative oneoffs seen in the past. PIEL’s growth business (Retail and Wholesale 2.0) made good progress, and plan to convert PCHL into an NBFC-ICC and then merging the parent in PCHL and renaming it ‘Piramal Finance (PFL)’ addresses RBI/NHB compliance needs, paving way for the LT. However, this was overshadowed by one-offs such as reversal of AIF provisions following amendments in the Dec23 RBI Circular, gains on stake sale in its Shriram Investments holding, one-off tax gains, and a series of write-offs, impairment & additional provisioning on legacy Wholesale 1.0 assets. Overall, PIEL remains a WIP retail and wholesale lending franchise, with legacy pain now mostly behind; steering towards 3% sustainable RoA is likely to be a 3-4Yr voyage. We adjust our FY25-26 estimates; retain ADD and Mar-25E TP of Rs1,000 (implied FY26E P/BV of 0.8x).

A quarter and a year full of one-offs

Q4FY24 for PIEL was no different than the earlier three quarters, wherein the sustained improvement in underlying growth businesses was yet again lost in the noise of negative and positive one-offs from the legacy wholesale loanbook. The positive outcome of FY24 includes: i) Growth segments (Retail and Wholesale2.0) seeing strong growth and sustained improvement in profitability, with exit-quarter PBT RoAUM of 2.4%. ii) Wholesale 1.0 AUM run down to Rs140bn (with Rs25bn provisions sitting); Company has plans of running it further down to Rs70bn in FY25. iii) Gains & benefits from planned divestments of legacy stakes in Shriram Insurance ventures, inflows from written-off AIFs, and allowability of Rs105bn carry-forward losses shall provide for any further loss, given default in the rundown process of the legacy book. iv) Against the backdrop of not meeting NHB’s requirements of HFC, PCHL has applied for conversion to NBFC-ICC; the Board has decided to merge PIEL with PCHL and rename it ‘Piramal Finance’ (PFL). On the Q4 results front, credit cost, tax reversals, and investment gains set the agenda. (Exhibits 3-5)

Accelerated rundown of legacy Wholesale, along with Retail and Wholesale 2.0 led to profitable growth

Of the total Rs33.54bn credit cost in Q4, the legacy book has accounted for ~Rs32bn. The good news is that this book has run down to Rs140bn, and plans to run it down to under-Rs70bn in FY25 are in place. While Wholesale 1.0 continues to be run down, Mgmt expects AUM to grow ~15% in FY25, and log 26% CAGR over FY24-28, while targeting ~3-3.3% RoA by FY28. The growth businesses are shaping up well in terms of AUM growth, asset quality, and profitability. Conversion of PCHL to NBFC-ICC (due to not meeting NHB’s HFC requirements), as well as merger of parent with PCHL and renaming it Piramal Finance (PFL), address regulatory requirements (PCHL being in RBI’s upper layer required to be listed by Sep-25) and sets PIEL on the path to becoming a large diversified retail-focused lender.

We adjust estimates to reflect Q4 developments; reiterate ADD

To reflect Q4 developments and Mgmt commentary on growth ahead, profitability, and the legacy book rundown, we adjust our FY25-26 estimates – we cut our consol. AUM and earnings and now expect the non-lending minority legacy investments (Shriram Insurance venture, etc) to provide for any further provisioning/write-off needs on legacy book rundown; hence, we ignore these in our SOTP value. We value PIEL at 0.8x FY26E P/B, on core lending business networth, to arrive at our TP of Rs1,000/sh; maintain ADD

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354