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PIEL reported yet another quarter of ‘glass half empty or half full’ results. The continued growth in retail and Wholesale 2.0 AUM with stable asset quality, continued rundown of the legacy Wholesale book (without incremental credit cost), and the continued decline in Opex-to-AUM endorses the progress it has been making. However, the lower fee income (owing to shift in accounting to amortization of fee income), lower-than-expected realization from written-off AIF investments, increased interest cost owing to rising cost of funds, and increased borrowing led to a disappointing show on profitability. Overall, Q1FY25 marks another quarter of ‘gradual’ progress toward ‘Piramal 2.0’; even the Rs2.6bn write-off on land was out of management overlay of Rs9.46bn and was on account of disposal of the land asset. Looking ahead: i) On Rs130bn legacy assets there is a Rs20bn provision (does not include management overlay of Rs6.86bn), there is also the likelihood of recovery of Rs20bn from AIFs and Rs30-40bn from investments. ii) Retail and Wholesale 2.0 book is well on track to reach Rs1.25trn by FY27. To reflect Q1 developments, we adjust our estimates and reiterate our ADD rating with unchanged Jun-25E TP of Rs1,000/share (implying Jun-26E P/BV of 0.8x).

Good performance in terms of growth, asset quality, and credit cost PIEL reported a good quarter with growth AUM of Rs576bn (total AUM Rs705bn) registering sequential growth of 6% (51% YoY) along with stable asset quality and credit cost. Margin remained under pressure with NIM of 6.7%, declining by 30bps QoQ owing to increased borrowings, and the management expects pressure to continue over the next 2 quarters. Net Credit cost in Q1FY25 was 1.3% (gross 1.6%) and remained in a comfortable range. The improvement in credit cost was on account of annual recalibration in the ECL model. The company has reduced the PCR on combined Stage-1 by 70bps (1.9% from 2.6% in Q4FY24) and has increased the coverage ratio of its retail Stage-2 asset (from 3.3% to 11.8%). In Q1FY25, AIF recovery was ~Rs1.03bn which offset the loss on the wholesale book. In terms of asset quality and legacy book, the management highlighted that the wholesale book has not witnessed any slippage since FY22, whereas the legacy book continues to rundown. In the current quarter, the company has sold one land and utilized ~Rs2.6bn of management overlay against it

‘Gradual’ progress toward FY28 goals continues, but not without speed breakers With continuous rundown of its Wholesale 1.0 and strong growth in Wholesale 2.0 books and retail loans, PIEL is progressing well toward its objective of doubling its book by FY28 (from FY24), and the management indicated that it aspires to bring down the proportion of its legacy book to 10% by end-FY25. In terms of credit cost we don’t expect any negative surprise as the management holds management overlay of Rs6.86bn and have taken a substantial haircut already, whereas recoveries from the AIF is treated as an exceptional item (the management expects a recovery of ~Rs10bn in FY25). The management indicated that margins are expected to remain under pressure for next 2- 3 quarters on account of increased borrowings and shift in asset mix due to regulatory pressure, though it expects margins to be supported by increasing share of its cross sell and fee income. Considering the overall progress so far, we believe a 3% ROA is possible but would take some time (the management expects to deliver 3-3.5% ROA by FY28)

We adjust our estimates to reflect Q1 developments; reiterate ADD To reflect Q1 developments and the management commentary on growth, profitability, accounting adjustment, and the legacy book rundown, we adjust our FY25-27 estimates leading to material cut in our adjusted earnings estimates as we move the AIF recovery amount below adjusted earnings. We value PIEL at 0.8x Jun-26E P/B on core lending business networth to arrive at our TP of Rs1,000/sh; maintain ADD. We don’t ascribe any value to the various investments including the one in Shriram Insurance entities.

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