IGI Logo

Piramal Finance posted largely in-line 1QFY27 results, with AUM growth (~25% yoy of total; 32% yoy of Piramal 2.0), margin/ROA, and asset quality/credit cost tracking Management guidance on growth, profitability, and predictability. With legacy AUM reduced to Rs25bn (~2% of total AUM) and achieving credit rating upgrade to AA+ by multiple rating agencies, the company is well positioned to sustain growth momentum with improving profitability, driven by operating leverage and improved COF in its preferred retail and wholesale segments. The value unlocking potential from some existing investments, including stake in Shriram General, and the large pool of carried forward losses making the company tax free for the next 4-5 years, act as a top-up to shareholder value. Also, the Board approved capital-raise of up to Rs40bn via equity/convertible debt, for funding growth in the business. To reflect the 1Q developments and management commentary, we tweak our FY27-29 estimates; this leads to minor changes in AUM and earnings; we reiterate ADD on the stock while revising up Jun-27E TP by 12.5% to Rs2,250 from Rs2,000, valuing it at Jun-28E PBV of 1.4x.

Sustained growth and stable asset quality

Piramal Finance delivered robust 1QFY27 results, with growth AUM rising 32% yoy to comprise ~98% of total portfolio, while consolidated AUM grew 25% yoy to ~Rs1.07trn. Consol NIM was stable at 6.5%, while continued operating efficiency caused retail opexto-AUM to reduce to 3.5%, supporting growth ROAUM of 1.9%. The legacy book further reduced to ~2% of AUM (~Rs24.5bn) and asset quality was stable, with growth credit cost at 1.6%, GNPA/NNPA at 2.4%/1.6%, and retail 90+ DPD in tight control at 0.7%.

Capital raise to support growth

Despite leverage (AUM-to-equity) at a modest 3.7x, the company’s regulatory Tier 1 capital ratio is 18.85%; this led to the Board approving capital-raise to support the strong growth. The lower regulatory capital versus net-worth is owing to various factors, including 1) investments in Insurance (Pramerica Life and Shriram General) and other financial entities being taken off the list during calculations of Tier 1 capital; 2) deferred tax assets removed from the list; 3) upfront income from DA and Co-lending being taken off the list. Some of these strains are likely to gradually reduce; also, we believe organic capital accrual will improve on account of improving profitability and the company will generate capital from some divestments, including Shriram General and Fibe. Hence, capital-raise of Rs 40bn will be sufficient to fund growth for coming ~3 years, in our view

We reiterate ADD; revise up TP by 12.5% to Rs2,250

To reflect the 1Q developments and management commentary, we tweak our FY27-29 estimates; this results in ~1-2% increase in AUM along with ~5% cut in FY27E EPS with FY28E/29E EPS unchanged. We build in capital-raise of Rs40bn by FY27-end at current prices. Overall, Piramal Finance is on the guided path in terms of growth, profitability, and predictability. With the operating leverage and rating upgrade play continuing to drive improvement in profitability, investors should look at the profitability ratios in FY28 and beyond. We reiterate ADD on the stock while raising Jun-27E TP of Rs2,250, valuing the company at 1.4x Jun-28E PBV.

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