Add Piramal Finance Ltd for the Target Rs 2,100 by Emkay Global Financial Services Ltd
Piramal Finance reported a good 2QFY27, tracking management guidance on growth, profitability, and asset quality, with PAT up 67% yoy. As the legacy book (~1.5% of AUM) runs off, reported NIM should converge toward the higher growth-book NIM. The Rs38.5bn equity raise (QIP and promoter warrants) and a potential non-dilutive capital release provide ample runway for ~25% AUM growth. Profitability should improve further on operating leverage, a shift toward higher-yielding unsecured and gold loans, and lower COF. Since the AA+ upgrade, new borrowing costs less than the debt it replaces, while variable-rate assets exceed variable-rate liabilities, cushioning a rising-rate cycle. The management reiterated FY27 guidance of ~50% PAT growth and a 2.5% exit ROAUM. The draft IRDAI insurance-commission norms are a key risk to FY28 ROA, although the Pramerica Life stake and lower insurance sales incentives provide meaningful offsets. The ~Rs160bn of carried-forward tax losses and the Shriram stake add further shareholder value. To reflect 2Q developments and management commentary, we tweak our FY27–29 estimates and reiterate ADD with a Sep-27E TP of Rs2,100, valuing the stock at Sep-28E PBV of 1.3x.
Sustained growth and stable asset quality
Piramal Finance delivered strong 2QFY27, with growth AUM rising 30% yoy to comprise ~98.5% of the total portfolio, while consol AUM grew 24% yoy to ~Rs1.13trn. Consol NIM was stable at 6.5%, while continued operating efficiency drove retail opex-to-AUM down to 3.48%, supporting growth ROAUM of 2%. The legacy book further reduced to ~1.5% of AUM (~Rs16.73bn), and asset quality was stable, with growth credit cost at 1.5%, GNPA/NNPA at 2.4%/1.7%, and retail 90+ DPD under tight control at 0.7%.
On track for FY27; ROAUM levers intact
After a strong 1H, the management remains confident of meeting FY27 guidance of ~25% AUM growth, ~50% PAT growth, and 2.5% exit ROAUM, and reaching Rs1.5trn AUM by Mar-28. ROAUM should improve further on
1) reported NIM converging toward the 6.8% growth-book NIM as the legacy book runs off
2) stable-to-lower COB, as ~Rs375bn of debt maturing over 18 months is refinanced at cheaper rates following the rating upgrade, while variable-rate assets exceed liabilities
3) another 30–35bps cut in opex over six quarters
4) a mix shift toward unsecured loans (21% to 25–26% of AUM) and gold loans. Credit cost should stay benign, though the management remains watchful of IT-sector home loans and rising outside gold-loan exposure among borrowers. The draft IRDAI commission norms could cut FY28 ROA by 18–24bps (gross) and delay the +3% ROAUM target, though the Pramerica Life stake and lower sales incentives should significantly cushion the impact. With CAR at 20.1%, leverage at 3.6x (4.5–5x target), and a potential non-dilutive capital release over 12–24 months, the recent Rs38.5bn raise should fund growth for the next few years.
Adjust estimates; maintain ADD To reflect 2Q developments and management commentary, we tweak our FY27–29E estimates, leading to minor changes in AUM and earnings (Exhibit 5). We reiterate ADD with an unchanged Sep-27E TP of Rs2,100, valuing the stock at 1.3x Sep-28E PBV.
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