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PIEL’s Q2FY24 performance was a mixed bag, with continued headway in the accelerated rundown of Wholesale 1.0, sustained growth in retail and the granular Wholesale 2.0 AUM, and stable net credit cost (~1.2%), which mark material progress towards the stated objective of medium-term growth and profitability. However, the non-interest bearing assets driving lower yields overall, sticky Opex, and a one-off (Rs0.64bn loss on account of refund to the India Domestic REIT PMS investors) drove the miss in PAT, for the quarter. Factoring-in the Q2 developments, we revise our FY24-26 estimates, resulting in an EPS cut (~20% for FY25-26E) led by NII cut and decrease in income from JV. We reiterate our BUY, with revised down Sep-24E TP of Rs1,180/sh (Sep25E Core P/BV: 0.8x). Trading at Sep-25E Core P/BV of ~0.7x and making decent progress towards the stated goals, the stock is attractively valued.

Piramal Enterprises: Financial Snapshot (Consolidated)

Robust AUM growth in focus areas; profitability still suppressed

PIEL reported strong retail disbursement growth of 9.4% QoQ that led to retail AUM growth of ~10.6% QoQ/~58%YoY to Rs386bn, with overall AUM growth of ~5% QoQ/YoY to Rs669bn. Wholesale 1.0 rundown continued, with ~8% QoQ decline, while Wholesale 2.0 reported strong growth of ~48% QoQ, with the Real Estate (RE) book growing ~82% QoQ and the Corporate Mid-Market Lending (CMML) book growing 18% QoQ. Overall Disbursement growth in Q2 was ~18% QoQ to Rs80.7bn (Rs68.2bn in Q1FY24), led by strong contribution by its new Wholesale 2.0 growing 63% QoQ, while Retail grew 9% QoQ with all products growing above 20% (ex-unsecured segment, wherein PIEL consciously slowed down). Due to chosen changes in retail unsecured products at the partnership level, disbursal yield in Retail fell by ~50bps QoQ; but led by wholesale yields, NIM improved QoQ. Net credit cost at Rs1.98bn (~1.2% of AUM) was stable and well within the guidance. However, the non-interest bearing assets (Stage 3, SRs, Land receivables, etc) and sticky Opex, and a one-off of Rs0.64bn kept profitability under pressure (Exhibits 1, 4-6).

On the right track to achieve its FY28 goals

Notwithstanding minor irritants on its path to achieve accelerated rundown of Wholesale 1.0 and increased retailization of the loan book by FY28, PIEL is making remarkable progress towards its stated objectives (Rs1.2-1.3trn AUM; 2.8-3% RoA). As the Wholesale 1.0 rundown keeps reducing this book, one-off irritants will dwindle and turn immaterial. As the retail book builds up, credit cost is likely to see slight increase, but overall credit cost will stay stable as the Wholesale 1.0-led credit cost reduces.

The FY24-26 estimate changes build-in the Q2 developments; reiterate BUY

Accounting for the Q2FY24 developments, we adjust our FY24-26 estimates, leading to material reduction in our EPS, on NII cuts and reduced earnings from JV & associates. We reiterate our BUY rating on the stock, with revised down Sep-24E SoTP-based TP of Rs1,180/sh, valuing the core lending business at Sep-25E P/B of 0.8x and adding the value of stakes in Sriram General and life insurance entities Pramerica Life and AIF. PIEL is in for the long haul, to establish itself as a leading retail and wholesale lender, with sustained profitability. Beyond the short-term irritants on its journey, the company is making significant progress and current valuation remains attractive (Exhibits 2-3).

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