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Levers in place to improve profitability; guidance intact Asset quality stable; potential impact on insurance commissions manageable

* Piramal Finance (Piramal)’s 2QFY27 PAT rose 67% YoY to ~INR5.45b (in line). NII rose 42% YoY to ~INR14.5b in 2Q (in line). Other income grew ~3% YoY to INR3.2b (~15% miss).

* Credit costs dipped to ~INR303m (vs. MOFSLe of ~INR473m), led by write-backs from the legacy wholesale portfolio. This translated into credit costs of ~1.1% for 2QFY27 (PQ: 1.8%; PY: 1.1%). PPOP grew ~64% YoY to ~INR8.5b (~10% miss).

* Piramal expects margins to gradually improve to ~6.8%, driven by a favorable business mix, declining CoB, and the continued run-down of the legacy book, which now accounts for ~1.5% of total AUM. The increasing share of unsecured lending, targeted to reach 25-26% of AUM (from 21% currently), should support portfolio yields. The refinancing of maturing higher-cost debt at a lower cost of ~8.4-8.5% and the upgrade in its credit ratings to AA+, will help it manage its borrowing costs better (relative to peers) in a rising interest rate cycle. We expect Piramal’s NIM to improve to 5.3%/5.6% in FY27E/FY28E (FY26: 4.7%), also partly aided by the equity raise in 1HFY27.

* Piramal’s target of achieving a 2.5% RoAUM by 4QFY27 is underpinned by operating leverage, a favorable business mix, and lower funding costs. The company’s calibrated expansion in higher-yielding unsecured lending, supported by granular risk-based underwriting and healthy asset quality, should enable growth while maintaining credit discipline. The execution of these strategic priorities will be key to driving a sustained improvement in profitability and delivering the company’s medium-term return aspirations.

* The stock currently trades at ~1.3x FY28E P/BV. We estimate an AUM CAGR of ~28% and a PAT CAGR of 48% over FY26-FY28, with an RoA/RoE of 2.5%/10.4% in FY28E. We reiterate our BUY rating on the stock with a TP of INR2,470 (based on Sep’28E SoTP; refer to Exhibit 1).

Sustained growth momentum; AUM targeted to double by FY28

* Total AUM grew 24% YoY and ~6% QoQ to INR1.13t. Wholesale 2.0 AUM grew ~24% YoY to INR140b while Wholesale 1.0 AUM declined to INR17b. The growth-to-legacy AUM mix has improved to 98.5%:1.5% in Sep’26.

* Retail AUM grew ~30% YoY to INR975b with its share in the loan book remaining stable sequentially at ~86%. Retail disbursements grew ~34% YoY to INR146b.

* Piramal aims to sustain strong growth, targeting ~25% AUM expansion in FY27 and doubling AUM every three years, implying a loan book of INR1.5t by FY28. Growth is expected to be driven by its expanding customer base of ~6.5m, deeper penetration and cross-selling, which contributes ~30% of unsecured disbursements and offers lower operating costs and better credit risk metrics than open-market sourcing. We expect Piramal to deliver an AUM CAGR of ~28% over FY26-28

Asset quality holds firm; underwriting remains disciplined

* GS3 remained stable QoQ at ~2.4% while NS3 increased ~10 bp QoQ to ~1.7%. Stage 3 PCR remained stable QoQ at ~31.4%.

* Retail business 90+ dpd remained stable QoQ at 0.7% (PY: 0.8%). Growth business credit costs declined to ~1.5% (PQ: 1.6%).

* Piramal maintained stable and healthy asset quality across its retail and wholesale businesses, with credit decisions in unsecured lending guided by subsegment-level risk and delinquency trends. While the company continues to monitor stress among home loan customers employed in the IT sector in South India, the stress has not spread to adjacent customer segments. Similarly, the weak monsoon has not materially affected agricultural-income customers, with bounce rates remaining stable sequentially and below 2QFY26 levels. We expect credit costs to moderate to 1.4%/1.6% for FY27E/FY28E (vs ~2.9% in FY26).

Highlights from the management commentary

* Piramal indicated that implementation of the IRDAI consultation paper in its current form from Apr’27 could reduce insurance commissions, resulting in an estimated gross impact of ~18-24bp on FY28 RoA. Any improvement in Pramerica Life Insurance's economics would flow proportionately back to Piramal Finance through consolidation, providing a natural offset to the potential reduction in commissions.

* Prepayments in the wholesale business remained elevated, with the company receiving INR18.9b during the quarter, equivalent to ~72% of disbursements.

Valuation and view

* Piramal delivered a healthy operational performance in 2QFY27, with a 30% YoY rise in its Growth business AUM and a 69% YoY decline in the legacy book, which now accounts for just ~1.5% of total AUM. Business momentum remained strong across secured and unsecured lending, supported by an expanding customer franchise and stable asset quality. Continued operating efficiencies, stable borrowing costs, and a favorable business mix are expected to drive profitability, with the company retaining its target of achieving RoAUM of 2.5% in the Growth business by 4QFY27.

* We estimate an AUM CAGR of ~28% and a PAT CAGR of 48% over FY26-FY28, with an RoA/RoE of 2.5%/10.4% in FY28E. We reiterate our BUY rating on the stock with a TP of INR2,470 (based on Sep’28E SoTP; refer to Exhibit 1)

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