We believe the ongoing growth momentum will continue to support upside potential for the company. We value the stock using (SOTP) valuation methodology (based on P/B for Financials and P/E multiples for other businesses) and rate it a BUY with a price target of Rs. 2,119.
In the current environment, PIEL is focused on (areducing its key large exposures such as Lodha, Wadhwa and Omkar, (b)lowering the share of short-term borrowings and (c) diversifying the loan mix to retail / lower risk assets. The company also plans to raise capital to reduce leverage. Moderating the growth estimates and higher costs, we cut our core PBT estimate by 15-18% for FY20/21. Key risk to our estimates could stem from changes in regulatory norms for NBFCs and outlook for real estate. Our revised SOTP based TP is INR 2,400.
Valuation view: In the current environment, PIEL is better placed to raise capital due to (a) lower leverage on the balance sheet – NBFC business at ~4.5x and consolidated debt to equity of <2x, (b) strong relations in the banking system and (c) high corporate governance reputation. PIEL has demonstrated its ability to roll over the CP without impacting growth. The share of CP in overall borrowings has come down to 15% from 18% a quarter ago. PIEL has strong liquidity on the balance sheet of INR54b+. We largely maintain estimates over FY18-21. We bake in loan CAGR of ~28% over FY18-21, with marginal moderation in margins and an increase in credit cost. Our PAT CAGR in FS business stands at ~24% during the same period. Key risk to our estimates could stem from any change in regulatory norms for NBFCs and large default in real estate financing, if any. Our Dec’20E SOTP-based target price stands at INR2,775. Maintain Buy.
Focus on maintaining liquidity and tracking early warning signals. PIEL has also been reducing its dependence on short-term borrowings and targets to reduce the quantum of Commercial Papers (CPs) from INR59b in 2QFY19 to INR35b by end-3QFY19. The company also has adequate liquidity amounting to ~INR76b on the balance sheet. We maintain our EPS estimates. Our September 2020 SOTP-based TP is INR2,735. Buy.
Global pharma business margins improving; Efficient capital allocation. PIEL has the distinction of being one of the few companies in India to generate 25%+ book value CAGR over the past 25+ years. We believe the company has it in its DNA to incubate and grow the businesses in niche segments. We believe there is a long runway to cross in the financial services business. Reiterate Buy with a TP of INR3,685 (September-2020 SOTP based).