BSE SENSEX
37,104
S&P CNX
10,983
Piramal Enterprises
CMP: INR1,965
Moderating growth
12 September 2019
Annual Report Update | Sector: Financials - NBFC
TP: INR2,400 (+22%)
Buy
Financial Services’ domination increases
The liquidity crisis, lag impact of demonetization, RERA implementation and stress
in the Real Estate financing space has weighed down the growth of PIEL’s Financial
Services (FS) business. FY19 saw PIEL’s customer assets grow by 34% YoY to
INR566b v/s 50%+ in the past few years. Nevertheless, dominance of FS in overall
revenue and operating profitability continue to rise with share of 53%/67% v/s
47%/67% in FY18
.
Pressure on margins (partially led by move towards low yielding Retail Housing
loans) and cost of Retail rollout weighed on profitability. ROAs declined ~50bp to
3.1%.
Stress loans increased with stage 2/3 loan share at 1.9% v/s 0.9% a year ago.
Outstanding provisions on the balance sheet stand at 1.8% of loans (stable YoY).
Real estate share of the loan book is down to 71.6% YoY v/s 75.9% a year ago,
helped by sharp rise in the share of Retail Housing loans (9.5% v/s 2.9% a year ago).
In the FS business, banks (71%), mutual funds (11%) and insurance companies (8%)
are the largest sources of funding. The share of CPs is down to 12% v/s 18% a year
ago. At consolidated level, the mix between floating and fixed rate borrowing is
75:25 v/s 43:57 a year ago and at the FS business level, it is 60:40 v/s 50:50 a year
ago. From an Asset Liability Management (ALM) perspective, ~84% (~90% in FY18)
of liabilities mature within three years, while ~55% (~58% in FY18) of assets mature
during the same period.
Networth allocation disclosure: (a) FS business at INR114b; (b) Pharma and IT
business at INR50b; (c) Shriram group’s outstanding value at INR72b; and (d) the
rest is DTA related with networth of INR36b. Outstanding aggregate debt of Pharma
and IT business stands at ~INR95b.
Pharma business: PIEL has implemented multiple initiatives for improvement in
margins, thereby resulting in global EBITDA margin increasing from 14% in FY13 to
23% in FY19. Domestic pharma business continues to show moderation and remains
a drag on overall pharma business’ profitability. Company sold the Imaging business
and booked loss of INR4.5b (pre-tax) at the consolidated level and INR12.9b (pre-
tax) at the standalone level (including investment write-off of INR8.4b)
In the current environment, PIEL is focusing on (a) reducing key large exposures
such as Lodha, Wadhwa and Omkar, (b) reducing share of short-term borrowings,
and (c) diversifying the loan mix to lower risk assets. The company also plans to
raise capital to reduce leverage – this would help lower its cost of funds in the
Financing business, which is currently elevated at 10.3%. Considering the
challenging environment, we expect the company to keep higher capitalization and
liquidity on the balance sheet. Buy with TP of INR2,400 (FY21E SOTP-based).
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
PIEL IN
199
392.1 / 5.5
3054 / 1652
14/-23/-31
1763
53.9
2021E
181.5
48.8
25.4
127.3
23.7
1,424
35.0
19.0
1.7
1.9
Financials Snapshot (INR b)
Y/E March
2019 2020E
Revenues
132.2 153.6
EBITDA
36.6
42.2
PAT
14.7
20.5
EPS (INR)
73.7 102.9
EPS Gr. (%)
BV/Sh. (INR)
Payout (%)
Valuations
P/E (x)
P/BV (x)
Div. Yield (%)
-5.2
1,275
38.0
32.8
1.9
1.2
39.5
1,342
29.2
23.5
1.8
1.3
Shareholding pattern (%)
As On
Jun-18 Mar-18 Jun-17
Promoter
50.8
51.4
51.4
DII
4.4
3.8
3.6
FII
27.5
28.0
28.7
Others
17.3
16.8
16.3
FII Includes depository receipts
Stock Performance (1-year)
Piramal Enterp.
Sensex - Rebased
3,300
2,700
2,100
1,500
Research Analyst:
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526 /
Tushar Manudhane
(Tushar.Manudhane@motilaloswal.com); +91 22 6129 1519
Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 6129 1539/
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 6129 1530
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.