Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Piramal Enterprises Ltd (BOM:500302, Financial) reported a 49% year-on-year growth in retail AUM, reaching INR 47,927 crores.
- The company's mortgage AUM grew by 38% year-on-year to INR 32,600 crores, forming 68% of the retail AUM.
- The Wholesale 2.0 AUM grew to INR 6,300 crores, with 67% in real estate loans and 33% in corporate mid-market loans.
- The company disclosed profitability trends for its growth business, reporting an FY24 PBT of INR 1,044 crores versus INR 751 crores in FY23.
- Piramal Enterprises Ltd (BOM:500302) has a strong capital adequacy ratio of 25.6% and a net worth of INR 26,557 crores.
Negative Points
- The legacy business reported a loss of INR 1,351 crores in Q4 FY24 due to increased credit costs from accelerated rundown.
- The company took a significant provision hit of INR 3,540 crores on its AIF portfolio in Q3 FY24.
- There was a 20 basis points increase in the cost of borrowing quarter-on-quarter, with the overall cost of borrowings standing at 8.9%.
- The legacy AUM reduced from INR 18,700 crores to INR 14,572 crores during the quarter, indicating a challenging rundown process.
- The company expects further incremental credit costs as it continues to reduce its legacy book, which may impact profitability in the near term.
Q & A Highlights
Q: The overall credit cost or loan loss provision disclosed is INR3,354 crores. Can you explain the breakdown and the rationale behind this large number?
A: The large credit cost includes INR1,400 crores of fair value markdowns on non-earning assets, INR1,000 crores for one-time settlements of large assets, and INR700 crores of management overlay for future provisions. These provisions are aligned with one-off gains to maintain net worth.
Q: Given the significant provisions taken, how do you justify the statement that the legacy book is self-funding?
A: The legacy book includes both loans and investments. Gains from investments like Shriram and AIF recoveries are used to offset provisions. The legacy book has been reduced from INR43,000 crores to INR14,000 crores with an LGD of 30%, and we have adequate provisions and value pockets to cover future hits.
Q: Can you provide more details on the land and receivables valued at INR1,962 crores?
A: Most of the value is concentrated in four assets. For more detailed information, you can reach out to our Investor Relations team.
Q: What is the expected growth rate for the retail book, and how do you manage the associated risks?
A: We are guiding a 26% CAGR for retail growth until FY28, down from the 49% YoY growth seen last year. We monitor risk through product-level delinquency charts, which show stable and benign delinquency rates across our portfolio.
Q: What will happen to the insurance and AIF businesses post-merger?
A: The insurance and AIF businesses will remain as associated companies under Piramal Finance Limited, which will own the 50% stake.
Q: Should we expect further provisions against the legacy book in FY25?
A: We have INR14,000 crores left in the legacy book, with provisions of INR2,500 crores and expected gains from AIF and Shriram. The LGD on the remaining book should be assessed against these value pockets. We aim to reduce the legacy book to INR6,000-7,000 crores by next year.
Q: Will the merger impact the company's dividend policy?
A: No, the dividend philosophy of Piramal Enterprises has been steady over the years, and the merger will not change this.
Q: Can you provide more clarity on the potential one-offs related to the merger?
A: There will be some changes in capital adequacy calculations, but no significant one-offs are expected. The merger process will follow regulatory guidelines, and we do not foresee any major challenges.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
