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Piramal Enterprises - Consolidating wholesale mortgage; going LIVE with multi-asset retail lending - ICICI Securities

Posted On: 2020-10-30 08:25:53 (Time Zone: Arizona, USA)


Piramal Enterprises' (PEL) preparedness to navigate the challenging real estate environment is visible in its fortified balance sheet strength: i) enhanced capital base - 34% CAR; ii) reduced 'net debt to equity' - 2x; iii) superior NIMs - 6% plus; and iv) providing for 5.9% of advances. This further imparts confidence especially when early trends are indicating that stress may settle lower than what was modelled under the worst-case scenario. Consequently, Q2 was the second consecutive quarter of no contingency buffer creation. Also, PEL is all set to go LIVE with its multi-asset secured retail digital platform next month, which will drive growth. Pharma business too reported strong performance with 9.5% YoY growth. Retaining the target price at Rs1,470, we upgrade PEL to BUY in view of the recent correction in stock price.

- CDMO leads pharma business performance: PEL reported 9.5% revenue growth in Q2FY21 driven by 19.3% YoY growth in the CDMO segment. Growth in CDMO was driven by strong orderbooks and approvals for four NCEs. Although the critical care segment declined 8.4% YoY, it recovered 35.2% QoQ. This was due to some recovery in the postponed elective surgeries raising demand for anesthesia products. OTC reported a healthy growth of 25.0% YoY with improving consumer sentiment and timely launch of Covid protection products (sanitisers, masks, etc.). We remain positive on the growth potential and expect the pharma segment revenues to grow at a CAGR of 7.9% over FY20-FY23E.

- Consolidating wholesale mortgage book; stress estimated to be lower: Loanbook stood at Rs515.2bn, broadly flat QoQ and down 3% YoY. Early trends indicate better performance of its developer clients - their project sales are back to 100% of pre-Covid levels, their collections from homebuyers are at 82% of pre-Covid, construction has commenced at nearly 100% of sites, etc. Company has not given any guidance on restructuring and expects clarity to emerge by Dec'20. However, it pointed out that existing provisions are adequate for potential restructuring. We are building-in a credit cost of 2% each year for FY21E and FY22E.

- To go LIVE with multi-asset retail lending: Having onboarded its senior management team, PEL will go LIVE with launch of secured retail lending this November with four products, seven variants, 26 locations and two partnerships. By next year, it will activate almost 40 locations for its retail lending platform. It is looking to carve out a differentiated niche targeting mass, affluent and affordable housing segments in tiers-2&3 cities with strategic partnerships and leveraging digital to its core. It aims at 50:50 mix between retail and wholesale portfolios in the medium term.

- Succession planning of independent directors; smooth functioning of Board: Being cognizant of the imminent maximum tenure guidelines and to ensure continued smooth functioning of the Board, it has had discussions relating to succession planning for Independent directors. In this regard, three independent directors - Mr. Keki Dadiseth (75 years), Dr. R. A. Mashelkar (77) and Professor Govardhan Mehta (77) - have tendered their resignations.

Shares of PIRAMAL ENTERPRISES LTD. was last trading in BSE at Rs.1261.55 as compared to the previous close of Rs. 1215.25. The total number of shares traded during the day was 49182 in over 4000 trades.

The stock hit an intraday high of Rs. 1271.2 and intraday low of 1223.5. The net turnover during the day was Rs. 61518277.


Source: Equity Bulls

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