On Thursday, the conglomerate Piramal Enterprises saw a bull run ahead of its board meeting to discuss a proposal to raise 750 crore through private placements. Shares of Piramal increased by more than 2.5% on the day. Emkay Global analysts have given Piramal shares a “buy” recommendation because they anticipate the company’s loan book will nearly double to ₹1.21 lakh crore by FY27E at a CAGR of 15%. The NBFC has a presence in both retail and wholesale finance following the de-merger of its pharmaceutical business and assets under management (AUM) of ₹645.9 billion.
Piramal shares increased by ₹20.80, or 2.18%, to close at ₹976.30 per share on the BSE. The intraday high for the shares was ₹979.55. It has a market value of about Rs. 23,300.74 crore.
On September 23, the Piramal board of directors will meet to discuss and authorise the issuance of Secured, Rated, Listed, Redeemable, Principal Protected, Market Linked Non-Convertible Debentures up to Rs. 50 crore with an option to retain oversubscription up to Rs. 700 crore. As a result, the entire amount on a private placement basis adds up to ₹750 crore.
Piramal was given permission earlier this week to offer 2,150 secured market-linked NCDs with a face value of Rs. 10 lakh apiece in a private placement for Rs. 215 crore. It is planned that the debentures be listed on the NSE and BSE’s Capital Market Segment and Debt Segment, respectively.
Piramal Share Price Target; Should You Buy?
Manjith Nair, Rhave Shah, and Nemin Doshi Research Analysts at Emkay Global stated in a covering report dated September 22 that “analysis of the transaction reveals it to be NPV positive for PIEL.” It has propelled PIEL into a top HFC with retail assets of Rs 222.7 billion, an achievement previously attained over a period of more than 7 years by other similar-sized HFCs.
Through the retail leadership team led by Jairam Sridharan (ex-CFO, Axis Bank), PIEL has added 2,000 more workers to the 3,000-person DHFL workforce as of Q1 FY23. We predict that the retail portfolio of PIEL will double, from Rs 215 billion in FY22 to Rs 810 billion by FY27E—a feat previously accomplished on the DHFL network in FY18—with 100% of the formerly DHFL branches online. Unsecured loans, which make up 20% of the portfolio and are predicted to help produce 2.5% RoA by FY26E-27E, should complement secured products like house loans and LAP, which are anticipated to remain the retail portfolio’s mainstays.
They further noted, “We predict that PIEL’s loan book would nearly double to Rs1.21Tn by FY27E, at a CAGR of 15%, building on its purchase of Dewan Housing Finance (DHFL) and financed by the inflow of capital of Rs185bn, through share sales and the rights issue. With the support of an experienced leadership team, we anticipate that the retail portfolio will grow at a CAGR of 30% from FY22 to FY27E, while the wholesale portfolio is anticipated to undergo little change. As a result, retail assets are anticipated to account for about 67% of the portfolio in FY27E, up from the present 37% level.”
Additionally, according to the analysts, the business would make more provisions on its legacy wholesale book by the time FY25E rolls around, going from 8.3% in FY22 to 18.3%. Credit costs are projected to be 116 basis points during FY23–25E, net of POCI recoveries (FY22: 133bps).
On valuation, the analysts note said, “We initiate coverage with a BUY rating and Sep-23 TP of Rs 1,360, based on SOTP methodology, valuing: i) the financial services business using the Excess Return on Equity (ERE) method for a per-share value of Rs 845, implying 1.03x of Sep24E BVPS; ii) Investments in Shriram Finance based on our TP for Shriram Transport and Shriram City Union Finance, post holdco discount, at Rs 179 per share; iii) Investments in the AIF and Insurance at allocated equity book value of Rs 58 and Rs 40 per share, respectively; and iv) the unallocated networth at Rs 237 per share. Key risk: Integration issues from the merger due to mismatch of corporate culture and technology.”