Piramal Enterprises slumps on shrinking operating profit; analysts mixed on future outlook

The company recognised a Rs 855 crore gain from the stake sale of Shriram Finance Limited.

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Shares of Piramal Enterprises slumped after the company reported a sharp drop in pre-provisioning operating profit (PPOP) – which excludes provision, exceptional items and taxes – for the quarter ended June 2023.

The company said its PPOP came in at Rs 263 crore, down 58 percent year on year (YoY), which reflects a weak business for the company. Overall, the company managed to report a 24 percent growth in net profit led by gains from the sale of Shriram Finance stake sale.

The company recognised a Rs 855 crore gain from the stake sale of Shriram Finance Limited. It sold an 8.34 percent stake (3.12 Cr shares) in Shriram Finance Limited for Rs 4,820 Cr at Rs 1,545 per share. The company will be using leftover cash to reward its shareholders.

The company said its Board of Directors has approved a buyback of equity shares of the company of up to 1,40,00,000 shares representing 5.87 percent of the fully paid-up equity shares at a price of Rs 1,250 per share, aggregating to Rs 1,750 Cr, through the tender offer route. The promoter and promoter group shall not participate in the buyback.

As of 9.50 am, the stock of the company traded at Rs 1,013 on BSE, down about 6 percent.

CLSA downgraded the stock to an ‘underperform’ rating with a target of Rs 1,150 citing the fact that its operating income halved due to net interest margin (NIM) compression.

Meanwhile, the non-bank finance company said its total Assets Under Management (AUM) stood at Rs 63,938 crore while retail lending grew to 55 percent of AUM, from 34 percent in Q1 FY23. Retail AUM grew 57 percent YoY to Rs 34,891 crore. Quarterly retail disbursements grew 132 percent YoY to Rs 5,707 crore.

“In the mid to long term, we aim to have a retail lending account for two-thirds of our assets, reflecting our strategic focus,” said Ajay Piramal, Chairman, Piramal Enterprises.

The company reported that gross nonperforming assets (NPA) ratio reduced to 2.8 percent of assets from 3.8 percent in Q4FY23. The net NPA ratio reduced to 1.5 percent from 1.9 percent in the same period.

Motilal Oswal maintained its bullish view on the stock with a target of Rs 1,260. It believes the company has already gone through the process of recognizing stressed assets and making corresponding provisions. It is now embarking on the resolution phase, and this quarter served as evidence of that progress.

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“A few more quarters of successful resolutions in the wholesale segment would further bolster confidence in the normalization of credit costs,” it said.

The brokerage house estimates an 18 percent AUM CAGR over FY23-25, including further moderation in the wholesale book and a 45 percent CAGR in retail AUM over the same period.

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