Piramal Enterprises Ltd

PEL stock has corrected from its high of 3088 posted in June 2017 to a recent low of 2280 levels. In the interim the results have been quite good but market perception to the company, the sector and general market sentiments have changed.

I think its time to look closely at the business of the company and try to figure out if there is an over reaction from the markets looking at the type of correction seen in the counter.

I think the biggest market fear has been about possibility of NPA in its main business of real estate lending. While AP has been maintaining that even if there would be defaults they could take possession of properties and get back their money, market fears would be that practically implementing this strategy might be difficult. Taking hold of property and then selling the assets could be time consuming and could face regulatory hurdles looking at the Indian judicial system.

Till date as on results of 31 Dec 2017, the NPAs have been under control.

Personally I feel all the problems faced by PSU banks have affected the mindset of investor community and hence a lot of companies in the lending space are being brushed by the same brush.

What impresses me about AP is that he has always been a step ahead of peers in terms of choosing the area of business he wants to be in.

As can be seen since past 2-3 quarters the company has started focussing more on construction finance and reducing the riskier mezanine finance.

With PSU banks being wary of lending with all their internal problems, the good quality NBFC might emerge winners as they would have a clear field to have strong growth rates in lending business.

Another interesting trigger which could play out in medium term could be the demerger if and when that happens. But once fear about one aspect gets into the mindset of people they cant see other things some distance away.

disc: invested in PEL and watching developments closely.

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