Piramal Enterprises Ltd

@amitanam : As per Mr. KHUSHRU JIJINA of Piramal Fund Management, ARISTO has repaid most of the money with 24-26% IRR. Video can be fast forwarded to 8:35 where he talks about Aristo. He says that ARISTO is a long term client. I am not sure if Piramal is still lending them or not… Per KHUSHRU, Piramal is super selective with lenders in general. BTW, this is a good interview to understand PEL’s real estate lending and also to get to know Mr.KHUSHRU.

Hi Satish

I very much doubt that the company has got their money back from Mulund project, there are few other projects of Aristo in Mumbai where Piramal may hve got their money with interest, but i very much doubt about Mulund project. As per couple of local brokers the aristo mulund project is failed and wont complete for the next 5 years. (Project was launched in 2005)

Piramal Fund Management lends Rs 2,320 cr to Lodha Group
(It said this funding will enable Lodha to complete and deliver marquee projects in south and central Mumbai)

Hi Amit,

How big is the Mulund project? Even if Mulund project is in trouble, I think Aristo is still on the hook to repay…right? If Ariosto goes down, PEL has a problem. Based on the interview, PEL only lends to top players. Based on Aristo’s website, it has 19 ongoing projects. Also, good lenders like HDFC PMS, Piramal Capital, and IIFL lend them. Based on this info, I think Aristo can’t afford to loose market reputation and trust by not paying.

My 2 cents!

Piramal Fund management collects money from investors for deploying in various businesses for which it earns fees. It is not share holders’ money which is being lent to these builders.

It seems to me (and someone already raised this earlier) that Piramal is investing/ taking exposure in businesses that are murky. Has anyone done a contrarian analysis to this stock story (i.e. inverted) - if yes kindly point me to it.

Also there seems to be a strong dose of “authority bias” and “liking bias” w.r.t Mr. Piramal. While a great entrepreneur no doubt - my gut feeling is for allowing some more time before jumping on the sidecar bandwagon.

To quote WB: “A full wallet is like a full bladder; you may have the urge to pee it away.”.

Best regards
VD75

I agree they take pride in full recovery of funds from developers. Their high cost loan to developers is akin to subprime funding and vulnerable to systemic risks. Even quality and supposed cash rich builders are taking loan at 15%+ interest. On one hand everybody is lauding Piramal for great acumen, no one seems to talk about source and sustainability of this high return.

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ET Now tweeted that Piramal is initial stages of exploring banking license. Of late, there is bit more than normal chatter on Piramal. Some of the real estate deals are typical Piramal transaction of finding a defect in engagement to bargain for greater value but I am not sure if they are taking too much of bet on distressed assets and real estate. http://www.scoopnest.com/user/ETNOWlive/771639989868253184

@ShivKumar : Financial Services business has two main divisions - Wholesale lending and Alternative Assets under management. Wholesale lending is for construction finance (IRR at 14-16%) and pre-launch-post-land finance (IRR 16-18% IRR) on books and this is growing very fast (~100% growth). Capital allocation of this is on books. Capital allocation of Alternative Assets under management is off balance sheet. This is more or less stagnant in last 5-6 quarters.

PS: Financial services is evolving very fast. Financial services business was last restructured in June 2016. SIG was merged into Piramal Fund Management. Now, this is the one which is doing debt and equity financing.

I have been a skeptic there :slight_smile:

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Donald, Are you sceptic on Banking bit or on the counter itself? If on the counter, can you share some views on the same so that I can dig deep? I have holdings. Thanks in advance. Butun

It’s just the way I am built.
I like to see more of “Visibility” in coming 2-3 years, while keeping some “Faith”. I can’t invest when its the reverse case.

According to me, just too much is residing on “Faith” on the Jockey here. Not enough questions being raised, especially on newer initiatives - but that is my personal opinion - as I am biased.

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Recent Interview from Ajay Piramal to ET Now

http://economictimes.indiatimes.com/markets/expert-view/we-are-in-growth-mode-investing-in-all-businesses-ajay-piramal/articleshow/54222333.cms

Some may call it boring repetition but in my books, I call it consistency of purpose and consistent message. I like it when I see business leader sticking to their core mantra - here the mantra is to make money for all stakeholders. I like his dispassionate views towards his companies / investments.

I wish I could do that with companies in my portfolio :stuck_out_tongue_winking_eye:

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http://www.business-standard.com/article/finance/piramal-finance-to-raise-up-to-rs-10-500-cr-via-bonds-commercial-paper-116090901238_1.html

The following comments in the article refer to underlying risk. Wholesale funding is cost efficient but but risk is chunky…

The group has significant experience in the real estate sector through both, on-book lending and private equity investments, with robust risk management practices in place.

These strengths are, however, partially offset by the attendant credit and concentration risks associated with the wholesale funding business model. Going forward, the company’s ability to execute its business plans and growth profitability, raise funds at competitive rates for growing the portfolio, and maintain healthy asset quality would remain key sensitivities.
[http://www.icra.in/Files/Reports/Rationale/Piramal%20Finance%20-R-08092016.pdf]
(http://www.icra.in/Files/Reports/Rationale/Piramal%20Finance%20-R-08092016.pdf)

Now this is a bit too much and may be speculative… to 20 Billion in 4 years
http://www.livemint.com/Companies/WVM6V9CCVvewMwZTXbcrXP/IPO-push-Ajay-Piramal-aims-to-lift-valuation-fourfold.html

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I agree that growing market cap 4 times in 4 years is a bit of stretch. But even if he doubles in 4 years, that won’t be bad. Only concern is this - will the search for growth make him do things which he has not done in the past? Looking at his past record, I don’t think this guy goes after stock market glory. At the end of the day, you always “bet on the jockey, not the horse”. I am ready to take the bet!

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I feel otherwise. Massive Value Unlocking can happen with demerger of their pharma and information management division. Currently, market is not taking into consideration of Ajay Piramal’s investment in SCUF, STFC, and Shriram Capital, and if they decide do merge shriram group cos with PEL, that will force the market to value their stake.

If you listen to Ajay Piramal’s interview attentively, you will get the feel that PEL will grow 30%-35%+ cagr in coming years, Ajay Piramal told the interviewer that the growth will way more than 30%. NBFC will be the big growth driver for PEL.

Also, their non-compete period with Abott has ended. He can enter whichever pharma market he wish now.

There is always big optionality of value creation with Ajay Piramal cos. He can scale business like crazy, and than sell it at another crazy valuation without a single tinge of attachment. Very very few indian businessman can do that.

4x in 4years is 40% odd cagr growth in price, which will combination of internal growth (30%+), value unlocking by demerger, merger with Shriram group cos, and AP optionality.

Disc : PEL is 10% odd of my pf

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Subash, I think Donald’s comment on “betting on Jockey as risk” is still valid. My bigger concern is complex big financial deals on commercial lending. The NPAs could be chunky, though I hear them saying that the collaterals are adequate. But, from history we know that collaterals are never adequate or liquid. The fact of the matter is that real estate as business is heavily correlated with overall economy growth and the lending expansion to this sector in breakneck speed is a somewhat red flag. Then again he has taken contrarian bet and pulled it off in the past. My judgment against his judgment is more like showing a candle to sun. But my conviction is wavering a bit as I am not able to understand the quality of the deals when real estate sector is down in the dumps.

Thanks
Butun

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This is why It’s safest sector to bet on as one would be able to get best of the bargains against one’s available resources. This contrarian independent investment approach is precisely why I’m in awe of AP because, to quote CM, I like it when somebody I admire a lot agree with me. :slight_smile:

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Lending to Real Estate is definitely risky, even with collateral. That risk has turned into moat (a much misused word i would say) for AP. Unlike the rest of real estate lenders, AP has deep knowledge of Real Estate, so he can takeover the failed project, develop it, and sell it, and get back his principal, interest, and some profit. No other player can do that as per my knowledge. Also, one should go through the interview of “Khushru Jijina” to understand what they do.

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