Piramal Enterprises Ltd

(Utkarsh Pandey) #449

Piramal Housing Finance concall Key takeaways

  • Piramal housing finance is a subsidiary of Piramal finance which got the license on 4th September 2017.

  • Mr. Satish Mehta on board of Piramal Hsg ( 2nd important person in HDFC ltd)

  • In last 22 days, Co managed onboard 150 full-time employees, Senior Management team to look after Sales, Marketing, Risk depts. In 1st month of operations, AUM has grown to Rs.2000 mn with sizeable salaried mix; self employed customer base to drive biz ahead.

  • Opened 1st branch in Goregaon, next in Thane (in 1 week)

  • The key differentiators of Piramal Hsg Fin: a) using technology & analytics to provide quick TAT in disbursements b) customized products c) leveraging strong relationship with top developers (Focus on B2B2C model).

  • Targeted loan mix: 80% retail o/w LAP would be 15-20%, & small const. fin would be ~ 20%.

  • Mngt expects yields to improve from current level of 9.5%.

  • After testing products in MMR region, Co. will penetrate in tier II/III cities. Target to open 24 branches by 2020.

  • Tech enabled process & Hub & spoke model will help to control the costs. Hub based underwriting will ensure consistency in decision making & better control.

  • Brickex is India’s leading B2B aggregation platform focusing on sales & marketing of Real Estate & Financial Sevcs products. Properties sold through Brickex will be referred to Piramal Hsg Fin - low cost sourcing.

  • Focusing on affordable housing projects of developers with existing relationship, target top developers in Tier II/III cities for small const. fin & LAP- growth drivers.

  • Management confident to deliver ROE of 20% in overall financial services. Diversification of products and upgrade in ratings will improve leveraging capability and reduce the cost of borrowings which will help to enhance ROE.

Edit: If anyone thinks Housing Finance is a very competitive space please go through this video.

(Lotus) #450

Thanks for the summary @UtkarshP.

Any information on the
1) HF loan book size in 3 years and 5 years.
2) gross margin on loans
3) EPS contribution to priamal

They are trying to serve a overlooked market segment (it looks that way),
which has its own risk and rewards.

(smehta) #451

Piramal concall

More than 150 employees , senior management across verticals of sales , operations .
First branch in Goregaon and second in next week in thane .
15 developers in Mumbai region .
30 projects
5000 connectors
50 DSA - direct selling agents
200 crores AUM.

Thesis for HFC
We provide all product to developers , so only HFC was left to be added this basket .

It’s not a crowded industry because only 8-10 people have AUM of 10k crores .

Our model is B to B to C where developer plays a important role to connect to retail .

We provided relationship plus innovation to developers which gave us this AUM .

Tailored products -
SURF - Typically Indians buy flat of around 80% of net worth and not of what they will earn in future . And they land up taking sub optimal flat according to their need and want to change it in 5-6 years .
Thus they pre pay loan in 5-6 years of a 15-20 year loan .
So stickiness was missing , we solved it by encouraging customer to buy a bigger house after checking all risks and creditworthiness of customer and pay same EMI as they would have paid , if bought the smaller house they thought off and after 5 years we will step it up the EMI.
And now this product has been a hit , demand pull is coming for it all over the country .

"199 " - The super rich in india , if we go by their income you will not give them loan for buying in suburbs as their income is not strong , but aa we have real estate background and worked with various private equity , we can’t understand their wealth and capacity , so it helps to process loan under this product .

ROE for this business may not be strong as wholesale , but due to this tailored product , you will see good yield in this quarter result only .

We are known for our checks and balances and early warning signal .

Role of technology - The benefit of being a late entrant is technology which we would not be able to embraced if we would had a earlier player in HFC .
We developed technology that how we can onboard any channel partner in 45 seconds through RERA number that we get from them .
Also customer can check their loan file with company online easily and also all instalments and expenses .

We will also give loans to self employed sector , which is under served in housing finance especially in Tier 1 and Tier 2 .
We are making checks and balances which will allow us to give loan in 11 days .
Also Shriram housing finance who give loans to more under served than self employed who doesn’t have fix income , so we built our model on base of their philosophy .
Also ROE will be higher in this segment .

Another thing that will be played in coming quarter is the biggest platform of wholesale finance with 10,000 distributors .
Also apart from this , we will have ear to ground that how sales of our developers are going and they will also become our DSA .
Generally , other DSA keep on switching loans of their clients because they make profit that way but because our DSA would be home grown , there will be stickiness for us .
Brickex would also help us greatly in deciding price points and other parts of ecosystem .

Being a newcomer , we are keeping costs low from first day . We are operating through hub and spoke model , in MMR region we opened in Goregaon and one in thane for Easter region .
And thus we are done with , no more branches in Mumbai . We need some branches because it requires for credit assessment and if someone want to visit .

We have onboarded Satish Mehta , who had been at 2nd number in HDFC and every policy and nitigrity had gone through his eye in Piramal HFC .

Affordable housing and LAP are other things which we will provide .
Affordable housing is a production thing , now a days standardised flats are constructed so there is cost cutting and a very thin margin which is due to value engineering and profit is due to turnover .
It is coupled with Awaas Yojana .

We are making a product for affordable housing in coming month .
Other two will be LAP and small construction finance .

We will give LAP on base of income and not property based .
Cash flows will be seen at time of giving a loan .
Construction finance will start from six months in tier 2 cities of A grade developers .
Till now it doesn’t made sense for wholesale platform to go there and make 10-15 crores loan but now we will have a branch there which will take care of it .

Yield on 200 crores AUM
⁃ This is across 30 projects , 9.5% yield mostly salaried , because of tailored product and this is expected to increase . As insurance will also add up .
⁃ Developer is not paid till now for recommending us , this also decreased cost for us . And also we will give solution to various developers so they will not charge anything aa no DSA is involved .But we are also building a programme for fees for recommending us .
⁃ How to leverage brickex network - they bring stickiness to table , they will charge less but most imp things is stickiness . It will not be easy to take out that customers for other DSA .
⁃ Loan mix - small construction - 20% LAP - 15-20% of rest and other is housing finance .
⁃ Front end team will be different for retail but back end will be same .

We will go for top 10 cities and then simultaneously for tier 2 and tier 3 cities . It’s will be a mix and match . First priority is to stabilise our system , everybody can give loan but it’s return and recovery that differentiates .

Technology will be replicated but we will keep on innovating and tweaking existing models , also replication of strategy can be done but not execution .
Our wholesale and retail team works together which is not seen in other organisation .
Also everyone doesn’t have such understanding of real estate .
Today Piramal is partner of choice , post RERA and post demonetisation , as no guy gives such a variety and comprehensive range to developers .

Difficulties in affordable housing
⁃ First it will be tested in MMR region , some difficulties are easing out which makes us confident of opportunity . They are :-
⁃ Land prices have corrected to some extent as it is outside city limits , but not by 30-40% because of Slow sales
⁃ Also Consolidation of land due to distressed developers holding majority of land and they want to desperately sell even at discount unlike earlier where landowners with surplus land were holding .
⁃ Approvals are coming in faster in some states .
⁃ Cost of construction comes down due to standardised flats .

ROE threshold are there but can’t be said .
For overall financial services business , we will keep it above 20% on long term basis .
In short term , there will be cost pressures but we will broadly try to focus on self employed , tier 2 and 3 cities and we have a separate team for cost control .

How Shriram housing will help us ??
By method of proprietary underwriting , it is complimentary to us and not competitive , we will also go in joint venture in some of affordable loans where required for under served society informal people .
We will not be using their branches for cross selling

(~) #452

Business Standard 03-10-17

([email protected]) #453


([email protected]) #454

Price target Rs.3266.

(Marathondreams) #455

(Pod85) #456

Piramal Enterprise had a board meeting yesterday and the outcome and link are below:

  1. Raise 5000 cr via QIP route with a floor price of Rs 2688

  2. Raise 2000 cr via Rights issue at a price of Rs 2380. Interesting to note that Ajay piramal and family will participate to the full extent in the rights and even more if any PAC renounces it. Shows major commitment and belief in the future of his business model.

  3. Merge Piramal Finance and Piramal Capital with the newly formed Piramal Housing Finance Ltd in order to bring about management focus and reduced overall cost of funds.


(Marathondreams) #457

While Financial Services continues to grow fast, PEL does not want to reduce its focus on pharma which can provide stability to its earnings.

(Marathondreams) #458

Most important point to note about the QIP is about 90% of the QIP is underwritten by the Promoters. This shows confidence of the promotors about fund raising.

Also Knowing investor friendly policies from Piramal, it would be interesting to see pricing for rights issue whenever it opens for subscription.


The price has already been fixed. Rs 2380 per share.

(kashif kidwai) #460

But the current stock price is ~2800. Doing a rights issue at a price of 2380 where promoters are participating to full extent, isnt that preferential treatment of some at the expense of minority shareholders?

I’m not clear on this and would request comments from others. Piramal has been known for their impeccable corporate governance practises and maybe i’m missing something here.

Disclosure: Invested since 2012

(Amit Aggarwal) #461

In my view, promoter’s intent to subscribe to rights issue is a positive step instilling their confidence in the business prospects. How could this be a corp gov issue?
Please note promoter has ample ways of diluting equity and taking minority shareholders for a ride, however their participation in a rights issue where other minority shareholders get an equal opportunity is a welcome step.

(Kumar Saurabh) #462

I think the answers nay not be easy to answer. First , an article on understanding how these things impact shareholders

Now what I interpret out of this :
So, indirectly it gets diluted if additional money can’t generate additional profit on similar proportion. If more profit than proportion then dilution is beneficial .so all depends on if additions capital is generating higher return on investment or lower.

But here this comes as equity n it gives u opportunity to raise additional debt as financial form can leverage 7-8 times n if one can increase ansolute profit by infusing equity n hence more debt n even at lower ROE prior rights issue can generate additional ansolute profit which can 1. Lead to higher dividend 2. Higher valuation , still it’s beneficial to the shareholder who did not participate in rights issue n did not fo post together market purchase at same or higher price . So all depends on how diligently this additional funds r used to generate additional profit .the financial nature of business n ability to leverage 7-8 makes it more interesting from abdolute profit angle :grinning:
So, I believe this would give comfort that different price from market price is not a case of cheating minority shareholders but incremental business quality from this additional capital may have an impact on future valuations which is typical of business
Senior and knowledgable once in finance area, please correct /enlighten
Disc : holding

(Marathondreams) #463

Piramals are highly conservative promoters when it comes to dilution of equity. In last 13 years, they have never diluted the equity (ref : screener data) while growing their business multi fold. In many interviews, AP has mentioned that raising additional equity is least preferred option for him. If he is doing it now, I guess he thinks the business is ready for absorbing additional equity without affecting shareholder returns.

It is prudent to be a skeptic and look at Promoter actions with bit of caution. But AP’s past actions and performance gives me comfort that he is different than most of the other promoters, whose intent is to maximize their own benefits, many a times at the cost of minority shareholders.

Disclosure - invested for 2 years and hence I could be biased.

(abhishkjain2626) #464

I’m a novice. Esteemed members please help me with this: There are approx 17.2 crores shares outstanding. and given they plan to raise 2k crores via Rights at rs.2380 apiece, implying approx 84 lakh new shares, which means for every 20 shares held, a retail investor gets to buy one share. Am I right? To buy 55k worth of shares in one company is a large amount for most retail investors, isnt it? Even if they can, does the opportunity still exist if one purchases a large quantity now (i’m thinking this that the record date isnt set, or the record date is set of a date before the rights issue was announced)?

Disc: Hold a very small quantity

(rupaniamit) #465

Promoters own ~51.6% of the business. If Mr. Piramal is going to participate in rights issue in his personal capacity, family will have to shell out Rs 1000+ crores to participate fully. Looking forward to rights issue. :grinning:

Disc: Invested.

(ashishkaushal) #466

All, please see below link to the Placement Document of the QIP. It is highly useful document with several disclosures and risk factors associated with the company. you may find it useful.

Under the SEBI regulations, every QIP requires this document to be posted on the website.


(sunilgct) #467

As per the PD
Conversion Price ₹ 2,690 per Equity Share. In terms of the SEBI Regulations, the Conversion Price cannot
be lower than the Floor Price.
Our Company may offer a discount of not more than 5% on the Floor Price in terms of
Regulation 85 of the SEBI Regulations.

So if the sharepirce today itself 2625, why would anybody apply for rights?
Am i missing something?

(Pod85) #468

I believe the rights issue price is Rs 2380