How credible is this source of information?
Did you also manage to read through reports positive on Piramal? Its helpful to read both sides of the story I believe.
While you made it clear that you stay away from businesses in financial industry, what still keeps you interested in them that you invest time to write posts (mostly negative) in multiple threads - Piramal, Edelweiss, Yes Bank, Dewan, Bajaj Finance and more?
There has been talk of inventory buildup all the way from 2014. Here are some articles from all over the years. There are many more from Knight Frank and Liases Foras that you can look up.
https://housing.com/news/long-will-take-unsold-inventory-real-estate-clear/
I have read every post on this thread and I have come across quite a few. I am still quite skeptical about the NBFC business thats lending to real-estate.
I am in general a very skeptical person. Perhaps I am looking for disconfirming evidence that will change my opinion. Also, I am a newbie with an inclination to learning diverse things which may not be of immediate interest, so its only natural that I would want to know everything there is to know and what better way to do it than to read, write and express opinion? I have expressed in detail the reason for my avoiding Financials in this post here in response to a query from someone. You can look it up.
Does forum rule says one cannot write posts on threads in which one is not invested or so far has not been interested. As an investor we should be happy if someone is trying to fimd fault in business provided he is more or less logical, it helps us to check and revalidate our own thesis and makes our conviction stronger. It is a very dangerous sign I am seeing on every second thread of VP with comments like this âwhen you are not invested, why are you coming to this threadâ. This is not the spirit of separating wheat from chaff. I think as an investor, the sooner we learn to respect our critique the better it is for us. @adminph2 There has been a trend of posts like this where one group invested is asking not to post when other set of people are not invested. Kindly look into it as it does not leave a good taste when it happens repeatedly .
@phreakv6 I am invested in PEL and must admit that I am having a cautious optimism and I had gone through AMbit report when it came . To be frank , I am an admirer of ambit research but not their conclusions . I liked their research on many occassions which helped me to get deeper understanding of business but avoided their conclusions. Coming to PEL,
Now the negatives
Note : knowingly m not highlting NPA nos etc as I think this is an industry where evergrening can go years by rotating money n managing the denominator . As AP himself says he finds difficult to do due diligence of many financial companies, then, I wonder how much we can do and hence I rely more on ground scuttlebutt .
These all points does not have any meanings still corporate governance issue persists in Piramal. What is your take on the flashnet scam by Piramal. Is not it a big redflag?Please help us to get answer below queriesâŚ
Ajay Piramal very insightful interview today , competition will reduce and NIMs going to improve .
Its always good to hear him talk real estate. He also states that the real-estate sector has bottomed out. Weâd be silly not to consider and analyse this manâs words.
We (I am taking the liberty to include many others) respect @phreakv6 opinion and the point of view you bring to the forum irrespective if you are invested or not invested.
On many forum threads, it is quite common to have people who are on the buying side of the transaction. It is not uncommon to have oneâs opinion biased towards buying when one is on the verge of buying or already invested in the stock. We naturally look for confirming evidence if we get one, and sometimes we choose to ignore the unconfirming evidence. The worst thing in my humble opinion is not knowing the potential negative scenarios.
This forum enables one to understand a different point of view including a lot of negative scenarios which may happen. I think it is up to us as an investor to consider it or take it with a pinch of salt. We need counter view so please carry on having your point of view.
A company expanding rapidly, mainly by acquiring more debt at a time when there is mayhem/distress in the market remind me of an old- story of Daweoo corporation. If you are old enough to remember, Daewoo corporation was a big South Korean Chalobol, having multibillion-dollar assets in the late 1990âs. The owner of the company was a Korean war survivor whose family rarely had enough to feed for others during his childhood days. He (Owner) not only survived but made Daewoo corporation as one of the biggest company not only in South Korea but globally.
I remember during one of the crises in the 1990âs, Daewoo started acquiring companies/assets by issuing more debt. He had a fantastic quote which caught my attention âIf you shiver, you will feel coldâ. This motivated him to acquire debt funded asset. And no so long after that, Daewoo faced financial difficulties, I suppose due to the Asian financial crisis. His biography-Every Street Is Paved With Gold: The Road to Real Success- is a wonderful read, for those who love biographies.
I see something similar happening with PEL (not in term of facing bankruptcy, to be clear). The overall debt market is under stress, and the real estate market, in particular, is undergoing sea changes. In that market, PEL is expanding at breakneck speed and that too as an NBFC with more debt. Of course, it may not end up like Daweoo, but there is an inherent risk in expanding in risk market.
On the other hand, this could be a game changer for the company. Real estate is a difficult market to operate it as it involves litigations, delay, fraud and many of the real estate developers are âGundasâ having strong political connections. This means it is a relatively uncontested area, like banks, NBFC or shadow banking channel plays a part in it, but extreme cautions.
If PEL has build expertise in it, as they are clamming and demonstrating, it could be a niche they could exploit in years to come. Plus, they have guts, expertise, skills as well as the legal and financial power to take on builder or projects, which not many fancier would venture into. Rasesh Shah of Edelweiss has spoken some high-level number for real estate financing in one of his interviews. I think they are highly relevant here and will update once I find it out.
In my view PEL (Financial) demand is not a problem this is true for most of the NBFC. The differentiating factor is an execution, which PEL has a good track record, though even if not long or seasoned. If their execution is as they are claiming, I think PEL will be a force to reckon with in Financial services in the next few years.
Good points. The few years are passing by fast though for them to show up and execute. Will need to keep reviewing this story. What worries me though is the god like status people have given AP 
as though he can do no wrongâŚat the end of the day he is human
Disc: No holdings, not interested at present
Real estate companies - example of Sunteck.
Getting hit by debt crisis -
Raising money at 9.25% interest rate (5th Oct 2018)
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Earlier was on 20th July, 2018 at 8.40%
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Within three month significant rise in interest rate.If real estate inventory does not improve sell velocity, rise in interest rate will definitely impact balance sheet of real estate companies in a big way.
Does Piramalâs investment in real estate could get impacted due to rising in NPA?
Based on what I read in this forum and interview bytes, it seems Pirmal has structured their bets that aid them in both scenarios. i.e
Scenario 1 : Interest rate increase, they earn more ;
Scenario 2 : risk of counter-party default due to burden of additional interest out-go. Incase of default, they would step in and complete the project.
I am not sure of other cities, but in Mumbai they have launched project in Thane which is supposed on Lodhaâs land (not verified, speculation).
Again, I am not sure if there mutiple counterparty defaults would they be able to shore up so many resourse.
Disclosure : I am invested , but canât make up my mind to invest more. Please feel free to counter my thoughts !
Large amount of defaults are definitely a systematic risk. Having ability to take over projects would not help if there is large widespread defaults. Maybe up to a 5 to 10% of the book goes bad they would be able to step in but beyond that even for Piramalâs it would be difficult to take over and manage. Itâs an important risk and we should be clearly monitoring it for widespread defaults.
Interest Rate increase is generally hedged as loans are linked to base rate which increases when rates increase in the market (Base Rate + Margin) but margins do come under pressure if competition increases.
With funds limited in markets (smaller NBFCs would have difficulty raising funds from the market and PSU banks are saddled with NPAs and have lost ability to fund) - what Mr.Ajay Pirmal was hinting at is Margins would increase due to lower competition.
As per Kushru Jijinaâs above interview shared by @kitamr - PEL has been disbursing Rs 5000 cr of a loan over the last few months. (19:40 time in the interview).
I am curious to understand how they are funding such a massive loan disbursal?.
Assume that PEL has raised 5000cr from equity raising last years( They raised 7000 cr, but assuming that they are allocating 5k towards financial services). Add 5-time debt of 25k cr. So, in essence, they can disburse around 30k cr of a loan (5k equity + 25k cr loan).
But they are disbursing much more than that if I go by Mr Jijinaâs comments above?
Would appreciate if someone can shed some light on how PEL is souring such a massive disbursal?
Hi Parag
Please go through the below link. I am not sure how you are getting a figure of Rs.5,000 Cr. equity in Lending. Though precise amount has not been shared in the reports as per ICRA the tangible networth is ~8,2000 Cr which can be taken as minimum equity in lending business. PEL presentation also talks about equity in range of 10,000 Cr. in financial services (lending + Alternative AUM) and another ~7,300 Cr. of equity in retail lending business ( if you subtract investment in Shriram Group) you be left with ~Rs.3,000 Cr. of equity in retail lending business
http://www.piramal.com/assets/pdf/financial_investor_presentations/PEL-Financial-Services-Day-Investor-Presentation-Aug2018.pdf
PELâs Digwal plant expansion is facing publicâs opposition. How does this gonna impact PEL ?
Thank for your information, it is helpful.
My question was more on a generic level. In one of the presentations, I have seen PEL allocating Rs 5k to financial services and 2k cr to pharma business, hence my number above.
Even if we assume equity of Rs 10,000 cr in financial service and debt of equity of 5 (assume), PEL has access to Rs 60,000 cr of loans. In the above interview, Mr Jijina has said PEL is distributing Rs 5000 cr per month. At this rate, the equity will not last much. So I am wondering how PEL is sourcing so much funds to fuel huge loan growth ?
JM Financial said, strong promoter-backed NBFCs and HFCs will get disproportionate share of funding and competition from new and small NBFCs will come down massively.
Broker-backed NBFCs like Edelweiss and HFCs with ALM mismatch DHFL, PNB Housing, Repco will see growth slowdown.
It is up to us to separate wheat from chaff
Source
Piramal Enterprises : Board approved the allotment of 3,22,240 equity shares or face value of Rs 2 each at a conversion premium of Rs 2,688 per share pursuant to optional conversion of 8.056 CCDs of face value of Rs 1.07,600 each aggregating to Rs 86,68.25,600.
@paragbharambe - its high churn rate of loan book (repayment + pre-payment) + securitization of high ticket loans. Mr. Jijinaâs explanation to a question asked during Q4FY18 con-call:
