Piramal Enterprises Ltd


#1088

The real problem isn’t in completing a project but in selling out units in a project.
When a project is sold out, then the customer advances more than cover the construction cost of a project.
The final 30% stretch of residential construction can take as much as 60% of total construction cost.
That’s a lot of float that the builder gets to play with.
Finance is only needed till a project sells out to a level where it becomes self sustaining.

PEL isn’t funding construction as much as buying time for a builder so that he can find buyers for his unsold inventory and then he can repay PEL and other lenders.

Successful projects have a public perception of being fully sold out or few units left. The reality can be that a builder is struggling to keep lenders at Bay while carrying unsold inventory.

Now the problem is in almost all markets if something isn’t selling than lowering the price is the rational choice.

Unfortunately this goes against rule #1 of Indian real estate that you never lower prices come what may.
If prices are lowered, builders face unbearable heat from some big investors and they also cause a stampede like effect of sellers wanting to get out in surrounding projects.

No one has ever repealed the laws of supply and demand - Jim rogers.


(deeps2884) #1090

Real Estate Sale is definitely a problem and industry is suffering from huge unsold inventory - but what i have seen as a real estate professional is that if you ensure “the right product and price it right” you do get good sales velocity (infact i have seen amazing sales numbers). Problem is most builders work on a hunch (they just do not spend enough time researching the type of product which customers want or if sufficient demand is available for that product, pricing it right and ensuring proper design). This problem is more acute with smaller and medium size builders the big builders are predominantly now launching projects with proper market study and they have the team to ensure good sales - Sales team, Marketing team, CRM, Design etc. (These are generally the top 10 developers PEL is funding now!). I am not saying things do not go wrong in big builder projects but there is a clear distinction and if you apply enough due diligence you can avoid funding such projects.

Further I would like to add that people generally hugely under estimate the difficulty in construction - its not an easy to get necessary approvals and ensuring construction within budget and timelines. That’s the reason most financiers even when they see the builder mismanaging the project do not step in. PEL clearly has an edge here and this is what I had high lighted.


#1091

Based on the news and the valuation figure, whole pharma is not getting sold. Pharma business has 3 main divisions - CDMO(aka Pharma Solutions), Critical Care( pain management- inhalation, injectable anasthesia etc) and India OTC. Only the Pharma Solutions (CDMO) is on the axe I think. IMHO, this is a low margin business. Critical care and OTC are the future and that is where acquisitions are happening.


(Shiv Kumar) #1092

in these matters it is best to trust the promoters. AP is a man who
can think far ahead as his track record since the 1980s have shown. As
he harps at every AGM, promoters own 60 per cent in the company so
they cannot afford to make mistakes.

disclosure: holding

shiv kumar


(saumya) #1093

An insight into how piramal HR works https://m.timesofindia.com/business/india-business/annual-bonuses-in-bfsi-can-lead-to-short-term-thinking/articleshow/66252537.cms


(Vasu) #1094

Piramal has approx 22k crore listed as non current investments in balance sheet. That is almost a staggering 40%,any one scanned the annual report recently to see where this money is?


(Julian) #1095

If you analyse the balance sheet of a share holder friendly management reputed for corporate governance, you will find a lot of hidden wealth. Hence the investments in PEL balance sheet should not be a surprise. On the contrary the balance sheet of a fraudulent management, will have a lot of cockroaches and hidden liabilities.

The return on equity of the real estate financing business of PEL is close to 20% as per management statement. However the ROE of the whole business is around 9%. Hence the ROE of the pharma business could not be more than say 5%. In the previous concall Ajay Piramal had informed that he intends to sell off a part of the pharma business which are not performing. Hence I welcome the sale of poor ROE generating pharma business. I believe that the main hindrance for the demerger is the poor ROE of the pharma business. As and when this is corrected demerger should take place. Hence the sale of parts of the pharma business was highly overdue and a step in the right direction. If the sale goes through, Piramal will have plenty of funds to deploy at more than 20% ROE in a collapsing real estate market, gasping for finance, where he will be the lone savior, minting money from the opportunity at very high ROAs. The collapse of the real estate market has already been predicted by the Piramal Management several times, and only the top 10% real estate developers are expected the survive. We need to trust and believe in the genius of Ajay Piramal to do the right things to enhance shareholder value.
Disclosure: Invested


(Growth_without Debt) #1096


(Growth_without Debt) #1097

Significant upcoming term debt repayment: PEL has term debt repayment of about Rs 4,424 crore in fiscal 2019 and Rs 2,208 crore in fiscal 2020 (for the non-financial business), which will require part-refinancing as cash generation from operations and available unutilised bank limit may not be adequate. Nevertheless, PEL’s management has demonstrated its ability to arrange for refinancing of debt obligation in a timely manner, and is expected to continue to do so.
https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Piramal_Enterprises_Limited_September_17_2018_RR.html


(kashif kidwai) #1098

Maybe now the decision to sell the contract pharma manufacturing business appears more logical? A lot of that debt would be denominated in foreign currency since it was taken to finance the overseas acquisitions.


(Deepak Venkatesh) #1102

Hi

I think we might be inferring at a first level. Looking at it more granularly we come across this data( Jan 2017 onwards till now).

This is the acquisition of shares each category has done.

image

In 2017 the CFO who has been getting ESOPs for a long time seems to have sold in the market ie 19,000 shares He owns ~200K+ shares still as per AR.
In 2017 the promoter group except the Piramal Corporate Services Ltd Trustee of the Piramal Welfare Trust rest of the txns seem to be exchange of hands. This welfare trust actually over the years has been a major acquirer of stocks (32 crs acq vs 8 crs disp).

Out of all the individuals (outside the promoter group) there has been only 1 employee who sold shares - 500 of them, I think he still holds 7500 shares.

So calling it manipulated might not be the right thing to say imho basis this data.

Rgds


(phreak) #1103

Hi Deepak,
My claim that its manipulated isn’t from this particular data. The inference from the data in the post is just that there has been continuous selling by insiders.

As for my claim of manipulation, it comes from technicals. For that, i have to go back to my early research in this post and then a follow up in another post in the same thread.

Based on these two charts, it looked likely to me that a false breakout was coming as pointed in the post above.

and that is what transpired

This is solely based on the price/action I observed during those weeks in August. This is the time there were rumours in the media of demerger and then AP appeared on CNBC giving interviews just after the false breakout. I have noticed this sort of thing is very manipulated and happens from time to time in all sorts of stocks. VIP is a recent example that comes to mind. This is solely from my experience observing how the markets function skeptically and how stories are spun. This is why I made the claim that the price-action in August/early Sept was very manipulated. The same thing happened in March last year when PEL was in the news regularly and the activity in this thread was on a high (usual red flags for me). Just thought I should clarify.

Regards,


(Vasu) #1104

Blockquote
Piramal has approx 22k crore listed as non current investments in balance sheet. That is almost a staggering 40%,any one scanned the annual report recently to see where this money is?

Answering my own question , significant part of the 22k crore investments include subsidiaries and ShriRam Group Investments

After first glance of the Annual report at this price the company is looking severely undervalued unless the numbers are false at the current prices. I am not sure Mr Ajay Piramal would risk his reputation to do a satyam. The price fall is beyond comprehension.

Edit: Just realized i missed the debt !44000 crores of debt!

Total Assets: 72000
Debt:50000
Net: 22000 Assets , so more fall on the way as its market cap is at 34k?

The whole annual report is full of details , but drowned me in data. However too many subsidiaries and related party transactions


(vaibhav) #1106

I am not sure how exactly CCDs work, so i may be wrong. Ccds worth 5000cr should be added to networth in April 2019 at ~2700 per share

Based on this, the stock at CMP could be trading at 1.3 times april 2019 book value.

Disclosure : invested (partly), will be looking to increase allocation as i gain understanding of the businesses.


(PrinceVegeta) #1107

Word of Caution here - Lately data like P/B ratio, RoE are readily available on websites that so often a lot of individual investors (including myself) dont make the effort the calculate from detailed accounts.

Piramal is a Serial Acquirer. As a result, a lot of the assets on the balance sheet have been paid for at more than the original book value. As a result, there is an element of Goodwill in the Balance Sheet which needs to be taken into account while calculating RoE and P/B. My first glance at the Consolidated Accounts for FY18 shows there is goodwill of roughly Rs 5600 crores. Thats 20% of your book value which is actually not ‘Book value’ of the Loan assets. Another Rs. 4200 are Deferred Tax Assets which are not going to generate any income, but will be offset to reduce Tax expense. There are other fairly large investments which are accounted under Fair Value method (due to which the book value inflates in a rising market and conversely, the book value would fall in a falling market).

I feel all of these have to be accounted for while one applies a growth % on book value - What is the component of book that would actually grow at 15-20% and what is the component that would not.

Secondly, whenever there is a debt to equity conversion, the number of shares also go up. The book value (which is a historical value) per share decreases. However, the future earnings (which is a future value) available per share also decreases. That is why market values companies that dont dilute (For eg: Gruh) higher than companies that fund their loan assets through additional equity.

Thirdly, Piramals lending business is in its initial few years and although there has been income recognition on loan assets, there seems to be virtually no provisioning made to account for credit costs. A lot of RE Wholesale and Corporate Loans have an initial Moratorium in which there are virtually no repayment obligations for the Customer but the Lender recognizes interest Income on accrual basis. Once the moratorium ends, the true colour and risk of the loan book gets reflected.

I have posted my concerns in the past on this thread about how credit costs need to be accounted for while calculating expected growth in the future.

Disc: Was holding earlier, but exited at 2900 when better sense prevailed. Not thinking about entering any time soon.


(Vasu) #1115

Blockquote
The stock is correcting significantly from the start of trading window closure on 18 Oct . Only 25% deliveries are seen,The window opens only after 27 Oct… Any insights…

I don’t think so. Infact the falls have been correlated with increase in total volume trades and delivery percentage. Infact the rises have been assosciated with poor volumes and deliveries. Attached last one month volume,delivery and price action


#1117

The long term record of Mr. Piramal was in pharma sector so extending its implication for the real estate investments itself was not correct. Now he wants to sell part of pharma for whatever reasons which was supposed to generate long term annuity type returns. My question is

Despite his legendary management ability, why did he fail to turn around the biz if is really not yielding good returns?

What changed in the market place for him to dispose an asset in which he created massive wealth in the past?

IMO, the business of buying and selling assets will hit a major speed bump someday. People compare him with warren buffet of India who created wealth by running acquired businesses profitably. I think Mr. AP is showing all the signs of a normal hedge fund manager who is constantly trying to optimise the portfolio. He sees folks making money in financialization so he plans full fledged financial play. He finds ARCs making lots of money so he plans an ARC play and so no. How many folks in the world created massive wealth in the real estate sector?


(vaibhav) #1121

In 2008 melt down, piramal enterprise fell ~55% and bajaj finance fell 88% (44/- to 5/- iirc) from top. Of course, not exactly a like to like comparison and a bit silly of me but still worth mentioning i thought.


(Growth_without Debt) #1129

Piramal’s exposure to real estate is a concern


(..pd..) #1130

Ladies & Gentlemen,

Piramal Enterprises Limited has today issued a press release that refutes all baseless rumours of any sort/form that have been floating around with respect to its real estate loan portfolio companies.

Please find below the press release -

Piramal Enterprises categorically Refutes Baseless Rumours on Real Estate Lending Portfolio

Mumbai, 21st October 2018: Piramal Enterprises Limited (‘PEL’, NSE: PEL, BSE: 500302) today strongly refutes all baseless rumours of any sort/form that have been floating around with respect to its real estate loan portfolio companies. Among others the rumours relate to loan defaults to PEL/Piramal Capital & Housing Finance Limited (PCHFL) by real estate developers such as Lodha, Omkar, Vatika, Embassy, Radius, Nahar, Aristo, Supertech, etc.

PCHFL, the wholly owned subsidiary of Piramal Enterprises, provides various financing solutions in the real estate sector such as early stage private equity, structured debt, senior secured debt, construction finance, flexi lease rental discounting and housing finance.

Piramal Enterprises would categorically like to state that we have an extremely robust loan processing and recovery process including risk management and asset monitoring system. Developers like Lodha, Omkar, Vatika and Embassy referred to in the rumours are part of our lending portfolio but have never defaulted on any interest or repayment obligation to PEL/PCHFL.

Additionally, contrary to rumours, PCHFL has not extended any loan to developers like Aristo, Nahar, Supertech, Radius and Amrapali. Therefore, there is no question of any default on loan repayments by these developers.

We have scheduled an earnings call post our Board Meeting for adoption of Quarterly Results at 6pm IST on October 25, 2018 when we would be happy to share a lot more granular details on the health of our lending portfolio and our healthy liquidity status.

Piramal Enterprises would also like to state that the National Housing Board (NHB) carries out an annual inspection of all housing finance companies. PCHF received the housing finance license in end August, 2017 and accordingly, NHB has now initiated their annual inspection of PCHFL. This is purely routine and procedural in nature.

This Press release is also being released to the stock exchanges.

For any further clarification, please contact us at [email protected]