Piramal Enterprises Ltd


(ANANT JAIN) #1190

Good job @diffsoft. I too though the question deserved a public response. An ALM mismatch question at this point of time requires better scrutiny and a better response.


(KunalKothari) #1191

Didn’t listen to the concall, but in the ALM slide, the “upto 1 year” figure doesn’t mean everything up to one year, but from 6 months to 1 year.
If you want EVERYTHING up to 1 year, you will have to add all the figures starting from “up to 14d” to “up to 1 year”, which comes to around 38k, which is approximately 34k (mentioned as current liabilities in the B/S) plus interest.


(Krishnaraj) #1192

I think the premise that “past performance is the answer to all your doubts” is an invalid one to support the argument on future prospects.

The business is vastly different, and well…the man is different as well (as my partner pointed out - not much talk about failures, questionable transactions, an almost impenetrable financial statements in the annual report)

It seems to defy logic, English and how others present (say Bajaj Finance - here)

Bajaj Finance does the job of also relating it to financial statements.


(niraj.dugar) #1193

In that case, if you see the ALM for amounts greater than 5 years, its more than 70k crores for both inflows and outflows. Certainly something else has been factored in this because of which a reconciliation with the reported numbers does not look possible here.


(KunalKothari) #1194

Good point. If my explanation was right, total outflows would be well over 1.5 lakh crores, which I guess doesn’t reconcile with the B/S (even after adjusting for interest). So there has to be another explanation.


(Marathondreams) #1195

(Raj A A) #1196

SHARES DOWN 40% SINCE AUGUST-END

We’ve Identified the Short Sellers in Stock: Piramal

Piramal Enterprises may approach market regulator SEBI with its findings

Saikat Das & Baiju Kalesh

Mumbai:

Piramal Enterprises Ltd, with interests in businesses as diverse as financial services, pharma and property, said it has identified short sellers who had used fake social media messages to cause a sharp fall in the company’s stocks in the aftermath of the IL&FS crisis.

“I think there was short selling… we have actually identified some people who were doing this in the market,’’ chairman Ajay Piramal told ET during an exclusive interaction over the telephone. “It’s very easy to do such activities with WhatsApp… just put any rumour and spread it across… this is the problem of this market…we have to fight this.”

Piramal Enterprises may approach market regulator Sebi with its findings. Soon after the debt crisis hit India’s largest infrastructure finance company IL&FS late-August, Piramal shares lost a tenth of their market value on rumours that the company may default on outstanding commercial papers (CP) because of the company’s large exposure to real estate developers.

Since August-end, Piramal Enterprises shares have lost about 40% to close at ₹1,921.30 Friday.

Non-banking finance companies (NBFC) are facing a redemption commitment of about ₹1 lakh crore between October and December after they raised money by selling CPs, or short-term debt instruments.

Piramal has raised about ₹6,500 crore and the funds need to be repaid by November 15 this year.

“In our case, the commercial papers which were due until now, we have actually renewed 70% of them,’’ Ajay Piramal said. Banks that are generally reluctant to lend to other NBFCs have also agreed to lend to Piramal Enterprises.

“There are many new banks which should be giving us lines, and the existing banks should be also giving us lines,’’ Piramal said. He said confidence is slowly returning to the system as money is moving toward quality borrowers.

Picture

We’ve Identified the Short Sellers: Piramal

“It’s not a question of liquidity….it’s a question of confidence… There is a flight toward higher quality of borrowers, that’s why we are getting adequate funds,” he said.

Piramal Enterprises would raise long-term funds through external commercial borrowings and bonds.

“We will start with $250 million now, and keep going and doing it…we have not finalised fund raising through bonds, but it would be a significant number,’’ Piramal said.

Housing finance companies are allowed to raise up to $750 million a year via external borrowings.

Asset-liability mismatch is the key investor concern with NBFCs. The lack of liquidity could lead to higher financing costs or even difficulty in rolling over liabilities for NBFCs as they rely heavily on market borrowing to fund asset growth, Moody’s Investors Service said in a recent report.

Ajay Piramal said that he had told his investors in August that if one NBFC fails, the whole sector would be painted with the same brush. “That is what has happened. There is enough liquidity in the system, (but funds) pulled out due to lack of confidence,’’ Piramal said.


(Growth_without Debt) #1198

Not expected such short sell clarification. Focus on business quality don’t worry about stock price. Since past many con call their explanations more on stocks price performance side!
Refer Edelweiss con call…fully focused on business risk mgt and quality…rashesh Shah accept that stock price adjust with short term overall risk


(smehta) #1199

Piramal Enterprise Ltd

Highlights Of Q2 FY19 and H1 FY19 Results

Financials

  • Quarter Result
    • Revenue grew by 24 % to 3144 Cr compare to last year same quarter
    • Net profit grew by 25 % to 48 Cr compare to last year same quarter
  • H1 Result
    • Revenue grew by 27 % to 6470 Cr compare to last year same quarter
    • Net profit grew by 26 % to 863 Cr compare to last year same quarter
  • Revenue is growing at 26 % CAGR and Net Profit at 73 % CAGR over last 4 years
  • Consistent 20 % growth in revenue from last 12 quarters

Financial Services Business

  • Loan book grew by 59 % to 52,800 Cr from 33,200 Cr last year same quarter
  • NPA base on 90 TPD stood at 0.5 % and consistent maintaining healthy provision of 1.74 %.
  • ROE stood at 19.6 % on cash tax basis despite the allocation of 5000 Cr of equity throught the equity raise in last year.
  • Last year long term borrowing were rated at AA+ Stable by CARE ratings and now in Q2 ICRS has also rated to ICRAAA+ from AA positive because ofhigh valuation of financials service company people are indulgingin lending.
  • Default of ILFS resulting to liquidity tighteningsituation across the NBFC sector. Therewere availability of adequate funds to NBFC . Significant rollover to borrowing and asset liability mismatch. IIFS is not only a NBFC . It has total loan book of 100 thousand Cr out of which NBFC is only 20,000 Cr whereas the balance is in Infrastructure and even 25 % of NBFC book which is just 5 % which is insignificant with the total sector. During the last 1 month bank and mutual fund become very selective on which NBFC company they want to finance.
  • NBFC are now classifying into 3 categories
    • First Category :- Companies which has low leverage, sufficient liquidity and Good management with strong and consistent performance track record. This category is getting enough fund even at the peak time of tightening liquidity. De-spite that their cost of fund goes up marginally.
    • Second Category :-Good at various parameter but not among the best in class for such kind of NBFC liquidity is available but significantly higher cost.
    • Third Category :-Perform below the average given parameters and not getting liquidity or enough liquidity. This is forcing them to sell part of their business.
  • Company fall in first category . There are only 3 companies in top category out of total 30 major players which receive additional bank client from a large PSU bank at the peak of liquidity tightening situation.
  • Company Responsibility :-
    • Maintain Quality Assets
    • Maintain ROE
    • Ensuring there are right people with right set of value
    • Maintain Liquidity for Business.
  • Liquidity is concern. Company is always conservative in position liquidity in form of cash and several bank client. 70,500 Cr as on Sep-30th .Got additional bank client of 2200 Cr sanctioned since last week of September in this quarter. Also secure additional bank client of 7000 Ct . During the period 70 % of the CP which has been which has been moved has been book to company. Company is also working a measure such as additional bank client.
  • How company maintain such liquidity ?
    • Company has allocated equity at sufficient 1000 Cr in financial services business on the loan book of 53,000 Cr and hence have a very conservative equity debt ratio because of company conservative approach company raised 7000 Cr of equity in last year through a QIP and Right issues. Itis always better to be prudent and this is why company is in more comfortable position today.Out of this 7000 Cr , 5000 Cr were allocated to financial services business.
    • Strong commitment that the promoter group held by holding 50 % of equity and never sold it. Even promoter subscribe for Right issue in last issue .Company has the highest promoter stake in all India in Financial business
    • Company continue to make Debt to Equity to 4.4 and after excluding investment in Shri ram group it is only 2.6.Company is today among the lowest debt NBFC in India . Even after fund raise the ROE today is 20 % which is best in Industry.
    • Follow best in class risk management process :- Company have independent risk management teamwhich report directly to board, External experts a part of company deal , clearance committee and the Board Risk Committee. 100 % of deals company do are secure. 100 % of deals are discount on the future cash flow. Company have a robust risk management framework along with stricken control with new mechanismsand this has enable company to have best in class risk management below 1 % from more than 10 consecutive quarters. As of 30th SeptemberGross NPA were only 0.5 %. However company continue to remain conservative in terms of provisioning. Company have maintained a provision of 1.4 % of company loan book. Company have the ability to takeover whenever a builder to default then complete finish and sell the site. This is unique facility which company generally called a nuclear option.So company don’t see any reason of loosing money on any of company account.
    • Company also have a well diversified borrowing profile , its more than 100 investors including banks , mutual funds , FPI , Insurance companies and charitable trust etc.
  • Asset Liability Management is well within the regulatory requirement as on 30thsep 2018 company have positive gap across the bucket. Company cost of fund incremental borrowing has increased by 50 basis points recently as a result of liquidity tightening . This increase in funding cost has been lower than other large NBFC. Company have healthy mix of fix and floating assets liability which limit the impact on marginal rise in the interest rates on borrowing. As of 30th Sep 47 % of company liability and 46 % of assets were floating in nature. So company can pass on the rate increase to company customer. Company have long tuning partnership with tough quality with strategic partners and investors who are the perpetual source of money.
  • Situation in tight liquidity :- Company was getting enough funding from banks and mutual funds In fact there were institutions with whom company were not having relation has started approaching to company to take more fund from them. On 30th Sep company have cash and cash equivalent of 7500 Cr. In every quarter company has been well matched in the ALM. Company get additional bank lines worth 2200 Cr in the last 1 month after liquidity tightening done. Banks who were previously not in touch have pro-actively approach company with new sanctions.
  • Borrowing of Rs 6300 Cr is from commercial paper. Company would comfortably raise commercial paper to an extent of 1500 Cr. As on date company outstanding is only 5900 Cr.
  • After post merger company endeavor has been to increase bank line and also alternated sourcing of funds
  • Company was able to pass on most of increase in company borrowing cost of 50 basis points and increase retail lending by 50 basis points.
  • Company just contracted 2000 Cr from a year NCD. Line of ECB is now open and company can raise 720 mndollar a year. Company has started work on it in August and company is actually issuing 200 mndollar from ECB.
  • Company is also looking for Bond issue of 1Mndollar. Company is in final stage in ensuring the final rate from S&P and Fitch and probably in the end of Dec or Jan company will be on the roadshow for that. Company is in advance stage of concluding 7000 Cr of lines in the quarter itself.
  • Company received 4100 Cr in terms of repay1mentwhich is almost 42 % disbursement of company in this quarter. In last 1 month company get repayment of 1350 Cr
  • Real Estate Developer Finance
    • Continue to see good growth of 44 % . Today the book stands at 37,800 Cr. Construction financing and lease rentals are leading this growth. Today construction finance is 60 % of the RE book and LRD book has tripled to 5000 Cr. Company is focusing now on LRD and Hospitality sector. Company has crossed 2000 Cr in lending in the LRD against the revenue of operating assets which are more than 5 years old inthe hospitality sector. Corporate lending through CFG and ECL .ECL is the emerging corporate lending which is following to mid-markets. CFG came out as the biggest growth driver by crossing book size of 10.000 Cr a growth rate of 76 %.
    • Company is now concentrating on other fee based income and company is looking at the two verticals . One is asset aggregation and one was AIF for structure debt deals which will be done on the AIF platform for corporate finance group. Work on both have been started.
    • Company emerging corporate lending book a year old has now grown 4 times to 1500 Cr in Dec-18.
  • Housing Finance
    • Completed one year in HFC .Retail loan book on 2500 Cr compare to 2002 Cr Sep 17. In the quarter company have disbursed 811 Cr. Over and above company have loans approved but not disbursed of 1700 Cr. Company LAP portfolio out this formed only 156 Cr. Company will never peruse LAP as much important as done by others. Company will only do LAP on cash flow back.
    • 57 % of company loans are from existing relationships. In mix 57 % are salaried and 43 % are self employedwith an average ticket size of 74,00,000 in Mumbai region . Company have now open branches in several cities so now this number will be going down.
    • Company have very good process and Early Warning Signals (EWS) and last time company had mention that company have now prepared proprietary model for housing finance to control the NPA. By using this today in retail loan company NPA is nill.
  • Real Estate Portfolio quality and developers
    • Whether it was RERA , GST , De-monetization company have been consistently delivering strong performance of company book.
    • Enabling such Performance by
      • Right selection of developer:- For company Tier-1 means not only the big developer one need to go gradually into micro marketWithin that micro market identify the developer who is managing its Balancesheet, doing a good quality product and that for company is Tier-1 and that is one whom company want to bet. Nearly the entire real estate portfolio is with Tier-1 developers.
      • In cities where company operates company only form 1.73 % of developers in that market. Consolidation is taking place and only few developers are selling. So that 7 % of this 1.3 means company developers are doing 7 times better than others that again brings to the point of consolidation. Company developer sales have grown by 26 % in this year compare to last September.
      • Cross Collateralization means since company enter into any deal company actually go through the entire Balance sheet of the developer. Then company select the assets they want to do and than company do cross collateralization on the project that company want to do.So that company can move the cash flow from project that go slow
      • Company will now have its NHB audit and RBI said that they have not seen such good NBFC in India.
      • Company top 10 developer for 40 % of total developer.
    • Lodhaaccount : -Today company have exposure of 4300 Cr to Lodha group and this amount is spread over 6 deals over several projects of Lodha. Today the entire amount the interest and principal left till today has been paid to company. More than 90 % of loan with Lodhacompany have been prepare for 12 month in advance already. So Till October-19 to December-19 all the repayments have already been done. Which would already been done over a period of time.The reason is clear that their sales and collection have been very healthy and through Escrow add additional cash. The portfolio comprises of more than 2000 Cr sold receivables already and unsold is almost ready to enter in inventory which is valued at 6400 Cr and all deals are crossed collateralized and having an average cash cover of more than 2X. Today company getting pre-paid month on month by Lodha.
    • What happen if Lodha IPO get delayed ?
      • Company always keep their client ready with their plan when there is a large liquidity event .Lodha has already concluded the sale of their non-strategic assets of 4500 Cr sales which will announce in next 15 days and that deal has been done. Lodha has already considered deals prior to private equity deals of 3000 Cr which will get consume in this quarter so the infusion of 5500 Cr along with cash flow which has already been thrown in the result and it is more than sufficient to pay Lodha their obligations.
    • Omkar :- As on date company have outstanding of 1700 Cr against its two project with Omkar which is L&T and PiramalMahalakshmi. In both these project omkarmore or less has already full its obligations and clearances permissions . Company payment will come from the sale of the construction of L&T and Piramal Realty and both these projects are far ahead of assumptions as of today probably among top 5 projects in Mumbai today. Company first investment in Omkar was in their Varli-93 project in which company had given a loan of 1200 Cr to Omkarbut again the flat sold by them under the 20:80 scheme. It was just a receivablefunding . This loan was due from June-19 onwards. The handover of flats by Omkar was faster than assumptions so that company got fully paid and today company don’t have any outstanding against the Varli-93 project.
    • VatikaGroup :- As on date company have outstanding of 1393 Crout of which 45 % is against the operating cash flow of their established hotel in Gurgav. It is one of the best performing hotel in Gurgaav and at an LTV of only 47 %. The balance amount of loan was given against 3 projects two residential and one commercial. Out of 3 projects , 2 projects one in residential and one in commercial are in line with company underlying phase and collections. There was a delay in other projects which was close to vatika. However this project is ready for launch now in this quarter because it is in final stage of approvals but because of cross collateralization company also have some deals in spite of the residential project which was an early stage project. Company could recover its interest and payment on time instead of delay of year because of cash flow company kept out in the year.
  • In the short term company is going to monitor its liquidity position very closely. Infactcompany NIMs will actually improve and company will maintain the best in class quality assets by risk management and asset monitoring.

Q&A

  • In cross collateralization what was happen in case of RERA because the entire cash flow will go to a project and it cant be cross collateralized ?
    • The cross collateralization is on the 30 % extra. So if the money is available for construction than the additional amount can swapped into the 30 % account of the developer which is swapped back by company.
  • What impact will come to the industry because of some companies who were dealing with Tier-3 and Tier-6 players.
    • These are the developers who don’t have any future and they either have to sell their land or their brownfield projects which is what company facilitates today at a much better price or much lower price what it was before for company developers growth The consolidation will continue for some time.
  • From current situation did company want to reset its growth target that was given for FY20 ?
    • Risk is contained. Liquidity is always there and company get the ROE. If company meet these 3 objective it is more than enough.
  • Did the rise in interest by NBFC will lead to increase in concern for asset qualitydeteriorationby most of the players into the segment ?
    • No
  • What would be the impact of current situation on refinance market does the bank continue to take the portfolio as a sell down portfolio or it is just a retail portfolio ?
    • Down selling is mainly on corporate finance book the non-real estate and company have downsold already.In real estate portfolio it is typically down sell LRD portfolio on ROE and that’s what company mentioning all the time.By removing LRD and hospitality dealsmainly 70 % of book is construction finance. When company do construction finance company ensure the completion of project. Company is not dependent on any given point is sale is getting slow. Otherwise company don’t go into construction finance for any project. In SPV separate company is in full control and company have given fully financial closure.
  • Any comment on the media news of selling the part of pharma business and what changes will come in NBFC due to current situation ?
    • Company have never done speculation on buying and selling.
    • NBFC is a critical part of the Ecosystem and that has been realized by government and RBI therefore they have to seen that they don’t give major shocks to the sector. Today SME segment forms about 31 % of the GDP of the country and 26 % of total employment from this segment. This is the sector which is actually funded by NBFC Banks are not in a position to adequately fund this sector. So if there is a sudden clamp down on the NBFC the whole employment in the economy will come to hold. Overall there will not be many restriction in the near term some changes need to be made but that will be calliberated over time and changes will be for better. NBFC will be come out even stronger.
  • Will there been any approach change toward growth prospect ?
    • Company NIMS will become Healthier. In the last 30 days the opportunites have been doubled but in the short term the focus will be on managing the liquidity so company will continue on the same approach.
  • What happen when large entities take a pause ?
    • This will distinguish between the Good and Bad NBFC . The economy is growing so the demand is continue to grow so fund requirement will be there and NBFC will meet the requirement and the marginal one will shut.
  • Is this situation will lead to asset price or collateral price revision ? If yes than what will be company stressed on assets , liquidity and solvency of portfolio ?
    • There will be asset price downward revision. Prices in real estate has not gone up for a while today so there will be no sudden crash in prices. Company only do 50-70 % to value also company take it very conservative valuation . So the prices will not come down.
    • Company is doing asset monitoring on a monthly basis what is the value what is the sales is according to assumption and of there is any problem company take it upfront .
    • If such thing happen then company have full control on the assets which is lend by company Company have the power to takeover the asset and complete it and sell it with company brand name .Company also have 2x cover
  • How will the liability mix change ?
    • Now company will be looking for alternate source for long term sourcing of fund and company have always betting on the bank and less on mutual fund. Company has already announce the ECB issuance. Company is going for a dollar bond issue and company is in the final stage of getting the rating and on the roadshow from January. Company is very clear to make long term sustainable credit lines from alternate sources.
  • In Pharma and Information management business company is in short of ROE so how do company see ROE moving up over a period ?
    • These are business which are outside of India so there are thressold ROE and 20 % company is looking at 15 % and company is working to get that number and YOY there is improvement in ROE.
  • In Consumer business in India company have invested a lot and putting up a distribution network but still momentum is slow to see So what will be the outlook on that ?
    • Last year was a big year as far as OTC is concerned there were lot of disruption in the system mainly because of GST and large distribution company have . This segment will see growth this year and make company among the fastest brand.
  • What disbursement company has done to lodha in the last quarter ?
    • Nill
  • If a Builder drag to NCLT so if the SPV structure still hold ?
    • 99 % of of company deals are in SPV where company hold 100 % equity and security and full mortgage of land and building. So it is actually bankruptcy proof.
  • Some of company competitors have increase the builder interest rates by 200 bps so does company also hike the rate similarly ?
    • In last few month company was grappling with lot of NBFC for increasing the rate or the rate was not in line with the adjusted return and company was only charging what was right . Company cost of fund grew by 50 Bps which company passed on to developer. So borrowerhave appreciated company for consistency in relation. The companies which have increase the rate by 200 bps there is a doubt where they can pass it or not.
  • What is the Other category in the borrowing which grew by 16 % ?
    • Those are ICD borrowing from corporates and institutions apart from banks and financial institutions.
  • How much company have borrow from own group companies ?
    • None
  • What happening on the Tie-up front on APG ?
    • All the APG company have to do only one more deal and the entire deal will get closed of 750 million dollar with them . These are perpetual providers of capital.
    • Company is also going to raise 1 B in near future and many bluechip investors are ready for it.
  • What is the increase in goodwill of 700-800 Cr regarding ?
    • This increase basically on account of the foreign exchange. The closing exchange rate is higher by 10 % than the march rate.
  • At the time of transitioncompany was expecting to transfer some loan to NBFC balance sheet by end of December so what is progress on that ?
    • That is in line .
  • What will be the current outstanding on the standalone balance sheet right now ?
    • 6000 Cr
  • What is the average cost of fund for the second quarter ?What would be the amount of fund that company has raise for short term post the quarter?
    • Average cost of fund was 8.6 %. The fund is close to 1500 Cr
  • What view company have on Indian Real estate prices going forward andview on construction level going ahead ?
    • From a outside perspective today in real estate most of it is stand still in any city but inside the industry and understand there are few developers who are constructing very fast space. Lodha is one of them. Similar companies are moving faster than construction . So construction is going very good for good developers. On the ground was actually being the best quarter from years with good developers. This is fueled by NCR which grew by 2.5 times. Prices are actually increase by 5-7 % by good developers. From outside one will find lot of project stuck.
  • What is the average rating of company that is there in corporate finance portfolio ?
    • The philosophy remain the same that who is the promoter at the end , how is the company performing and how it will grow further. So when company say that it is sector agnostics on the Corporate finance group (CFG) company have a team to identify a sector. Then company find out the promoters who can grow and than company get with them the solutions to grow. It is not plain vanilla products
  • When will be the liquidity situation easing out ?
    • There is enough liquidity in the system .Its only about the confidence of banks and mutual funds for funding NBFC. There are some measures taken by RBI and government both.
  • Why the equity on lending is flat ?
    • On the contrary the equity has been over providedand the debt-equity is low. Today the equity is 9900 Cr. This is after dividend payout that was happen last quarter.
  • What is the rationale in ECB is it the tenure or cost of fund or just liquidity driving the situation ?
    • This is not a decision driven by today environment company had mention in past that once company be HFC the ECB window will open. Company has constantly more focus on the liability management and company has been perusing on the constant basis and it also provide tenure benefit and liquidity beinfit.

(Growth_without Debt) #1204

Good article
https://outlookbusiness.com/the-big-story/lead-story/between-the-devil-and-the-deep-blue-sea-4759


(KunalKothari) #1206

Has anyone come up with an answer to @diffsoft’s question on ALM mismatch? Maybe someone should email the management?
Just noticed the latest Consolidated B/S has current assets at just 10k odd crore vs current liabilities of 35k odd crore!
The management seems to have expected easy rollover of the maturing debt, perhaps relying on un-drawn credit lines from banks as a backup. While they may well have been prudent on the lending side, they may have to change tactics on the borrowing side in the future, possibly reducing margins in good times, but ensuring greater stability and lower cost of debt in bad times.


(ashishkaushal) #1207

Piramal had quoted investments of 5,100 cr in March’18 (pg 306 of Annual Report). That’s about 3,500 cr in Sept’18. That plus, cash and bank balances gets you to 5,000 odd cr liquidity figure. Then they start building on cash, interest income on loans, long term assets/investments that they can sell and so on (its inflows/outlflows and not assets/liabilities as of date).

On liabilities, just two points (i) as you rightly noted, ALM is just for financial services business and not Piramal Consolidated. So the numbers are smaller.

And (ii) in my experience, Working Capital lines from banks in India are structured as “payable on demand” or “At Call” lines. Banks reset them every year. We don’t have concepts like a genuine “5-year revolver” which some developed market banks offer. Given the nature of “at call”/“on demand”, these get bucketed under short-term/current debt on financial statements. But in reality for most Indian companies, these form part of a rolling debt line. I will not be surprised if mgmt. has made some assumptions around rolling over bank lines.


(KunalKothari) #1208

I thought the same thing, but even after accounting for those, and also accounting for other business’ liabilities, the figures don’t seem to match.


(Krishnaraj) #1209

@ashishkaushal thanks, yeah understand the asset side, plus given they have a escrows where lots of cash from sales of units etc sit, they can sweep in and count as prepayment, and those will all be inflows.

On liabilities, though the financial statements are consolidated (all segments), financial services constitute almost all of it, as seen from segment reporting, and the bigger worry is in the liabilities side. Although Khusru said they have outstanding CPs of ₹ 6,600 crores as on Sept 30, they had close of ₹ 9,800 cr odd as on 12 Sept (source: a CP issuance note I had access to) and given the CP market has shrunk overnight, these ₹ 3,200 crore CP rollovers would have been largely funded by bank lines at higher rates. So the dependence on bank lines would have dramatically gone up…and is the main source for fund their growth in the short term.

In any case, I thought when they said they are looking at alternate source of liabilities and mention foreign currency (Euro) borrowing, I was wondering, why would anyone borrow in fx in a volatile fx market and rising Libor with increasing risk premium for emerging markets?


(ashishkaushal) #1210

Good question on FX borrowing.

Why would a business with primarily rupee cashflows borrow in USD/EUR?

FX loan and bond markets are very deep and can provide a reliable source of liquidity to top-tier issuers over multiple cycles. If you take a look at large Indian corporates or FIs (Tatas, Birlas, Reliance, HDFC Ltd., HDFC Bank, ICICI, SBI etc.), they all have have tapped international borrowings - either loans or bonds or both. For example, Pg 112 of HDFC annual report will show you their ECB borrowings.

Any good CFO will want to diversify its source of fundings and that’s where ECBs help in diversifying away from local market funding. With an international investment grade rating (BBB- or above), it is fairly straightforward to tap $500m - $1bn in capital markets issuance, subject to pricing.

But what about FX risk? You will also see from HDFC report that it enters into INR hedging. Some issuers don’t hedge fully as they assume the pricing benefit they get from issuing in $ (4-5% pa) covers for INR depreciation. Mgmt should be questioned on this point as and when they do an international fund raising.

There are several large international banks and funds who are operating in low interest rate environment (Europeans, Japanese), with low cost of funds and will happily take exposure on “clean, top-tier mgmt” with low spreads. PEL, as it grows, will tap markets for a long period of time so now is the best time to start. I will not be surprised to see that both the ECB loan and the international bond get heavily oversubscribed.

Overall, it is quite positive in my view.


(Parag) #1211

For ECB borrowing, PEL has a natural hedge as sizable revenue is still derived from international operations. For example, Global Pharma revenue in H1-Fy19 is 2000cr, so on an avg PEL international revenue is upwards of 4000cr (Global Pharma + Healthcare insight).

In the case of currency crisis- which is one main risk from external borrowing- even if PEL does not hedge in dollar or euro, their international revenue provide a shield.

PEL has this advantage, which many of the NHFC do not have. Looking at the current situation, I think AP may delay plans for demerger as the consolidated entity offer opportunity to use Pharma cash flow to Financial services business if a need arises.


(HR) #1212

PEL CPs raised at 7.8%


(Krishnaraj) #1213

Thank you @ashishkaushal for taking time to share this perspective. I did not know this.


(Mahendra243) #1214

Can you please provide the source…? will it have all the CP raised by NBFC’s?


#1215

Following tweet by Deepak Shenoy has CP numbers for this Friday. Per this, PEL raised 325 cr at 7.8 for Dec2018.