Dear Hitesh Sir,
So we saw through Sept / Oct and i am still sitting with PEL. While there maybe some more time for sentiments to reverse in NBFC and market participants to differentiate between a well managed risk company v/s totally topline growth driven. One single conviction which kept me invested was the jockey and you have also substantiated the importance of jockey in various threads. Mr. AP is touring figure for its good doings, am i right? At this juncture, would be very helpful if you can kindly pen your thoughts on PEL and NBFC, it would be great learning from you sir. Thanks. Urmil
Dear Hitesh Sir,
Regarding PEL, the stock price has had a roller coaster ride. From 2200 to 3000 plus and back to below 2000 and now around 2200.
Regarding the business of Piramal Enterprises, I think AP has clarified his position time and again. But for me the tide has clearly turned for the NBFC sector. And when a sector goes out of favour and undergoes pain, the bad news just doesnt stop coming.
Personally I would prefer to be out of the whole NBFC space. As of now I only have a trading position in Bajaj Finance which I consider to be the strongest and best company in the whole lot. But as mentioned earlier, its just a trading position as of now.
I think the whole sector is undergoing a sort of derating and thats usually a very painful process. Its always better to be on the sidelines and watch from a distance rather than be too brave. When the whole sector is hit even the leaders with good managements also get hit.
There can be a counter argument to this about finding winners among this mayhem. While that may very well play out, I prefer to remain cautious and maintain my distance.
The problem faced by NBFS in India is part and parcel of the larger issue of lack of proper ecosystem plaguing banking and finance in India by way of large scale defaults by rouge business men in connivance with politicians , and lack of proper recovery systems , governmental interference in the functioning of banks including RBI which is exemplified by the recent statements by the present governor Mr Urjit Patel and past governer Mr Raghuram Rajan. Till such time these basic issues are sorted out better not add further investments in this sector including PEL.I own PEL which was purchased at Rs 380 five years back but not adding any further shares as of now.
why retail investors are agonizing about the melt down in the stock prices of NBFCs, Ajay Piramal is busy lending even bigger money to quality borrowers.
Is this spooking the PEL today?
Seems like you are right. The market seems to have been spooked by the surge in yields of Lodha group. Other RE paper too may see similar surges.
What amount funded to Lodhas, any idea?
Total exposure to Lodha Grp is Rs 4300 (as mentioned in the concall)
Lodha dollar bond sees sell off…PEL as large exposure to Lodha
The loans are towards specific projects rather than to the holding company.
Piramal is known to force RE companies to liquidate unsold properties even at a discount to manage cash flow.
Credit report on Archean Chemicals -
Archean Chemical-R-30082018.pdf (283.4 KB)
Looks like Archean chemicals has delayed debt payment in past and it is surviving by refinancing debt!! The products of the company are in commodity and has many headwinds ! It is risky bet by PEL though they will earn higher interest rate!
Well, I have noticed quite a bit of desperation on the part of Lodha to liquidate its unsold inventories. They are running good offers but don’t think they can go beyond a point to sell stocks. They badly need IPO to succeed and that too before elections to deleverage its balance sheet. It feels like something is not right and some or other issues are being brought deliberately to delay it. Who in sane mind takes USD loan @12%.
Check out @myvaluepicks’s Tweet: https://twitter.com/myvaluepicks/status/1067737078283231232?s=09
Issue of Rs. 2125 Cr privately placed NCD @9.5% for one year and 500 Cr @9.75% for 2 years.
They recently raised a ton of capital. Any idea if these are CP rollovers or new cap raise ?
This is a fresh NCD … and it is secured (CP would be unsecured) … So don’t think it is a rollover.
The Credit rating agency is comfortable with the liquidity position and is expecting a reduction in debt as the company monetises some of its investments as well as Financial services receivables come in … THis rating is given on 26th Nov and I think Lodha issue surfaced on 27th Nov … we have to wait for the next tranche to understand the impact of Lodha issue as assessed by the Credit Rating agency who may have more access to info than press or public …
The NCDs for not for 2 years but one year plus a few days for most of the issue, only one series is for 24 months for 70 crores with an option to retain 430 crores.
A snapshot below
May be pertinent to note that this is not raised by the housing finance entity of Piramal, but the parent. Next, the rates are about 9.5% quite high compared to 360 day CP rates of a comparable firm like HDFC that traded at 8.6% (11 months). And CPs are unsecured, Piramal Enterprises has the highest rating there, whereas these debentures have been raised with a lower rating promising a security (first ranking exclusive charge) as well.
(from NSE website)
So raising funds at a higher rate with much higher security is, to me, indicative of some strains in funding. Seems like a quick bridge finance even if at higher rate with the hope they can refinance it a year down the line at lower rates.
I am also concerned by the similar rise in yield for Edelweiss. There is no denying that perceived risk has gone up for all RE financiers. However, there are two factors that need to be kept in mind. For the short term, these NBFCs have raised floating loan rates so they can afford to take higher yielding liabilities. Second, if they remain optimistic about their RE business over the longer term, it is time they support them with adequate funding at whatever rates they get to keep them going. There is price difference of 8-12% between under construction and finished inventory due to GST. The first priority is to get them to finish the construction before they could hope to recover dues.
The NCDs were raised by Piramal Enterprises Ltd. while the real estate business is housed only in Piramal Capital and Housing Finance Ltd. Unless we assume the PEL is funding the latter there is really nothing to suggest this is for real estate funding.