Well articulated. Investment into Shriram also did not pan out as expected nevertheless its exit from those investment might help instead of staying in denial.
Uday Kotak in an interview saidā¦there are 3 issues which are plaguing NBFCs, Liquidity,Solvency and Governance
PEL is suffering from the 1stā¦somehow I feel, Mr. Piramal will tide over this issue. Q4 presentation and concall, stress testā¦transparencyā¦all those r in directionsā¦
In a recent interview to ETNOW, he repeatedly mentionedā¦āMarketā word multiple times.
In case Axis. ICICI who can become market darlings even without a visible improvement in earnings and still burdened with a significant NPA, PEL also canā¦but it will take sometime
Another stuff, PEL learnt hard way is over dependence on Real Estate, started reducing itā¦
I just came to know one story of my friend, where he got a homeloan from PEL , Husband & Wife working, highly solvent, guy London Business School Grad, SBI and Axis just frustrated him, with bureaucracy and procedures for a 2nd sell flat buying, PEL closed it so smoothly , he is ready to endorse PEL on any day
Net- net PEL will test oneās patienceā¦
Disc I am invested. Views may be biased
1 Like
Any idea why PEL cannot continue holding stakes and not involve in any other aspects of the business and think of selling it at an opportune time.
Is it because selling will provide liquidity or is there any other reason?
So far the only reason learnt from media is that culture of the organization i.e Shiram v/s Piramal do not match.Hence it will not make sense to merger them ā¦Also the investment have not much return on a CAGR basis.
Both Shriram and PEL have learnt their lessons.
Shriram had Mr.Duggal as chairman before Piramal came in and he was eased out. Shriram had great hopes that Piramal will bring in more expertise, fresh look at business and lead the group.In retrospect they realise that there is nothing new.In fact PEL seems to have learnt how to run NBFC business from Shriram. AP removed Revankar and then brought him back, in the process raising heckles with Sanlam which is another major investor.The clash of interest between the housing finance of PEL and Shriram raised questions of conflict of interest.THE PE funds were distraught.
RT himself now realises that the group can survive without him or a strategic investor.
I think as and when PEL exits, the group will not toy with the idea of a strategic investor and the succession plans within the group are finalised.
2)PEL knows that it bit more than what it can chew. The aggressive forays in real estate is a drag on growth and it has now decided to scale down its foray into real estate.It couldnāt get the Shriram group to help him fund his cash requirements and the Shriram Ownership trust has been staving off any diversion of resources from the group.
Going forward,both of them see hardly any synergy or way of doing business together.
The divorce is certainly on and both are trying to settle it amicably.
PEL needs cash urgently and negotiations are on to sell his Shriram capital stake which should take place shortly.He will sell his listed holdings in STFC and SCUF before that.
2 Likes
Interested to know why you say Sanlam raised heckles; what do base it on please?
Stake sale started with sale in Shriram Transport
1 Like
PEL has informed exchanges that they have sold entire direct investment of 9.96%in Shriram transport finance limited today.
1 Like
When AP became chairman,Mr.Gujral who runs the insurance business ( general insurance) was pulled out from there and asked to head STFC and Revankar was rendered redundant.
Sanlam is protective about itās insurance business and felt there was severe disruption by this move.It doesnāt interfere in the finance businesses nor does it allow insurance business to be trampled upon by others.
The changes were so fast and Gujral is on the board of Shriram capital protecting the interest of the insurance cos and the group.
While we canāt explain each price action, just trying to understand, why is market perceiving the sale negatively?
It adds more capital to the kitty.
What happened to the legendary skill of flipping asset? It might have pissed off some who were sold to his massive asset buying and selling skills. On the other hand mr. market might take it negatively as they might be selling a good asset to throw money in the black hole called real estate lending. Or may be a sign of desperation when the sale price is only generating just ~6% CAGR.
2 Likes
Godrej properties in construction. Gruh HDFc are in lending for property. Dont know if Real estate in India has had longest bull run than any other sector at least on property pricss, if it is levelling or cooling it is good for genuine demand . Delhi, Mumbai. Bangalore area short of good land and demand is ever growing wih Multistory buildings Govt priority to housing sector. What else do the sector need . And can not paint everyone in that sector with same brush. Prudent businesses will gain and other will fall.
Both Shriram and PEL realise how they failed. Words camouflaging the bitterness.( Read on)
Chairman Ajay Piramal had said that in any financial sector company, the most important thing is its culture and its people. āIf we try to impose Piramalās culture on Shriram, I donāt think it will do well. Similarly, if we try to do it the other way, then may not do well,ā he had said.āShriram Group has unique strengths ā it has people who understand the community and lend to retail. For Piramal, to do that is impossible, as we have expertise in wholesale. Therefore, we said the two have to be separate. Then it is better we quit from one place, so we will exit from Shriram,ā he had said.
1 Like
The wheels of time churn everything. Forget quitting at right value, Piramal quit at returns far less than index and arguably below intrinsic value, and possibly at or marginally below cost in books (= cost of acquisition plus share of net profit from associates). The Piramal comparison with Buffett just received a knockout punch.
I think we should not vaguely attribute things without understanding the context. 2017 was a very different place to be in.
Mr.Piramal wouldnāt have exited Shriram at these valuations if he was not facing funding crisis. PEL is facing a tough time raising funds in the markets so by selling investments / non-strategic assets he is raising equity which would help him get bank funding and would allow him to tide over the difficult time. They have definitely messed up real estate lending but they have the equity which he can raise and I expect him to completely sell off stake in other Shriram group companies and maybe even DRG soon to raise Rs.15k of equity. This would allow him to absorb losses and start lending again.
I think Piramal would build a retail real estate book (Home Loans) in the next 2 to 3 years (should reach 10% of the book size) and also lend to corporates (non-real estate) for Road, Renewable, SME etc.
India definitely needs a good wholesale bank and Piramal can fill that gap. Retail for all the noise is a low ROE business with nothing that separates lenders from one another.
Its a matter of time before SBI, HDFC and ICICI get their act together and people like Bajaj facing a tough task in growing their retail books.
5 Likes
Just like every batsman (including the likes of Sachin and Virat) goes through a bad patch, same is true for any company or business. That brief period does not define that company. Even the great Warren Buffett has made many mistakes which he has accepted many times in his annual newsletter to shareholders, notably Wells Fargo and Kraft Heinz to name a few from recent memory.
In India, we are used to either eulogizing a person or making him a villain. The reality is always in between. Businessmanās job is to take risk, some of them will go bad from time to time. As long as net net, there are more hits than the misses over long period of time, it will be called successful.
Piramal is clearly going through the pain and AP understands it. So he has started adapting (though bit late for my liking) and STFC sale is part of that. As @deeps2884 has mentioned above, few more to follow. Its called āPlan Bāā¦ This means no short term gains for the stock but as a long term investor, I see no reason to panick as I did not see any actions which will make me doubt intent and integrity of the promoters. Once that happens, I will run for the coverā¦
Disc : invested for 3+ years. No new transactions in last 6 months
11 Likes
Not sure what is the uniqueness of PELās business model. They are new to the game. āMe tooā strategy works only when you are better than incumbents in all respects. They are competing with a large number of HFCs and banks.
Disclosure: Invested at 2500 level. Will exit on correction.
1 Like
I am surprised that on a day when the company raised Rs2300 crs( available in 24 hrs),the stock price is down 6.5%.Any other company would have been rewarded with a better price performance.
PEL raised Rs5000 crs in bonds, sold off its Lodha loan book of Rs2500 crs and raised Rs2300 crs yesterday, in all Rs10000 crs in about 5 months and yet investors are unhappy.
I think smart investors feel that having raised so much money in quick succession is a symptom of a deeper crisis OR is it something else which is causing such a behaviour?
1 Like
May be raising equity to buy some assets at distressed valuationsā¦
1 Like
selling Lodha loan book of 2500cr will fetch them much lower amount than 2500cr as they might have sold them at a hair cut