Interest rate for LIC money according to the article is 9.5% but piramal housing loan interest rates are about 9%. why are they raising capital at 9.5% , when they lend to their customers at 9%.Is this a sign of stress on piramals books? Are they trying to avoid short term liquidity crunch?
Also piramals have raised a lot of money from the market in the last 2 years.First was rights issue in early 2018 (i thought piramal was lucky to raise money before crisis & will have sufficient liquidity) , followed by NCD in late 2018 & then selling stakes in shriram . Now still looking to raise money from different players (softbank , LIC etc)
Also recent interviews by Ajay piramal about need for active intervention by govt to save NBFC, doesnt inspire confidence.
Is raising money the desperate actions by a promoter to save his company or is it a smart move by Ajay piramal to use the crisis to his advantage ?
Arun - problem which NBFC are facing is two fold:
- Recover accounts which are under stress or have defaulted (a lot of defaults have happened lately as money rotation has stopped). At least 10 to 20% of PELs book is stressed as per my industry sources.
- Get Funding from Banks to on lend to their clients. This is especially important in under construction residential projects as without money these projects would remain stuck and sale velocity would remain poor to pay back the construction loan. What is happening now is that NBFC are not getting any money and they are unable to disburse to Developers any money for construction which has stalled the under construction projects and this hampers whatever little of ongoing sales they were having (maximum sales velocity is anyways happening for completed projects).
Mr.Piramalâs comments have to be seen more in the context of 2nd point. Even with liquidity and stress in his book (his Debt to Equity ratio is very comfortable) if banks are refusing to honour their commitment its very difficult for him to continue to lend and prevent the rest of his book which is currently not in stress from going into stress.
Piramal Enterprises Limited Announces Consolidated Results for the
Quarter ended June 30, 2019
ďˇ Strong performance during the quarter with a 21% YoY increase in both Revenues and
Net Profit
ďˇ Committing to bring in INR 8,000-10,000 Crores of equity in Financial Services business
during the year
Mumbai, India, July 30, 2019: Piramal Enterprises Limited (âPELâ, NSE: PEL, BSE: 500302) today announced its
consolidated results for the Quarter ended 30th June 2019.
Financial Highlights
ďˇ Revenue: Increased 21% YoY to INR 3,506 Crores in Q1 FY2020 vs. INR 2,902 Crores in Q1 FY2019
ďˇ Net Profit1
: Up 21% to INR 461 Crores in Q1 FY2020 vs. INR 382 Crores in Q1 FY2019
ďˇ Consistently delivering 20%+ YoY growth in Revenues and Net Profit for the past 16 quarters
Note: 1) Excluding non-recurring and non-cash accounting charge towards Imaging assets for Q1 FY2019 and exceptional item for Q1 FY2020 for Healthcare Insights & Analytics
Mr. Ajay Piramal, Chairman, Piramal Enterprises Ltd. said, âWe have commenced the new financial year with
strong performance across our businesses. Our revenues grew by 21% YoY to INR 3,506 Crores and net profit
grew by 21% to INR 461 Crores during this quarter. Despite liquidity tightening in the NBFC space and overall
slowdown across sectors, we have consistently delivered over 20% growth in both revenues and net profits for
the last 16 consecutive quarters. In the past few months, we have further strengthened our Financial Services
business, on both assets and liabilities side.
Investor Presentation
Chairman spent 15 minutes in can call giving all good points of PEL.
Please summarize here important points of PEL con call
Few Points from Q1 Call.
- Treading with cautions. Not chasing growth, but quality.
- Thought ahead of curve in term of crisis last few years. Adjusted strategy accordingly. Anticipated that sooner or later crisis will happen and the market will consolidate towards top tier developer, and the story is playing out as anticipated.
- Aim to infuse 8-10K equity. They have not said, how the equity will come or it is diluted at the parent level. They have not yet decided, or not yet making their plans public other than they want to infuse equity.
-Shriram sales- Now sure how the sales and played out in term of the account, but the processed has not gone through P&L.
Pharma- 12% YOY growth. 15% CAGR over the last 9 year.
- 4 Product launches in global pharma.
Healthcare Insight- Revenue up 15% YOY.
India offices account for 40% of the workforce. Looks like they are focusing on moving more and more workforce towards India.
Rumours
**. Mr Jajina has spent considerable time addressing various rumours that have been out in the market over the last few months.
- Top 3 RE exposure
Lodha- Exposure has come down from 4300 cr (Sept 18) to 3900 (March) to 3180 cr (June end). It will further reduce to 2600 cr by Sept 18.
Lodha has been good paying out and they have never defaulted on their payment. Goldman investment has not resulted in losses. (They have not discussed Goldman in detail during the call in my view).
Omkar- has started repaying the loan.
Wadhwa-
Confident that all these accounts will fall within 15% limits set by RBI in this year.
-Shriram Sales- The sales was not due to liquidity issue.
- Raised 8K, even rating change (Not sure by ICRA?)
- ON PEL senior people exit. There is a ZERO attrition at PEL financial servicesâ senior management.
General
- Entire lending is 100% secure.
-Consistent record of recovering money even if there is a delay in payment from customers. - Total coverage ration of 200- I am not sure what exactly does it mean, but I guess for every 1 rs of loan, they have the security of Rs 2.
- They have done a review of potential stress in the project and identified 18 stress potential project. They have addressed or cured (in management words) 10 project. Remaining 8 will be addressed this quarters. Out of the remaining 8, they are confident of curing 6, and 2 are already part of NPA. They are hopeful that even they will be addressed in the coming months.
- They have checked the working capital requirement for all or the majority of their Real estate developer. They do not anticipate these developer needing any additional capital in the next 9 months.
- Most of the Real-estate project which they have financed at the late stage of development, which has a high probability of getting sold.
- There is good interest from RE player and they are evaluating various deals with RE players.
- Planning to raise 25,000 cr+ 8000cr = approx 32,000cr this year. Current CP exposure is 7500. So even if none of CP is renewed, it will not cause any issue with PEL. They are embracing the worst case ( as of now).
Housing finance- Avg ticket size is 70 lakh (down from 75 lakh last quarter).
-
Cost of housing finance funds is 8.5 and they are lending at 9.3. NIM is 0.8%.
-
Hosing Finance- 16 branches. Not planning to open new branches.
-
ROA will be around 2.0 - 2.5 in the next 2 to 3 years. This will be because the technology is helping them reducing cost. They will elaborate on Technology and cost in the next quarters.
-
On aggregate level Cost of funds is 10.3 %(last quarters 10). Incremental money raised last quarter were higher by 1% (just for the last quarter).
Retail loan book growth- All organic.
Growth Opportunity.
- Several opportunities are available for growth.
- Liquidity issues in the short term in nature.
-PEL better position to capitalise on these opportunities in short to medium term.
Overall impression
- Of the 66 min con call, not a single question on Pharma or DAG. This show how much financial service focused PEL has become at least from the investor point of view.
- Management sounded optimistic, as they have been.
- Management is talking of infusing capital. This may be good considering the current price. That shows their commitment and also set a floor on how low price can go low in the next few months if the current liquidity crisis prolongs further.
Note- I have jotted down the points. Please feel free to correct if you find any descrepency.
Recent Concall transcript
Some good news is there too: Lactose India Ltd repays entire loan amount of Rs. 43 crores to Piramal
So none of these developers have borrowed from Piramal. Thats some amazing luck while being the top wholesale real estate financier in the country! Or is it the reference to consolidation of developers reflective of loan restructuring through forced sale of the project from one entity to another a la DHFL. One wonders if such restructuring, interest financing, asset transfer loan takeover by another lender would stand the test of evergreening if this were to be done by any other lender in any other industry (save the Infrastructure sector where such evergreening was rampant a la IL&FS).
Collusion with auditors in turning a blind eye to such evergreening has been proven time and again. Considering the opacity of real estate financing structures and the steadfast refusal of the lenders from disclosing the names of their customers , investors ought to be cautious while evaluating performance and taking bets.
As per their filings for the NCD raised in March 19, they have borrowed from a Reliance group company (Sikka Ports & Terminals Pvt Ltd - Erstwhile Reliance Ports - an entity related to the Ambanis) for an amount of Rs. 1000 crores under ICD route. While many would view this as a matter of comfort (recourse to Reliance), has funding dried up to a point where the Piramals have been forced to seek financing from family?
https://www.bseindia.com/downloads/ipo/201932018536Piramal%20IM%2020032019.pdf
This shows the deep trouble they are in. Not sure if market has taken note of this. Terms are also very favorable to Piramals via a single bullet payment. Wow !!
Piramal Enterprises features in Forbes Asiaâs âBest over a Billionâ List along with other well established companies like Avenue Supermart, Britannia, HDFC, Infosys, Marico, Pidilite , Shree Cement and Titan
Piramal Enterprises raises Rs 690 crore from Credit Suisse though debentures
Piramal Capital and Housing Finance Ltd, PELâs financial services arm, has also separately raised Rs 300 crore through the sale of non-convertible debentures
And
Buy Piramal Enterprises, target price Rs 2400: Motilal Oswal
Softbank deal with Piramal Enterprises is off the table.