Hello Mahendra,
See my detailed post above. Their global business is at a quite mature level operating at peak EBITDA margins. It might be a very good time to monetize this partly and re-enter the more lucrative domestic formulations business where they have proven expertise from the past. Hope this helps.
Regards,
Rudra
Company has released shareholding as of 29 January (post rights issue allotment)
https://www.bseindia.com/corporates/shpSecurities.aspx?scripcd=500302&qtrid=104.01
There is absolutely no change in promoter holding % compared with Dec shareholding which means other shareholders have subscribed / oversubscribed to rights issue.
Would be interesting to see stock reaction on listing of these shares if the non promoter shareholders have subscribed for arbitrage gains or long term investment thesis.
If I compare shareholding posting rights with Dec-19, FII stake has increased to over 33% (incl. CDPQ prefs) and ex-prefs, LIC marginal rise to just over 8% and retail has declined to less than 9%.
@desaidhwanil its been long time you have posted in this thread. Are you still invested or tracking this?
As one of the early investors in the company, it would be really helpful and insightful to hear your views on the current situation.
Posting this article since Lodha is largest exposure. Do read.
More or less the article saysâŚLodha is paying has capable to pay debt and capable to become debt freeâŚTime will tell
Piramal is however steadily reducing its exposure to Lodha. As per the transcripts of the last concall, exposure to Lodha will be less than Rs 2000 cr by March this year. It was Rs 4300 cr in 2018.
disclosure: holding
Decent Q3 results (Link), EPS grew by 20%, slight increase in GNPA
Concall will give more color on management strategy
Disclosure: Invested
the pharma business has managed to grow, but the financial services business has seen lower profits. It could be because of higher financial costs. Awaiting the concall for details
disclosure:holding
Cost of funds has fallen below 9% as per the presentation
Results are quite good on almost all Counts
Selling stake in Pharma as its not growing up
Profit before tax growth are sub par (0% growth) . The increase in PAT is because of corporate tax cut.
Also Profits for pharma has grown by almost 60% but profit on finance segment have a negative growth (which is expected). As finance forms majority chunk of capital employed & more than 50% of revenue , this is a concern .
IMHO results are not great & not bad & we need to look forward to concall about their reduction in exposure of Lodha & other major real estate exposure & about stress in their books , if any.
Disc : Invested
I exited PEL along with all other financials that I held in portfolio except Bajaj Finance once the cascading impact of the IL&FS crisis sunk in my brain (ofcourse that lag cost me money from top 
) especially for the FS businesses who were highly exposed to wholesale side. However I continue to track it with deligence more to understand how these businesses survive/reshape and/or perish. Few observation from my side
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Inspite of having all the checks and balances (as claimed by management of course), the risk arising from lack of granularity and high concentration can be highly damaging in a leveraged business. PEL along with others did carry it. Obviously till environment is good, these risks are overlooked but as it turns ugly and liquidity (and hence refinancing) tap closes, these risks becomes too difficult to handle. In that context, PEL has bore the burnt for sure but I feel it has largely weathered the storm (or so does it look) due to access to capital due to itâs standing in the market and the credibility it enjoys with international institutions. Another thing that they are systematically doing is addressing both the issue of granularity and concentration in the book
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Questions which I am still wondering is how they are going to build a granular book by scaling up retail portion of the loan when whole world is after that asset class and they have to compete with plethora of players having different risk appetitle starting from Banks to retail focused NBFCs and MFI/SFB. This question becomes more pertinent especially when they do not have strong liability franchise like that of banks nor their cost of funds is comparable to the best retail focused NBFCs (Bajaj and HDB). Even if they do get scale due to formidable partnership how will they make respectable risk adjusted RoE.
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Another part that is still not clear to me why Mr.Piramal is on raising so much of money by either selling assets/stakes and/or diluting equity especially at these valuations. Obviously one can surmise that the expected hit on RE is very large and hence he is preempting and capitalizing the book. However, that doesnât seem to be the case especially from management commentary (including in todayâs call).
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During these tumultuous 2 years, pharma business is least talked about yet has done a stellar job in scaling up and improving profitability. I always used to wonder why not even a single question on this business which is of decent scale. My personal view is that PELâs pharma business is not well discovered but what they have built is a very high quality franchise and the value of that business is quite significant (My guess, it can fetch 4 times sales)
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Selling of DRG was on cards as the business was delivering subpar numbers on growth and profitability. I think they got decent value for the business and still got 15-18% IRR from it (largelt due to fortuituous timing on buy/sell time USD-INR equation).
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I think at current market cap, market is pricing in deep cut in book value for PEL and lower RoE of FS business due to overcapitalization or both. If my understanding of Pharma business is accurate, FS business is available at close to bottom of valuation.
Discl: Not Invested. My views are based on my limited understanding and this is not a buy/sell recommendation. Please do your own due diligence or contract your investment advisor before making investment decision.
transcript of the latest concall
https://finance.yahoo.com/news/edited-transcript-pel-nse-earnings-013828636.html
Major takeaways:
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demerger of pharma to happen in around three yearsâ time.
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increased subsidiarization of the finance business. Housing Finance is under one subsidiary. Consumer finance under Jairam Sridharan (ex-Axis Bank) in another apart from several SPVs.
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Around Rs 20,000 cr to be invested in the finance business. Ajay Piramal is looking to buy some distressed assets.
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PEL wonât be making fresh equity investments in the pharma
business. Stake sale of 20 per cent in the pharma subsidiary will help discover value and also bring in the funds for inorganic growth. Ajay Piramal indicates that the company is still investing in the India business to grow sales and profit growth will follow after the business reaches a certain level. -
Proceeds from the sale of DRG will flow in PELâs company in the Netherlands. Tax to be paid on the negligible share of the India business of DRG. The funds will be utilized to grow the finance business.
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Management sounds bullish about the wholesale loan book despite the stress in industry. Cost of funds is coming down even as management is lending at 14-15 per cent under the wholesale book.
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Loans to Lodha is getting refinanced or moving into SPVs.
Management says no hair-cut in refinancing the loans. -
The consumer finance biz is getting crowded with many players getting in. I get the feeling that the management too has realized this and is looking for differentiators.
disclosure: holding and added during the rights issue
Piramal has handled the tough period of last 18 months reasonably well (without major writeoff or huge NPA book) although the stock took disproportionate beating 
. Last few weeks of announcements and recent concall makes me feel that Piramal have learned their lessons and company is at a turning point. I believe following are key triggers for the stock to get back its mojo in next 12-18 months
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Sale of Shriram Transport (although not a great timing for sale) and DRG - Getting liquidity for growing core business
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Potential of stake sale in Shriram Capital at a right time and right price.
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Recent capital raise by Rights issue as well as preferential share allottment to CDPQ - Comfortable D/E ratio
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Reduction of single developer exposure (Lodha) and efforts to bring more granularity to the wholesale book
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Improving focus on consumer finance by hiring Axis Bank CFO, using technology in lending
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Reducing cost of borrowing (will be 9% by mid FY 21 as per concall) and improving yields
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Demerger of Pharma and Finance business (in next 3 years) unlocking value for investor. No holding company structure to be followed. Current shareholders to get shares of Pharma as well as Finance company shares.
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Possibility of acquisition in domestic pharma 10 years after selling a thriving pharma business to Abbott at extremely attractive valuations (and rewarding shareholders with huge one time bonus!)
Last one has a big rerating potential since Piramal has domain expertise in this area having successfully acquired and turned around Indian arms of Pharma MNCs like Aventis, Rhone Poulenc, Roche etc in 90s and 2000s, fabulous track record of US FDA inspections in specialty products and CDMO operations (may be only Indian pharma company to achieve this )
Disclosure : invested for last 3 years and forms major portion of my portfolio. Hence biased.
There is not much info in this articleâŚbut how does it have effects on HFCâs?
- Currently, as per the RBI norms the real estate projects fails to start the commercial operations 2 years after the original DCCO decided, then it is classified to NPA even if regular recovery is going on. This can be prevented if the loan is restructured before the expiry of 2 years.
Now, the RBI allowed extension of 1 more year for the classification of asset. This is in line with the industry demand to view real estate funding differently as compared to general norms. - The other measure which is overlooked is the incentivising HFCs by allowing to deduct the incremental credit disbursement to residential housing sector upto July, 2020 from NDTL. The CRR ratio is maintained as a % of NDTL (currently 4%). So, the HFCs having liquidity crunch will get a boost with low maintenance of CRR and in turn boosting the loan book.
Diversification of financial business is under way. It will not be easy for a wholesale lender to get into consumer finance and be successful. Only time will tellâŚ
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/CRR443640644FCA4C64928A8AD9739B93A9.PDF
Seems CRR exemption which RBI told earlier is for only banks not NBFCâs as per this notification 