Piramal Enterprises, the flagship company of the Piramal Group, has been witnessing a downward spiral in its share price over the last one year. During this period, the shares have plummeted to ₹956.30 from ₹1,672, losing 43% of their value, and from their 52-week high of ₹2,084, they have tumbled 54%.
Despite the company's shares being underperformers, domestic brokerage firm Motilal Oswal has remained optimistic about the firm's long-term prospects.
The company is a leading diversified non-banking financial company (NBFC), with a presence across retail lending, wholesale lending, and fund-based platforms.
The brokerage stated that the company marked a significant turnaround in FY23 by making substantial progress in multiple areas, including the completion of the asset recognition cycle, the diversification of its retail book, and the implementation of technology-driven underwriting processes.
These efforts led to improved asset quality, reduced concentration risk, and set the stage for achieving sustainable growth, it added.
Scaling up the retail loan book through product diversification: Motilal Oswal highlights PIEL's successful efforts in diversifying its retail loan mix, notably by introducing new products for salaried customers, microfinance through the business correspondent (MC) model, budget housing loans, and Loan Against Property (LAP) Plus.
By leveraging technology and forming partnerships with fintechs and consumer techs, PIEL has implemented a multi-product strategy that is expected to drive robust growth in the retail segment. Motilal Oswal expects the secured housing & MSME loans to contribute approximately 46% and unsecured loans through digital partnerships to contribute 38% to the retail disbursement mix by FY25, whereas used car loans and microfinance are likely to contribute the remainder of the disbursement mix, it noted.
On track to build a high-quality wholesale book: PIEL was extensively focused on recoveries and monetization in FY23, which resulted in a 33% YoY reduction in wholesale book to ₹290 billion. It continues to emphasize on the resolution of stressed assets to drive further moderation in the wholesale book over the near term, said the brokerage.
The company plans to enter the Wholesale 2.0 lending segment, capitalizing on the market gap, and aims to partner with established developers in the real estate segment. PIEL also intends to expand its presence in Tier-2 and Tier-3 markets, leveraging its existing retail infrastructure.
The corporate nid-market loans (CMML) offered by PIEL are characterized by their granular nature, cash flow backing, and diversification across sectors and regions.
Further, the company follows a robust risk management framework to construct a layered loan portfolio, the brokerage stated.
The sale of the Shriram Finance stake is a positive trigger: The company has recently divested its ownership stake of 8.34% in Shriram Finance, resulting in net proceeds of ₹47–48 billion. This, according to the brokerage, will further lead to a gain of ₹8.5 billion in P&L that will be net worth accretive for the company in 1QFY24.
As of FY23, PIEL reported a CRAR (Capital to Risk-Weighted Assets Ratio) of 31% on its consolidated balance sheet and a consolidated net worth of ₹310 billion. Considering the accretion of proceeds from the Shriram Finance stake sale, PIEL may evaluate a share buyback or some value-accretive M&A opportunities in the lending or general insurance segments, according to Motilal.
Considering these growth factors, Motilal Oswal maintains its 'buy' call on the stock, with a target price of ₹1,165 apiece, which reflects an upside of 22% from the stock's previous closing price.
7 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.