Shares of Piramal Enterprises plunged 8.65% to ₹811.95 on BSE on November 10 a day after the company reported a loss of ₹1,536.39 crore for Q2FY23 against a profit of ₹426.48 crore in the same quarter.
Revenue from operations for the quarter stood at ₹1,893.71 crore from ₹1,573.69 crore a year ago.
The stock hit a 52-week high of ₹1,651.89 on BSE on November 10, 2021, and as of November 9, 2022, it is down more than 46% from that level.
As brokerage firm Motilal Oswal Financial Services pointed out the company's net interest income (NII) grew 36% year-on-year (YoY), but fell 15% quarter-on-quarter (QoQ), to ₹840 crore. This included interest income reversals of nearly ₹230 crore. Pre-provision operating profit (PPOP) declined by 16% YoY to nearly ₹400 crore.
Total assets under management (AUM) declined by 5% YoY to nearly ₹63,800 crore, while retail loans grew 12% to nearly ₹24,900 crore. The share of the retail loan book rose to 43% against 12% pre-merger).
The management will look to consolidate and reduce the size of its wholesale book over the next two quarters. A part of this reduction will occur via resolutions or a run-down in Stage 2 and the remainder from Stage 1 assets, Motilal Oswal underscored.
Piramal recently launched its microfinance business under the BC model and has started offering salaried personal loans from its branches, Motilal highlighted.
Motilal Oswal has a buy call on the stock with a target price of ₹1,160, implying a 30% upside.
"We estimate an AUM and PAT CAGR of nearly 13% and nearly 9%, respectively, over FY22-25, including consolidation in the Wholesale book over the next two years," said Motilal Oswal.
"Over the past two years, Piramal Enterprises has: (a) strengthened its balance sheet by running down its wholesale loan book; (b) improved the texture of its borrowings, (c) targeted lower cost borrowings, and (d) fortified itself against contingencies, with ECL provisions at 8.6% of AUM," Motilal observed.
The brokerage firm expects that over the next three years, Piramal to make meaningful inroads into retail, led by mortgages and complemented by shorter tenure loans originated through digital partnerships.
"Product diversification within retail will help Piramal Enterprises deliver strong growth and reduce concentration risks. We expect the business to deliver a consolidated RoA (return on assets) and RoE (return on equity) of about 2.3% and 7-8%, respectively, in the near term," said Motilal Oswal.
According to a MintGenie poll, an average of 7 analysts have a ‘strong buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
