ICRA revises outlook on Piramal Capital debentures from stable to negative

Flags increased risk in wholesale lending; may impact asset quality going forward

Rating agency ICRA has revised the outlook on Piramal Capital & Housing Finance Ltd's debentures, long term loans and tier II bonds from stable to negative. The change in outlook factors in the increased risk profile of the wholesale lending. It may impact the asset quality going forward. 

The loan book of Piramal group entity is concentrated towards the inherently risky real estate sector, albeit with a declining trend (73 per cent of the overall loan book as on December 31, 2018 down from 87 per cent as on March 31, 2017). The risk is further increased by ongoing downturn in the real estate industry with a slowdown in sales across geographies, ICRA said in a statement.

The company has demonstrated its ability to maintain adequate asset quality. But a prolonged slowdown in the real estate industry, coupled with the liquidity crunch in the overall market could have an adverse impact on the same.

The risks are mitigated to some extent by the collateral cover maintained by the Group on such exposures. The promoter group has expertise in the real estate segment. Also, the company’s risk management and monitoring processes enhances its ability to proactively manage the portfolio as demonstrated in the past.

The company has gradually diversified the loan book with a ramp-up in the non-real estate segments. It currently has adequate capitalisation, with a net worth of Rs 8,884 crore as of December 31, 2018. This is supported by capital infusion by the promoter group and a diversified resource profile.

The company maintained on-book liquidity of about Rs 1,260 crore and undrawn bank lines of Rs Rs 4,000 crore as on March 31, 2019. According to the asset-liability statement, as on December 31, 2018, the cumulative cash-flow position over the near term (up to 6-months bucket) remained adequate.