Piramal Enterprises posts net loss of Rs 1,536 cr on higher provisions

In its first quarterly earnings as a listed non-banking finance company (NBFC) post the demerger of the pharma business, Piramal Enterprises Ltd (PEL) reported a net loss of Rs 1,536 crore in July – September (Q2FY23) quarter, on account of additional provisioning and fair value adjustment of Rs 3,311 crore on assets during the quarter. In the year-ago period, it had earned a net profit of Rs 395 crore.

PEL has moved Rs 5,888 crore worth of wholesale assets from Stage 1 to Stage 2 as the management believed there could be potential stress from these assets. As a result of this asset recognition move, the company has had to make significant provisions, which has dented its profitability.

“This being the very first quarter of our existence as a financial services company, we have taken the opportunity to complete a big part of our asset quality recognition cycle. Our stage 3 accounts have not changed very much at all. However, we have moved about Rs 5,888 crore of assets from Stage 1 to Stage 2”, said Jairam Sridharan, MD, Piramal Capital & Housing Finance Limited.

The movement of these assets is mostly from the erstwhile Piramal Enterprises’ book.

“We believe this adequately covers the recognition part of our cycle and shows the number of accounts on which there is some potential stress. As we have made this move, we have made appropriate provisions to cover that movement,” he added.

The total provisions and fair value adjustments that the lender has made are around Rs 3,311 crore. Of this, Rs 1,000 crore pertains to investment instruments that have been fair valued based on the mark-to-market assessment of what the underlying asset is worth. The rest is the provisions and of that most of the additional provisions have been made in Stage 2 assets.  

The net interest income of the lender rose 34 per cent year-on-year (YoY) to Rs 934 crore in Q2FY23 while the net interest margin was at 4.6 per cent. Assets under management (AUM) grew 35 per cent YoY to Rs 63,780 crore. This has happened on the back of the retail business growing about 12 per cent YoY and the wholesale business degrowing by 13 per cent.

“We have fundamentally altered our business mix. We used to be a company with about 11 per cent retail and almost 90 per cent wholesale. As of Q2, about 43 per cent of our loan book is retail and 57 per cent is wholesale”, Sridharan said.

PEL is committed to building a portfolio where retail is 2/3rd of the book and wholesale remains 1/3rd. “Our expectation is that sometime by the end of this year, retail should get close to 50 per cent, and from there on over the next couple of years, it should be 2/3rd of our book”, said Sridharan.

Asset quality of the lender improved because of the recognition of assets, resulting in net non-performing assets (NPAs) declining to 1.3 per cent, compared to 1.8 per cent in the preceding quarter. However, the gross NPA ratio has remained flat at 3.7 per cent.

“Retail lending business continues to grow faster than our earlier guidance, taking us closer to our aspirations of becoming a more retail-oriented NBFC. We are focused on making the wholesale book more granular and with an increased focus on recoveries/ monetization, we expect the wholesale book size to moderate in the short term. Further, we are also investing to build a cashflow & asset-backed real estate and mid-size corporate lending business,” said Ajay Piramal, Chairman, Piramal Enterprises Ltd.