Piramal Q4 net rises to Rs 3,944 cr on tax write-back

Piramal Enterprises (PEL) today posted a huge jump in the March quarter net profit at Rs 3,944 crore on massive tax write-back on merger of subsidiary firms, compared with Rs 311 crore in the same period last year.

Normalised for the gain, the city-based company's net grew by 21 per cent to Rs 375 crore, but was restricted by an increase in tax outgo.

Chairman Ajay Piramal said there was an exceptional item of a Rs 3,500-crore tax write-back on account of the reverse merger of Piramal Finance and Piramal Capital with Piramal Housing Finance.

He said the merger of all the group companies engaged in finance into a single entity will boost profitability by lowering cost of funds by up to 0.50 per cent through a possible rating upgrade and increase return on equity by up to three percentage points.

Piramal Enterprises, which gets nearly half its revenues from the finance business, saw its revenues grow by 19 per cent to Rs 3,028 crore in the reporting quarter.

The loanbook increased by 68 per cent to over Rs 42,000 crore, and the company has another Rs 23,000 crore of loans which are sanctioned but not disbursed.

Piramal said the withdrawal of both state-run as well as private sector banks from lending due to frauds and multitudes of allegations of mismanagement, especially to corporates, is creating opportunity for financiers like PEL, and it will be taking advantage of the opportunity.

He added usage of technology tools and analytics is reducing the turnaround times on loan proposals, compared with entrenched financiers, who are limited by the legacy systems of operating.

PEL will be focusing on the higher margin retail products in the year ahead, he said, adding that the home finance product will help in this endeavour.

The net interest margin has been in between 7.5 and 8 per cent and the company will focus on maintaining that, even if the feared rate hikes come true, he said, stressing that a majority of its loans are on a floating basis for which rates get reviewed periodically.

He expressed satisfaction with its investment in the Shriram Group, saying that the non-bank lenders in the Chennai-based group have come out of the reverses due to regulatory change in the dud asset classification to 90 days and will report good numbers from here on.

Piramal said the investment has generated a internal rate of return of 15 per cent for PEL.

The company will also be looking at fee income more aggressively from here on, and is betting on the fees from syndication as well as asset management for it.

On the pharma front, Piramal said its non-compete pact with Abbott for the formulations business ends in September, and the company will be reviewing whether to re-enter the segment it quit in 2010 after the USD 3.7-billion deal.

PEL's return on equity slipped to 18 per cent from the traditional 25 per cent levels due to a capital raising of Rs 7,000-crore in latter part of the fiscal, Piramal said, adding that it is targeting to grow it to 20 per cent in two years by deploying the capital raised.

Meanwhile, the company's board recommended a dividend of Rs 25 per share, as against Rs 21 last year.

The company scrip closed 2.61 per cent up at Rs 2,468.35 a piece on the BSE, against a 0.69 per cent surge in the benchmark.