Open to small or medium buying opportunities: Piramal Finance MD & CEO

Following the delisting of Piramal Enterprises and merger with Piramal Finance – the latter will be listing its shares on the exchanges on Friday. Jairam Sridharan, MD & CEO, Piramal Finance shares the rationale of the entire exercise and the growth roadmap for the upper layer NBFC in a conversation with Aathira Varier and Manojit Saha in Mumbai. Edited excerpts:

 

What was the rationale behind delisting Piramal Enterprise and listing Piramal Finance?

 

The Piramal Enterprises stock was for the longest time a conglomerate sort of holding company type stock. There were many businesses that the company was in. All the ownerships of all those businesses resided in that central entity.

 

But over time, the company decided that we want to focus on a few businesses and we divested many of the other businesses. Then they started concentrating on two main businesses, which is financial services and pharma. Both those businesses were collectively held by Piramal Enterprises, the holding company.

 

Two years ago the phrama company was de-merged and was listed as a separate company.

 

After that Piramal Enterprises was essentially holding only one business which is financial services. It didn't make sense for the holding company to also be an NBFC. There is an operating company underneath which is also an NBFC and it didn't make any sense to have these two companies. The company downstream, the Piramal Finance, was where most of the book was. The bottom company was the upper layer NBFC, the top company wasn't.

 

Now it is a very clean structure. A single company in which all financial services are held and the owners own it directly.

 

The Piramal Finance stock will be listed on Friday. The Piramal Enterprises stock stopped trading 40 odd days ago at a price of 1133 which is the base price. So compared to that base price, we will have to check on Friday where do we list and whether the listing happens at a premium or a discount.

 

Are there any new investors coming in?

 

No, because there is no new equity that we are issuing. New investors will come in the moment trading starts. But we are not issuing any new equity. The equity base is the same. We are issuing shares one is to one to the old PEL shareholders.

 

The Piramal group always had the ambition to be a universal bank. Is this restructuring exercise in that direction?

 

There are now two listed Piramal companies. There is Piramal Pharma and there is Piramal Finance as of today. Both of these are completely independent of each other. There is no cross-holding. Neither of the company holds a single rupee or share of the other company, etc.

 

Mr. [Ajay] Piramal was the chairman and was running Piramal Enterprises. But now that the demerger has happened, Nandini [Ajay Piramal’s daughter] runs Pharma and Anand [Ajay Piramal’s son] runs Piramal Finance. So generational planning from a promoter perspective has happened very systematically in that sense.

 

If somebody says is there a holding company or some other structure that Piramal Finance is a part of? No, it is not. Of course, it has the Piramal name in it, which means the Piramal family continues to have deep stake and interest in the entity, which hopefully will help us from an equity or debt raising perspective. Beyond that, we have nothing to say like how the regulator looks at it and what the regulator considers a kind of family versus extended family, etc. We have no views on it.

 

But will you seek clarification from the regulator if they consider Piramal Finance a part of the Piramal group, for applying for a bank license perspective.

 

No. It's not a thing that we are pursuing right now. Right now, we are quite happy being an NBFC from a growth and profitability perspective. That is our focus.

 

Piramal Finance aims to have AUM of Rs 1.5 trillion by FY28 from Rs 90,000 crore now.

 

 Which are the sectors which will grow most?

 

We are a multi-product or a kind of diversified lender and we want to remain so. At the core of our business will remain mortgages, affordable housing, loan against property. Apart from this, we might have used car business, gold loan business which is also secured. Overall, I expect about 75 per cent of our portfolio to be secured and 25 per cent to be unsecured. Today, we are 83 per cent secured and 17 per cent unsecured. Personal loans, microfinance, unsecured business loans and digital lending are the four pockets in which we do unsecured lending and they will all grow.

 

You are saying you will increase unsecured lending. How are you dealing with the stress in this segment?

 

The stress reached its peak in November or December last year and since then it has been either constant or slightly reducing. Things have got better, somewhat steady. It is not a business which is ready for acceleration yet, but you don't need to be in brake mode. We are waiting for the opportunity to start accelerating. Over the last one and a half years, we have been stuck there at the same level. Eventually, I want to get to 25 per cent. IAs the environment eases off, we will start accelerating and we will get there.

 

Loan against property is another area of stress. How worried are you about it?

 

There is a certain stress which is coming out from the LAPs. Particularly in Micro LAP which is a very new product category that has come up and has grown explosively in this period. There are signs of stress that are starting to build. It is an area that people need to worry about.

 

Your are starting gold loan business…

 

We are in the process of building a gold loan business. Hiring the team, putting out our first gold loan branches, etc. All that should happen in the next quarter or so. We are doing it organically. It will take time. It's a business which you have to be patient and slowly build. We are interested in this business from a strategic perspective, where we want to be in this business 25 years from now.

 

Would you look at inorganic opportunities, gold business or any other business?

 

That there are 3 or 4 sectors we are very happy to do inorganic. I would like to do inorganic in gold if something is available or microfinance or affordable housing or MSME lending. If there are small or medium sized acquisition opportunities, we are very open to look into it. However, as a company, we believe that both value and valuation expectations need to be right for us to do acquisitions. We are happy to acquire when the right opportunity presents itself. But the counterparty expectations need to be appropriate. 

 

Will you cut down dependence on bank funding? Any plans to raise funds via ECB?

 

We haven't done any ECBs this year in the first half.   In H1, liquidity was so flush and rates were so good in India. It made sense to borrow here.  So we borrowed everything here in the first half. But now in the second half, we will probably go to the ECB market. We will probably do some in the second half, may be $700million-$800 million or a billion. 

 

Right bank funding is about 46% now. At the peak, it used to be almost 60%.   I would like to bring it down to 40%. I think that's the right kind of mix for bank funding. And as that reduces, we want to increase domestic debt capital market, and a little bit more ECB.  Also bit of multilateral funding.

 

You are in talks with rating agencies for an upgrade…

 

Rating agency conversations are ongoing.  I hope they see how the credit has shifted, etc. And the conversations are constructive. Hopefully, they will kind of take a positive view on the company soon.  We've been AA rated now for five years. We used to be AA plus in 2019. And got downgraded to AA when all our troubles started.  And in general, the NBFC sector was going through all the troubles that it was going through. So over these five years, our narrative and our own credit, we believe has fundamentally altered and gotten a lot better. But our ratings haven't changed.