Motilal Oswal ups Piramal Finance target, retains 'Buy' on retail-led surge

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Motilal Oswal lifts Piramal Finance target: Motilal Oswal Financial Services Limited (MOFSL) has raised its target price for Piramal Finance to ₹1,790 (from ₹1,460 earlier) while reiterating a ‘Buy’ rating on the back of the company’s disciplined retail-led transformation, strengthening profitability trajectory, and improving operating metrics. Notably, Motilal Oswal had upgraded the stock to ‘Buy’ on October 17 this year.

 

The brokerage believes Piramal is entering a phase where scale benefits, lower operating costs and a sharper credit framework will drive meaningful expansion in return ratios. Over the past four years, the lender has undergone a structural shift from a wholesale-heavy book to a diversified retail franchise supported by a stable risk engine, a scaled distribution network, and an engineering-first technology backbone.

 

Retail momentum builds as legacy wholesale winds down

 

The shift began with the DHFL acquisition, which expanded Piramal’s affordable housing footprint and provided a much broader operational infrastructure. Since then, the company has rebuilt its retail business from scratch, upgrading underwriting, technology, processes and organisational depth.

 

The result has been decisive derisking. What was once a wholesale-dominated loan book, about 95 per cent five years ago, is now ~83 per cent retail, with the legacy wholesale book cut by more than 90 per cent to ~₹54,000 crore. Management aims to reduce this further to ₹30,000–35,000 crore, or less than 5 per cent of AUM, by March 2026.

 

While Piramal is not exiting wholesale, it has adopted a calibrated ‘Wholesale 2.0’ strategy with granular ticket sizes, stronger borrower profiles and tighter credit filters. The segment is expected to remain capped below 20 per cent of AUM over the long term.

 

Piramal’s retail strategy is centred around ‘Middle India’, which includes tier-3 to tier-6 cities ranked 100 to 1,000, where competition is lower and growth visibility higher. With an average home loan ticket size of ₹22 lakh at yields of around 11.9 per cent, Piramal has positioned itself as a competitive affordable housing lender, offering rates 40 bps lower than peers while delivering nearly double the disbursement volumes of comparable affordable housing finance companies.  CATCH STOCK MARKET LIVE UPDATES TODAY

Margin tailwinds, operating leverage and AI-led productivity gains

 

Retail AUM is growing at ~35 per cent, while consolidated AUM is expanding at ~25 per cent. Piramal plans to maintain a balanced product mix, raising unsecured loans from the current ~18 per cent to about 25 per cent over the medium term. The retail book has already achieved scale, breakeven and stable risk outcomes.

 

Motilal Oswal expects net interest margin (NIM) expansion to be a major driver of return improvement. Key levers include a gradual rise in fee income, a higher share of unsecured lending (potentially ~30 per cent) and lower borrowing costs supported by anticipated repo cuts and a probable credit rating upgrade within a year. A co-branded credit card rollout is also expected to push up fee income. NIM is estimated to rise to 5.4 per cent in FY27 and 5.8 per cent in FY28 from 4.7 per cent projected for FY26.

 

On the cost side, the company has delivered strong operating leverage, reducing opex-to-AUM by ~260 bps over 10 quarters to 3.9 per cent in Q2FY26 from around 6.5 per cent at end-FY23. Enhanced productivity, digital processes and the extensive use of artificial intelligence have driven these gains. According to Motilal Oswal, sales efficiency has risen 25 per cent, credit manager output 20 per cent and operations productivity nearly 60 per cent. Even with the planned addition of 50-75 branches per year from next year, retail opex-to-AUM is expected to fall to 3-3.25 per cent by FY28, with consolidated opex nearing 3 per cent.

 

Profitability is also improving, analysts noted. The retail business turned profitable in July 2023 and current RoA is around 1.5 per cent, with management targeting 2.5-3 per cent over the medium term. AUM is projected to reach ₹1 trillion in FY26, ₹1.5 trillion in FY28 and cross ₹2 trillion by FY30. Motilal Oswal models a 23 per cent AUM CAGR and ~102 per cent PAT CAGR over FY25–28.

 

The balance sheet remains well capitalised, with no equity raise expected until at least the first half of FY27. The company also plans to monetise its stakes in Shriram Life and Shriram General Insurance next year, potentially unlocking additional capital.

 

Motilal Oswal believes Piramal Finance has now emerged as a large, fast-scaling NBFC with strong competitive positioning in semi-urban India. With the wholesale legacy largely behind it and multiple profitability levers in place, the brokerage expects consistent compounding ahead. 

 

Its upgraded target price, based on Sep’27 SOTP valuation, reflects confidence in the company’s multi-year retail-led growth trajectory and transition into a more stable, profitable and scalable financial institution. 

Disclaimer: Target price and stock outlook has been suggested by Motilal Oswal. Views expressed are their own.