Piramal Enterprises shares tank over 10% after weak Q1 performance

The shares of non-banking financial company (NBFC) Piramal Enterprises dropped over 10 per cent after a weak quarterly performance. The net profit of the company declined by 64 per cent year-on-year (Y-o-Y) in the first quarter of FY24 to Rs 181 crore from a one-off gain registered in the year-ago period.

Amid the weak performance by the company, brokerage houses like CLSA and Jefferies downgraded the stock to ‘Underperform.’

CLSA said that the company witnessed a negative credit cost due to lower provisions on Stage 1 and Stage 3 assets and one-off gains, which supported the otherwise weak operating profit of the firm.

The operating profit of the company in Q1 FY25 stood at Rs 133 crore, which was 26 per cent down from the previous year.

Also, the assets under management (AUM), which grew 10 per cent Y-o-Y, were driven by 43 per cent growth in the retail book. However, according to CLSA, some segments of this retail book continue to see a worsening 90+ days past due (DPD) trend, which could further exert pressure on both the growth and credit cost of the company.

The net interest income (NII) of the company rose by 18 per cent Y-o-Y to Rs 807 crore. The net interest margin (NIM) reduced to 6.7 per cent from 7.3 per cent in the corresponding year-ago period.

According to Jefferies, the quarterly profits did not meet brokerage estimates due to lower NII. The company used Rs 2.76 billion of overlay provision in the quarter, which boosted the profit and growth in the retail book.

PEL’s share prices ended at Rs 881.35 today, down 10.59 per cent on the BSE.

Meanwhile, Motilal Oswal in its research note said that management’s target to reduce legacy AUM to less than 10 per cent of the overall AUM by the end of FY25 will limit the ability of the company to mitigate the impact of credit cost.

“Pockets of opportunity, which we earlier thought would be utilised for some inorganic acquisition in retail businesses or for strengthening the balance sheet, will potentially be utilised to run down the stressed legacy AUM. We do not see catalysts for any meaningful improvement in the core earnings trajectory of the company,” the report said.