Piramal Enterprises stock tumbles 10% post June quarter results

Shares of Piramal Enterprises plunged 10 per cent to Rs 882.85 on the BSE in Wednesday’s intra-day trade after the company reported 64 per cent year-on-year (YoY) decline in consolidated net profit at Rs 181 crore for the June 2024 quarter (Q1FY25), owing to a one-time gain of Rs 855 crore accrued in Q1FY24 due to a stake sale in a Shriram Group entity. Sequentially, the profit was up 32 per cent from Rs 137 crore in March 2024 quarter (Q4FY24).

The net interest income of the company rose by 18 per cent YoY to Rs 807 crore from Rs 681 crore in Q1FY24, while other income grew by 33 per cent YoY to Rs 58 crore. The company also made an exceptional gain of Rs 104 crore from gross AIF recoveries during the quarter under review.

The net interest margin (NIM) of the finance company dropped to 6.7 per cent compared to 7.3 per cent in the last year. The total assets under management (AUM) of the company grew by 10 per cent to Rs 70,576 crore over the corresponding year-ago period, supported by double-digit growth in the legacy book of the company.

Management targets to reduce legacy AUM to <10 per cent of total AUM by end FY25. Motilal Oswal Financial Services (MOFSL) believes that this will entail elevated credit costs in FY25. The company pointed out that it has management overlay of ~Rs 690 crore on the legacy AUM, expects gains of ~Rs 1,200 crore from AIF over FY25, and residual stakes in Shriram Life and General Insurance will be monetized. 

It will look to opportunistically take the credit cost impact of running down the legacy AUM on P&L when there are one-off gains from the pockets of opportunity in its legacy business, the brokerage firm said.

MOFSL estimates a total AUM CAGR of ~24 per cent and a ~36 per cent CAGR in Retail AUM over FY24-FY26E. While its growth business (excluding one-off gains and exceptional items) is showing signs of improvement, it will still take at least 12-15 months for it to mitigate the earnings and credit costs impact of an accelerated decline in the legacy AUM, the brokerage firm said with a ‘Neutral’ rating on the stock.

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