ICICI Securities initiates buy on Piramal Enterprises, bets on consumer finance biz; stock rises 3%

Piramal Enterprises share price is currently trading at 0.9x FY21E price/consolidated BV.

February 20, 2020 / 12:40 PM IST
  • bselive
  • nselive
Todays L/H

Shares of Piramal Enterprises gained 3.5 percent intraday on February 20 after ICICI Securities initiated a buy rating on the stock with a target of Rs 2,025, implying 29 percent potential upside from current levels, citing strong opporutunity in consumer space.

The stock rallied 14 percent in last 15 days. It was quoting at Rs 1,617.90, up Rs 45.90, or 2.92 percent on the BSE at 1127 hours IST.

"We expect Piramal Enterprises (PEL) to deliver healthy normalised return on asset (RoA)/ return on equity (RoE) of 4.2/9.4 percent in FY22. RoE will improve with improvement in financial leverage," said ICICI Securities which initiated coverage on the company with a buy recommendation.

The stock is currently trading at 0.9x FY21E price/consolidated BV.

"We do acknowledge that there is considerable stress in residential real estate and that the financial health of the developers is indeed worrying. However, PEL's superior client selection, conservative underwriting, asset monitoring capabilities and ability to find resolutions in stressed projects gives us confidence that it will emerge stronger from the current phase of turbulence," the brokerage said.


PEL is strengthening itself to remain relatively insulated in case of further deterioration in the financial health of developers, it added.

The brokerage said PEL was taking strong measures to reduce its large single-borrower exposures.

"Many of the newer sanctions in real estate will be through the fund structure/co-origination model and will earn fee income. Company has a newer and improved strategy in place in housing finance. Both retail segments – consumer and housing – will bring in granularity and give comfort to investors," it detailed.

The company's intent to foray into consumer/SME financing will provide the much-needed granularity in its loanbook and gives a big optionality value to the company, it feels.

Consumer finance is a huge under-penetrated opportunity dominated by a handful of financiers. "Piramal, collaborating with a large telecom service provider, can get immediate access to a big ecosystem of customers with a digital footprint," it said.

Jairam Sridharam (ex-CFO, Axis Bank) was appointed as the CEO of PEL's retail lending business.

"Sridharan has rich experience in building large retail franchises in his prior stints at Axis Bank, Capital One Financial and ICICI Bank. He has also headed business intelligence functions in his earlier stints and will be instrumental in developing the analytical capabilities of Piramal in retail lending," ICICI Securities said.

Piramal Enterprises is the parent company with interests in financial services, pharma (Global Pharma and India Consumer Products) and financial stakes in retail lending and insurance business of Shriram group (around 10 percent in Shriram City Union Finance and around 20 percent in Shriram Capital.

In case of its pharma business, ICICI Securities said, "Requirement for development services, especially with increasing complex regulatory processes, remains high with increasing demand for newer drugs. Differentiating itself from its peers is its portfolio of institutional branded generic products, which are inherently used for critical care and are complex to manufacture."

Thus, PEL has carved a unique space for itself in the pharmaceutical industry with its CDMO services and critical care products.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Feb 20, 2020 12:40 pm

stay updated

Get Daily News on your Browser