Emkay Global Financial's research report on Piramal Enterprises
Piramal Enterprises (PIEL) reported Q3FY23 consolidated PAT of ~Rs35.5bn (~Rs2.2bn, after adjusting for one-time tax reversal). On an adjusted basis, earnings came in lower than our estimate, primarily on account of higher-than-expected credit costs due to a one-time provisioning buffer and prudential write-offs as well as higher operating expenses. Considering it prudent in the presence of one-off gains from fair-value adjustment of Shriram Group investments (~Rs8.89bn), coupled with the tax reversal of contingent tax liability related to the DHFL acquisition (~Rs33.27bn), Management created additional provision buffers for the Wholesale 1.0 (legacy) book. As per Management, the book is now adequately provided for, with a stage 2 & 3 PCR of 45% (Q2: 40%) on the wholesale book. The focus continues to remain on running down the Wholesale 1.0 book, while simultaneously building-up the more granular Wholesale 2.0 (real estate + corporate mid-market loans) book as well as the Retail loan book, and achieve the stated target of 2/3rd retail and 1/3rd wholesale.
Outlook
We roll over our estimates to Mar-24 and retain our BUY rating, with Mar-24E TP of Rs1,300/share (earlier Rs1,200), using the SOTP-methodology for valuation: i) the financial services business using the Excess Return on Equity (ERE) method for a pershare value of Rs1,065, implying 1.0x of Mar-25E BVPS; ii) investments in Shriram Finance based on current market capitalization for Shriram Finance, post holdco discount, at Rs138 per share; iii) investments in the AIF and Insurance at allocated equity book value of Rs45 and Rs60 per share, respectively
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