Piramal Enterprises Ltd (NSE: PEL) Q1 2026 Earnings Call dated Jul. 29, 2025
Corporate Participants:
Unidentified Speaker
Ajay Piramal — Chairman
Jairam Sridharan — Chief Executive Officer of Retail Financing Business
Yeshwant Ramchandra Nadkarni — Chief Executive officer, Wholesale Lending
Upma Goel — Chief Financial Officer
Analysts:
Unidentified Participant
Abhijit Tibrewal — Analyst
Shubhranshu Mishra — Analyst
Presentation:
operator
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operator
Ladies and gentlemen, you’re connected for the Piramal Enterprises Limited conference call. Please stay connected. The conference will begin shortly. Participants, you are connected for the Piramal Enterprises Limited’s conference call. Please stay connected. The conference will begin shortly. Thank you ladies and gentlemen. Good day and welcome to the Q1 FY26 earnings conference call of Paramil Enterprises Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then zero on your Touchstone phone.
The results material are available on the company’s website and you may refer to them during the discussion. Please note that today’s discussion may include certain forward looking statements which must be viewed in conjunction with with the risks and uncertainties that the company faces. These statements are based on the management’s current expectations and are subject to uncertainty and changes. On the call we have with us Mr. Ajay Piramal, the Chairman, Mr. Anand Piramal, Executive Director, Piramal Finance Mr. Rupin Javeri, Group President, Mr. Jayaram Sridharan, CEO Retail Lending and MD Piramal Finance Mr. Yash Nadkarni, CEO Wholesale Lending Ms.
Upma Goel, CFO and Mr. Ravi Singh, Head of Investor Relations and Strategy. I now hand the conference over to the chairman, Mr. Ajay Piramal for his comments. Thank you. And over to you sir.
Ajay Piramal — Chairman
Good day and thank you for joining us today on this call. With the first quarter of the current year, we’ve had a good start of the year with balanced performance on all key parameters. Consolidated aum grew by 22% to rupees eighty five thousand seven hundred crores. This compares with the growth of 17% year on year in quarter four of FY25 and 10% year on year in the quarter one of FY25. Retail AUM grew by 37% year on year and forms 80% of our total AUM. Our growth business comprising of retail and wholesale 2.0 now stands at 93% of our total AUM.
With reduced drag of the legacy business, our consolidated PBT is 301 crores out of which growth business PBT is 295 crores growth business PBT. Thus fully translated into our consolidated PBT. Benefiting from the same dynamics, the consolidated nims increased by 10 basis points from a Q on Q to 5.9%. The overall risk performance in the retail portfolio improved sequentially. It is now at a comparable level to that seen in the second quarter of FY25. Wholesale 2.0 portfolio maintained zero delinquencies. The credit cost for growth business declined to 1.4% versus 1.8% in the last quarter of FY25.
Growth business opex to AUM continues to moderate. It stood at 3.9% in quarter one of the current year versus 4.5% in quarter one of FY25. Growth business PBT to AUM excluding POSI gains thus came in at 1.4% in this quarter versus 1.1% in the full year of FY25. The first quarter of FY26 is likely to be the last quarter before merger of Piramal Enterprises with Piramal Finance. The merger is expected to complete by September 2025. With the merger, all our lending businesses will get consolidated under Pyramid finance with a much simplified corporate structure. Total capital adequacy ratio was 19.3% versus 23.6% of at the end of last year.
The change of the HFC subsidiary to an NBFC status and growth in business drove this reduction. The completion of merger process will lead to reversal of about 245 basis points of this reduction. Our balance sheet remains highly liquid with total cash and equivalent of 9000 crores which is 9% of total assets. The Lantheus and Life Molecular Imaging deal relating to the erstwhile Pyramid Imaging business has successfully closed on July 2025. The consideration due to us would be based on 2025 profits of the business to be calculated at the end of the calendar year 2025. We expect to receive the payment subsequently in the last quarter of this current financial year.
Our earlier guidance related to this matter remains unchanged. Finally, last quarter we shared our five targets for FY26 on total AUM growth, AUM Retail Wholesale, AUM mix, Legacy AUM reduction and total consolidated PAT with Q1FY26 numbers, we are on track to meet all these targets. I now hand you over to Jairam Yash and UPMA to share more details on our first quarter FY26 performance.
Jairam Sridharan — Chief Executive Officer of Retail Financing Business
Thank you sir. Ladies and gentlemen, I’m going to take you through the story and what we have seen in the first quarter in retail lending. We have had a very strong start of the year for our business. We do expect usually a little bit of seasonal weakness in the first quarter. However, we were able to sustain aum growth at 37% year on year for June ending quarter versus the 35% for the quarter ended March 25. From a disbursement standpoint, in the first quarter of this year disbursements were at 8,718 crores up 28% year on year.
In our flagship mortgage business which comprises the affordable housing loans and loan against Property, growth was 38% year on year to 47,101 crores. Mortgages now account for 55% of the total AUM of the company and 68% of retail AUM. Now the market itself as we all know is growing sub 10%. I want to address the question of what are the key drivers behind our strong AUM growth at scale in such a market? We believe there are three reasons why our AUM growth continues to be strong. Number one Segment clarity. Our focus has been always on middle tier Bharat markets and this has helped us buck overall market average trend where there have been some challenges both at the top end and at the bottom end.
But the middle end has done well so that segment clarity has helped. Number two a multi product strategy. As we have seen over the last two years, diversified NBFCs have delivered consistently stronger growth than Monoline and this choice and strategy for us has again helped. Number three High tech plus high touch our business choice. On this front we have invested a lot in our branch network. That branch network is now rapidly maturing and that helps us from a productivity standpoint and parallel. We have also invested in technology and AIML capabilities that are allowing rapid scaling of what is fundamentally a high touch business.
So those are the three reasons we believe our AUM growth continues to be robust in an otherwise weak market. Moving on to the credit risk performance, key risk metrics such as credit costs, slippages, delinquencies broadly improved on a sequential basis. As you can see on slide 2190 plus days past due in retail was at 0.8% in the very narrow range that we have consistently maintained over the last three years. Risk in this quarter was seen at levels comparable to the second quarter of last year. Secured lending products basically had a very stable quarter on most risk metrics.
There was some improvement seen in on an overall level in unsecured business on a sequential basis q1 compared to q4. However it was not for all businesses within unsecured salaried businesses in unsecured saw a very strong Q1 reduction in all risk metrics. We did increase our disbursements in this segment by 57% year on year as we have seen these strong Trends continue for a while. Trends in digital loans and microfinance were also largely stable to improving. There were two pockets of the portfolio that did show risk deterioration in the quarter. They were MSME unsecured and used car finance.
MSME unsecured is 6% of total AUM. The portfolio which we sourced open market did deteriorate in Q1 custom compared to Q4. In Q4 we have seen an improvement in the segment, but in Q1 we saw a deterioration again. If you see our risk chart, the long term trajectory that we show, you will see fairly flat behavior of delinquencies and MSME unsecured. That is mostly because cross sell business has actually done well even though open market sourcing business has deteriorated during the course of the quarter. Consequently, we reduced our disbursements in this segment by 30% quarter on quarter and 17% year on year.
In this segment we track around 30 industry sectors from a risk standpoint, all MSME businesses. Our exposure is looked at on these 30 industry sectors. We have seen fresh origination credit risk deteriorate in 23 of the 30 sectors. Used cars, which is 5% of total AUM, also showed a slightly unusual uptick which is unseasonal for the first quarter. This trend needs to be watched closely in the months ahead. However, the overall improvement in risk was clear. It was also aided by a favorable impact of an ECL rebalancing effort that happened between Q4 and Q1. Between all of that, credit costs declined during the course of the quarter on a sequential basis.
UPMA will later share a little bit more detail on this. If you look at slide number 16, our customer franchise continues to grow. It grew by 21% in this quarter on a YOY basis to 4.8 million. A significant portion of our customer originations are indeed tapped for future cross sell opportunities which you will see on this chart. It’s 50 plus percent and currently we are sourcing 25 to 30% of our unsecured disbursements from cross sell. Our number of branches continues to remain unchanged Q1 at 517 branches. Our focus in recent quarters has been on raising productivity of existing branches and increasing the number of products offered per branch.
You will see details of this on slide 20. For the last nine quarters you see that we have consistently reduced the OPEX to AUM ratio for our retail business from a high of 6.5% in the fourth quarter FY23 to where we are today which is 4.2%. We aim to continue this trend in line with our medium term guidance of 3.5% to 4%, our performance in lowering the OPEX to AUM in these last two years has been slightly better than what we had anticipated at the beginning of the journey. The outperformance was thanks in part to the investments that we have made in technology, AI and recently Genai.
Slide 19 highlights some of the most successful use cases of Gen AI in our business, making significant headway across risk management, operating leverage, productivity and controls among other things. Slide 20 shows the yield on the retail business which has been broadly stable at around 13.3%. A different chart of the same slide shows our reported fee income. You might recall that in financial year 25 we changed processing fee to an amortization model and that impacted this line item pretty significantly. But you can see on the chart on slide 20 that that this has been gradually normalizing for the last five quarters and the underlying fee collection trends remain very stable.
So this improvement should continue with increase in DA and CO lending transactions. Their share in retail income has also steadily increased in the last one year. A little bit of a forward looking heads up to the investing audience. Recently RBI has notified some new rules on prepayment charges for floating rate loans to individuals and MSMEs. This rule will become effective from 1 January 2026. This will impact one part of the income stream from our retail business, particularly the prepayment fees in the MSME lending business, the lap business that will get impacted. However, we do have some time before the rules kick in and it should allow us to plan and mitigate the impact of these new rules in other ways so we are not changing anything from a guidance perspective that we have shared before.
Overall, we remain confident about the continued steady scale up of our multi product retail lending business with consistent improvement in operating leverage and stable asset quality through the cycle. With this I hand over the call to my colleague Yash.
Yeshwant Ramchandra Nadkarni — Chief Executive officer, Wholesale Lending
Thanks a lot Jaydam and good evening everyone on the wholesale lending side. In the first quarter of FY26 our AUM for the new business or 2.0 version of our business grew by 14% quarter on quarter to rupees 10,425 crore. We disbursed rupees 2,302 crore during the quarter across real estate and CML segments. This was an increase of 35% quarter on quarter in disbursements. Origination per loan was rupees 60 crore during the quarter while disbursed amount per loan was about 30 crore. The portfolio has an average ticket size now of 74 crore which is in line with the previous few quarters and the effective interest rate stands at 14.5% featuring a well balanced asset duration and diversification.
We continue to see strong tailwinds across real estate and CMML segments and will continue therefore to grow this book in a calibrated manner and a granular manner. Through FY26 repayments were almost 43% of disbursements during quarter one. They continue to remain significant at significant rate signifying better than expected performance of the book which continues to benefit from strong sectoral performance and quality partner and asset selection. Since the inception of the new wholesale lending business we have not experienced any delinquency in the portfolio. I just finish with this and hand it over to U.P.N.A. for your session.
Upma Goel — Chief Financial Officer
Thank you Yash Good evening to everyone. Moving to our financial performance in Q1FY26 we reported consolidated net profit of 276 crores growth of 52% yy over Q1FY25 net profit of 181 crores. Performer PBT for growth business stood at 295 crore growth of 44% yy over PVT of 204 crore in Q1FY25.
Upma Goel — Chief Financial Officer
With.
Upma Goel — Chief Financial Officer
Reducing drag of legacy business console Name increased by 10 basis points quarter on quarter to 5.9%. Gross AUM grew by 38% YoY to 79,430 crores. Operating profit grew by 51% YoY to 565 crores in Q1FY26. The reported gross business credit cost was at 1.4% versus 1.8% in Q4FY25 Last quarter view for FY25 credit costs included a negative impact of about 45 crore due to ECL rebalancing mainly in the micro finance business. In quarter one FY26 ECL rebalancing for the overall portfolio had a positive impact of about 105 crore. Our total GNP and NLP ratio stand set 2.8% and 2% respectively.
Her net worth stands at 27,174 crores. Capital adequacy is at 19.3% on consolidated balance sheet basis versus 23.6% at the end of March 25 with completion of PFN merger we expect reversal of approximately 245 basis points. From this reduction in the capital adequacy in Q1 FY26 our cost of borrowings reduced marginally to 9.1%. We continue to Actively diversify our borrowing mix. Securitization and international borrowings. Share stands at 18% while share of borrowings from mutual fund has increased 12% versus 6% in March 24. The fixed floating gap between assets and liabilities has now been mostly neutralized to align the balance sheet better with the declining rate environment.
With these remarks, I would now like to open the floor for questions. Thank you.
Questions and Answers:
operator
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star then one on their touchstone phone. If you wish to remove yourself from the question queue, you may press star. And two participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles again to register for a question. You may press Star then one. Our first question comes from the line of avinash Singh from MK Global Financial Services Ltd. Thank you. Please go ahead.
Unidentified Participant
Thanks for the opportunity. Two questions. The first one is on your, you know, provisioning coverage in retail. So if we see the data, I mean, stage one provisioning power had gone down from 1% to 0.8%. Stage three had gone down from 40 to 34%. If we looked at the kind of asset composition within retail in terms of secured, unsecured or various kind of cuts, it looks like not much had changed from Q4 March to June. So what explains, I mean, I mean how is this ECL model kind of leading to this change in terms of, you know, provisioning problem retail? I mean, in terms of, you know, retail assets have grown, sequencing nearly 7 odd percent where the absolute, you know, provisions had gone down.
I mean again, not a very big time, but it had gone down. So net net, of course, the provision. So what is explaining this? And second now again, more a broader question, of course, I mean that your rundown of legacy has been going at a great pace. So let’s look into FY27 when you have, you know, the parameter finance as a merged single listed entity and you’re, I mean you are going to have no tax probably for next few years. Assume that, okay, whatever leftover of you know, this thing is legacy is there, including everything on the kind of, you know, the console balance sheet that is rz.
I mean how do you see, I mean your nims, OPEX and credit costs basically panning out including whatever drag from the legacy then.
Unidentified Participant
Thanks.
Ajay Piramal
Sure. Thanks. Avinash. So your reading is absolutely correct. See the way the ecl, this is all happening, I’m answering the first part of the Question on provision coverage and retail. This is all a part of the ECL rebalancing thing that Upma spoke about. Right. In the first quarter of every year we do ECL rebalancing and in our case we are over the last three years have consistently been reducing the weightage of external data and increasing the weightage of internal data. Our internal performance has continued to be a little bit better than what market average has been.
And so as we are actually increasing the weightage of internal data as we are getting more and more mature in the business. So you are seeing some ECL releases happening when the RE grounding happens. This year we split the RE grounding into two parts. All the unfavorable impacts we took in the fourth quarter and some of the favorable impacts we have moved to we took now in the first quarter. So you are seeing some lumpy releases. That’s what Upma mentioned in her remarks that there was an unfavorable 45 crores in the previous quarter and this quarter we have seen a favorable 100 crores.
All of that is coming from the PD regrounding that happens once a year. So that’s what you’re seeing here. Nothing has changed on the LGD front. LGD is all the same. PD has just been re grounded to our internal data and because our internal data on secured continues to be better than market. So with every passing year as our internal data weighted is increasing that PD is actually falling a little bit. So that’s the mechanical outcome that you’re seeing on the table that you just mentioned. The second part of your question which is where does this book go as we look at next year? See we have right now we talked about, let’s say the growth business is at about 1.4, 1.5% ROA.
Right. Pvt. ROA which is essentially going to be the same as Pat ROA because of the factors that you mentioned on carry forward losses. So that 1.5% we have guided that in the medium term that needs to get to 3% right? Or close to 3%. That’s kind of where we believe our business model can lead us somewhere around 3% ROAS. But it’s not all going to happen in one year. But next year as the legacy book continues to fall even further and the growth book moves upward from 1.5% to let’s say somewhere in the two handle, let’s say mid 2s towards the end of next year.
That’s kind of what the entire books ROA will also end up being. So that’s directionally what you should keep in mind. We have not guided specifically on profits for next year. I want to be clear for this year to reiterate, we have guidance specifically on profits which is 1300 to 1500 crores of that at the full year level and with roughly 280 crores in the first quarter, I think we are well on track.
Unidentified Participant
Okay, thank you.
Ajay Piramal
Thanks Avinash.
operator
Thank you. Our next question comes from the line of Abhijit Bibriwal from Motilal Oswal. Please go ahead.
Abhijit Tibrewal
Yeah. Good evening sir. Thank you for taking my question. Hi sir. So firstly with regards to unsecured msme, you also highlighted that the open source business has shown some credit deterioration while the cross sell MSME unsecured still continues to do. Well, what I’m trying to understand sir, right now, what, what we’ve been hearing at least in the last maybe one, two months, lot of rationing of credit has started happening in MSME unsecured. And I’m talking more particularly about lower tickets, smaller ticket MSME unsecured loans. More and more lenders want to do bigger ticket msme. So to that end, don’t you think that in an environment like this where there are other lenders calling out that there is leverage in terms of number of loans that has built up in MSME unsecured kind of growing too fast? In this segment while I remember in your opening remarks you spoke about the fact that we have reduced our disbursements this quarter in this segment, would that be growing too fast? It will kind of maybe lead to some accidents given how things are.
Ajay Piramal
Yeah, absolutely. That point is correct. See and right now it’s MSME in our business you have to look at things every quarter, every month, figure out which business is or which segment is actually going through some challenges. And wherever you see some challenges, you have to put the brakes on where you see opportunities. You got to accelerate. So this business is kind of always optimizing sort of business. You can’t have a one off strategy and just spill it, shut it, forget it. You can never do that in this business. Right now MSME unsecured is the area.
If you look at our charts on page 14, slide 14, you will see what we have done to disbursements and what has happened to disbursements in MSME unsecured over the last 3/4 at P, from a level of 1200 crores of disbursements a quarter, we are now down to 700 crores. So we’ve been bringing down disbursements for three quarters. Now let’s see, let’s see how this, you know, how this develops. But these things, Abhijit, you and I have spoken about this in the past business, as you can see on page 14. And now we are seeing some of the risk at the overall level.
So actions have to predate the risk outcomes. So we have taken action three quarters ago at some point of time. You will see us increase the volumes here for the exact same reason that we are seeing something in the early data which is making us feel comfortable. And when we do see that, you will see us accelerate as well, constantly. We will do that in every business as you’ve seen us do over the last three years. And this is something you’ll continue to see us do.
Abhijit Tibrewal
Got it, sir. I mean this is a related question here. I mean this quarter, I mean lot of NBFCs have already reported we are seeing some weakness in credit across most product segments, even insecure product segments. Right. So just trying to understand in your assessment, how is the environment like? Because I must give credit where it’s due. At least from your results. Right. Doesn’t look like this quarter there was any credit risk really building up. So we’ve done well both on growth as well as risk. So in your assessment, I mean, how is the environment looking? Question.
You also spoke about some spike in used car loans. Is this more a spike in the refinance business of used car loans rather than buying and selling off used cars?
Ajay Piramal
Yeah. Now let me start with the last part of your question which is absolutely spot on. I don’t know where you caught that, caught that sound bite. That is exactly the right sound bite. The in used car the problem is in the refinance segment. It is not in the sale purchase segment. The sale purchase is doing just fine. It’s in refinance, even within refinance, it is in the self employed part of the refinance market. So that’s where the problem is. But the problem is acute enough that it is showing up on the full UCL results.
So I don’t know where you. I’m very surprised actually that you gave me that sound bite. I didn’t know that was that well known. So kudos for catching that. That is exactly what is happening in the market. Refinance is where the problem is. On your first part of your question on how I’m seeing the market itself and kind of the risk environment, I think the risk environment is stable. I think Q1 was a stable quarter. There was nothing which is surprising that happened. Used card is probably the one thing that I’m a little bit surprised about.
Like this is not something we might have, we would have anticipated getting into the quarter. So that’s the one thing which we have found a little bit unseasonal and a bit different. But most other things, even ucl, sorry, even MSME unsecured or mfpi, all this stuff has been kind of has been fine. You know, nothing has really deteriorated. There’s some accumulated effect of the last few months and couple of quarters that you have seen play out in the numbers, but nothing particularly untoward. So it’s, it’s a decent enough market. Salaried customers continue to do very well.
Is it self employed where there is a problem? It’s still not a problem as acute as it was in let’s say the third quarter of last year. The third quarter of last year in my mind was still the peak of credit risk. Risk in the environment has improved in the fourth quarter and has been steady in the first quarter. And for some people and ourselves included, it has improved a little bit in the first quarter. But we even for a market, my guess is that it would be stable on the whole. Right. But salaried has done well.
Self employed has struggled a little bit, but it’s not struggling as much as it was before November last year. Things have improved since then.
Abhijit Tibrewal
And just one last question, Jayram Sir. So while I mean we appreciate we are at PBT, ROA or PAC ROE of about 1.4, 1.5 over the medium term we want to get to 3%. But I mean as you also acknowledge, the reality is that we’re still far away from a double digit roe. But at the same time we’re growing very, very strongly, especially in our growth businesses growing at 30% thereabouts. So I mean, would there be a time maybe by the end of the year where CRAR would trigger an equity raise? Because I understand right now more of a NBFC classification which has led to this compression in CRR which will again get released when the merger is complete.
But given how we are growing and given how where we are placed on the crar, do you think by the end of this year it could trigger an equity raise or perhaps to give some comfort to the credit rating agencies if it helps in getting some credit rating upgrade given that now retail is the dominant portion of of your overall yield?
Jairam Sridharan
Yeah, that’s a good question. See our numbers don’t get us to a raise by the end of the year. In General, like, you know, right now, let’s say we get the clawback of 245 basis points that Uma spoke about. We’d be in the mid 21 kind of range. In terms of crar, we are reasonably comfortable to, you know, till about, let’s say 18%. Right. You know, below 18%, we are probably looking at a raise event. I don’t think we are getting to 18% by end of the year. So even with these growth, there is accumulated profits that’s coming in.
Let us see. These things are dynamic and we’ll have to keep updating you. But our current expectation is not pointing us in the direction of a raise in this financial year.
Abhijit Tibrewal
Got it. This is useful. Again.
Jairam Sridharan
Ravi reminds me of another important element as well, that there are some investment portfolios that we have on our balance sheet which as you know, carry fairly high risk weight. As and when we are able to exit those investment portfolios, not just will it lighten up the balance sheet and make cash available or capital available for growth, it will also disproportionately release risk weighted assets. So its impact on capital adequacy would be disproportionate. So that’s an important element as well to keep in mind.
Abhijit Tibrewal
For clarification, you spoke about this legacy which will get released that will lead a disproportionate amount of capital. I kind of missed
Jairam Sridharan
investment assets.
Jairam Sridharan
The Sriram Life and General Insurance. Yeah, those are all. So the rates are very high.
Abhijit Tibrewal
Thank you so much and I wish you and your team the very best.
Jairam Sridharan
Thank you. Thank you.
operator
Thank you. A reminder to all the participants, if you wish to register for a question, please press star then one. Our next question comes from the line of Shreya Shivani from clsa. Please go ahead.
Unidentified Participant
Yeah, thank you for the opportunity. My first question is actually just a clarification. Your AIF recovery for 1Q25 was 103.7 crores which you have regrouped in the other operating income. So is it fair to believe that the 82 crores of other operating income that you have shown in 1Q26, that’s the entire AIF recovery or there’s some bit of other part in it. So what is the AIF recovery number? That will be my first question. My second question is on the employee expenses for the quarter. These expenses, the employee portion of it seems a little innovative.
Can you help us understand what happened? What was what measures were taken or was it because of hiring or some color around that would be useful. And my Third question again is around expenses itself. But if I look into your Performa P and l for the three segments, you have about 30, 30 crore of expense coming from the legacy book and from the alternates book. Right. I want to understand what are those expenses towards and as and when that book reduces how much of that is variable or something that that eventually your growth book will have to absorb.
Just trying to understand. It’s not a big number I understand. But you’re just trying to understand it.
Jairam Sridharan
Yeah. Okay. So there are three parts to your question. Your first question which is on AIF recovery. AIF recoveries in the first quarter are real. So there is nothing in the P and L that has come from AIF recoveries. You are seeing an element in the P and L that is coming from recovery from old written off accounts. So in the same wholesale book, not in the AIF book but in the loans part of the book, there were some assets which we had taken 100% provision on in the past and which we had written off as well prudentially written off.
We did see some recoveries coming from there. Those are the items that you’re seeing in the in the pnl. Recoveries we have not seen. There are some lumpy assets. There are only four assets left in our book. We did not see any recoveries from them in the first quarter. So what you’re seeing is the recovery from write off. Your second question was on staff costs. Nothing has changed in staff costs. Basically we have some high. You might recall that we started a new business on Microlab in the latter half of last financial year. So we did some hiring for that and a little bit of hiring for our newly emerging MFI business in the fourth quarter of last year.
So that staff, you are seeing full quarter numbers of that staff in this year. All our other businesses have seen no hiring in the last multiple quarters and we have not opened any branches in the last quarter. So what you’re seeing is basically the impact of a little bit of hiring that we did for these two businesses, Microfinance and Microlap that we did and completed in the fourth quarter of the last financial year. So that’s it. Plus of course people get their increments and bonuses etc. So the new pay scales become applicable from April. So that’s one delta that you do see in Q1.
So that’s what you’re basically seeing from a staff standpoint. Nothing major to point out there. Not a whole lot is going to happen to that line item through the.
Jairam Sridharan
Rest of the year.
Jairam Sridharan
Then your third question was on costs on the legacy book. See some of those costs, I would say it’s about a 50, 50. 50% of those costs will remain and 50% of the cost will go away. As the legacy book goes, the part that will remain is the part where our team, our staff are engaging with these clients. On those people, we will naturally absorb them in other parts of our business. So that part of the cost will remain. However, there are also going to be a lot of legal costs and some of these recovery procedure costs, etc.
That are also part of that which will obviously not apply when that book goes away. So you should assume that about 50% of those costs will remain and 50% will go.
Unidentified Participant
That is very useful.
Unidentified Participant
And just one more clarification that I wanted was on the completion of the merger, the expected expectation is about September, October. So from third quarter onwards we can expect building in. No taxes for you guys, right? Or does it?
Jairam Sridharan
Hopefully from second quarter itself, if the process gets done, let us say we are in the very last leg of the process which is NCLT approval. The day NCLT approves and let’s say the next day we file with roc, then basically as of that day we are a single company. The moment we are a single company, all the carry forward losses are now available to this single company. Right. So if that process happens towards the last week of August or first week of September, which is our current expectation, though of course it’s a regulatory process, it can take its time.
But our current expectation is last week of August, first week of September, that should get done. The moment it gets done, we become a single company. So next quarter, if this process goes as per what I’m earning, what I’m suggesting to you now, next quarter you should see a single company declaring results and hence naturally that dynamic will play out.
Unidentified Participant
Got it, Got it. And if I can just squeeze in one more question. This is on your digital loan book, right? I mean this is one book which was continuing to like, which was flattish at about 2800 crores level for the last couple of quarters and that has sort of picked up. Disbursement is also not at the same level as you had seen in FY24, but now it is at a better level versus FY25. So can you give some color on exactly what all segments or what all categories you’re feeling more comfortable in disbursing in this particular segment?
Jairam Sridharan
Yeah, so that’s a good catch. We have gotten more comfortable with digital lending in this quarter and obliquely mentioned this in the previous quarter’s call as well, that you might see us accelerate this segment given some of the risk trends we are seeing. And that’s exactly what we have. What you have seen now, if you look at the risk trajectory, if you look at page 21 for example, and you look at what has happened to risk in digital loans, you’ve seen a couple of quarters of pretty steep improvement in risk and that’s what has actually given us confidence.
What has happened here is that the market has shifted in very large part towards fldg, which means the originator is still bearing a meaningful part of the risk and the lenders in this case ourselves are getting a lot more credit protection. So the market has moved and some of the largest players in the market who historically were not offering FLDG based origination which because of that we were not willing to do a lot of business there, that situation has changed. A lot more FLDG is now available and that has made us a little bit more comfortable.
There’s also been a shakeout in the market. A lot of the weak guys have left and only the slightly stronger guys are remaining now. So that’s also given us confidence to actually go worse, more deeply, you know, backed up with an FLDG protection.
Unidentified Participant
Got it. So it’s got to do more with the originators being more comfortable with the FLDG format now and also obviously your own trend also being much better. That’s the main. There’s no difference. You’ve not changed the product structure or the category or nothing of that sort has happened.
Jairam Sridharan
No, no, we continue to remain, we continue to remain away from the very small ticket, short duration business, the BNPL type business, which has been very problematic in the cycle. We continue to remain away from it. That probably comprises 10, 15% of our originations in digital, no more than that. So we continue to remain in the slightly larger ticket, slightly longer duration type players and we have in fact increased proportion of salaried as well in this though it is still a majority self employed population but we have increased the proportion of salaried as well. So the risk has continued to move favorably in this segment.
Unidentified Participant
Got it. This is very, very useful. Thank you so much and all the best.
Jairam Sridharan
Thank you very much.
operator
Thank you. Our next question comes from the line of Nishin Javati from Kotak. Please go ahead.
Jairam Sridharan
Hi Nitin.
Unidentified Participant
Yeah, just two questions, you know, one was on the asset quality side. When I look at your presentation, you.
Unidentified Participant
Know, it looks like you seem to.
Unidentified Participant
Be doing fairly well on collections in most of the segments, let’s say, other than used car loans. I mean, I was curious, you know, you had a slightly cautious commentary on MSMEs.
Unidentified Participant
So I was curious whether you’re looking.
Unidentified Participant
At, I mean you see this trend for the industry or is it something that you have seen in your portfolio?
Jairam Sridharan
In our data only, Nishchant, if you see business loans, you see that little blue line there? You can see it’s fairly stable. Nothing much has happened. Even though it used to be at lower levels at the beginning of last year, it has increased. But you see that the blue line is relatively stable. However, it hides one important fact which is that if I de average that blue line into two parts, one which is about new open market origination and the other which is cross sell, what I’m finding is that the cross sell part is actually doing really well and the open market origination stuff is actually not doing that well.
It is actually still on an upward trajectory. So that’s the driver behind my commentary that this MSME unsecured continues to remain problematic and it has not gotten to a point that we are comfortable right now. Right now on surface it is looking good because our cross sell proportion has increased. Otherwise it would not remain stable. It would show an upward trajectory.
Unidentified Participant
Got it. Did you share the incremental cost of borrowing data for number for the quarter? I remember you mentioned.
Jairam Sridharan
We have shown the overall number which is 9.1. Incremental cost of borrowing 9.1 K.
Unidentified Participant
Sure.
Unidentified Participant
And one tiny question, if I can squeeze in this loan against mutual funds is something that you see as a secular trend or is it something that kind of is done opportunistically?
Jairam Sridharan
No, it is secular. It is something that we want to build. I don’t currently show it as a separate bar in our stack bar. Our general philosophy, if something becomes 2% of book then we will start showing it as a separate color. Currently it is not there yet, but in a quarter or two you might start seeing that come up. It’s about what, 1000 crores or something now of book. So yeah, it is a business we like a lot. We like that business actually more than we like loan against shares. We think mutual funds, the general ownership in the market has improved.
Retail ownership of mutual funds has improved, grew quite a bit in the last two, three years. But not enough penetration of lending and not enough monetization of those assets has happened. So we do believe that there is a secular opportunity there and NBFCs do have a little bit of an advantage here over banks, given the 20 lakh rupee limit that banks have. So it is a business that we like and you will see us do more because it does tend to be a little bit of a a cyclical business. If the market does well, the book utilization does increase quite a bit.
The market has been a bit choppy, so utilizations have actually fallen attack over the last few months. But it is secular. It’s a business we strategically like.
Unidentified Participant
Perfect.
Unidentified Participant
Thank you very much and all the best.
Jairam Sridharan
Thank you, Nishant.
operator
Thank you. Our next question comes from the line of Kunal Shah from Satigroup. Please go ahead.
Jairam Sridharan
Hi, Kunal.
Unidentified Participant
Yeah, hi. So Jaram just wanted to touch upon slide number 22 instead of slide number 21. Okay. So here again, when you look at it in terms of the vintage risk, okay. That seems to be building up in salaried Pl as well as in digital loans. If I’m reading it right, you have clearly called out with respect to used cars and business loans. But again, like say salaried PL and digital and I think disbursements in both these segments are growing. So how should we rate that?
Jairam Sridharan
Yeah, yeah, it’s a good call out, Kunal, and it’s a good catch. This is a 9, 90 plus and 12 months metric that we’re showing. We also have a bunch of other metrics, 30 plus and 6 in particular, that is actually doing better. So I’m feeling okay. But yeah, if this trend continued for two more quarters or can even one more quarter, I would have to change commentary on this.
Unidentified Participant
Okay. So that, that would be. But are we. Are we changing the stance on disbursements in these two segments? Because that’s not clearly reflected.
Jairam Sridharan
Right now. You should assume that business loans and ucl sort of, you know, a little bit of break on it. Salaried Pl may accelerator on it. Housing or lap may accelerator on it. Digital loan. That’s the way you should think about it.
Unidentified Participant
Okay. Okay, got it. So you said home loan and lapmate. That is clear. Accelerator on what did you mention?
Jairam Sridharan
That is also on?
Unidentified Participant
Okay, so this decline which would be there, that’s more of a seasonality in the 1Q from 1492 to 1100. And you are saying it’s like neutral.
Jairam Sridharan
Yeah, that is right. But I do want to state that this is not a strategic stance. This is a tactical stance based on what I’m seeing in the data today, if tomorrow or next month, if the data is a little bit different, I might change my stance completely. So we are very flexible about this. We don’t have big kind of strategic view of business. We’ll keep changing our mind.
Unidentified Participant
Okay. And as you mentioned on MSME as well as say self employed you said like that is also struggling a little bit. That’s more on the unsecured part. But on secured would you be worried about and within lab if you can highlight maybe in terms of how the. Maybe the self employed proportion would be and would at any point in time we could see some risk building about that.
Jairam Sridharan
Almost 90% is self employed. So it is a predominantly self employed business. The small ticket lab is struggling. So smaller you go on ticket the more the struggle is and there are some risk challenges. We of course have seen some results in this season which have also pointed in that direction of other punks. You know our experience is also the same. The smaller the ticket size, the less.
Jairam Sridharan
Than 10 lakhs, how would that be.
Jairam Sridharan
For less than 5 is in very, very deep trouble. But even less than 10 is not doing that great. But more than 10 everything is just fine. So far we have not seen anything.
Unidentified Participant
Okay, got it. And how much would be the proportion for us in this two?
Jairam Sridharan
Very small here. Less than five, less than 10.
Unidentified Participant
Okay.
Jairam Sridharan
So not overall.
Unidentified Participant
Yeah. Ours is almost 25. So what we have mentioned like average ticket size is 25. So there is no. Not too much of worry on the left front. So you wouldn’t be too bothered about it at this point in time even though you are seeing it in the smaller tickets and self employed is still struggling a bit but you are not too worried about it.
Jairam Sridharan
Yes, correct. The big problem we are seeing is in small ticket, small ticket combination, mid ticket, mid size town.
Unidentified Participant
Okay, got it. And in terms of like catch up on the coverage you mentioned like instead of external. Now we are looking at more internal factors given the vintage that we have built. But then would we be getting back towards those kind of coverage levels which we have been providing on the. It doesn’t seem to be the case.
Jairam Sridharan
Now see what is happening is what in our business our. The way our accounting policy works at 120 days we’re making 100% provision and essentially writing the thing off. So security by and large 120 provision. Right. So we make provision of 100 at 120 and we’re doing write off at 170 days. Right.
Jairam Sridharan
So what that 170.
Jairam Sridharan
I covered 170 but 100 provided.
Unidentified Participant
Yeah.
Jairam Sridharan
What is happening is that you don’t have a large unsecured book in your. In your. In your state. 3 the because the state Continues to account. Right. So housing or lakh.
Unidentified Participant
So that’s the reason coverage is low. Right, Got it. Perfect. And one last question if I can ask maybe would you want to call out if there would be any impact in any of the line items, operating parameters, Capital adequacy indicated. But when this merger happens, should we be prepared for any of the maybe abnormalities in the reported numbers?
Jairam Sridharan
Nothing, nothing to point out. Capital adequacy is the big one which we have, which we have spoken about. Otherwise we have been doing consult numbers anyway for the last multiple quarters. So there shouldn’t be any surprise at.
Jairam Sridharan
All whenever this merger happens.
Unidentified Participant
Okay. Perfect.
Unidentified Participant
Yeah.
Unidentified Participant
Thank you.
Jairam Sridharan
Thank you.
operator
Thank you. Our next question comes from the line of Mayank Mistry from GM Financial. Please go ahead.
Unidentified Participant
Hi sir. Thanks for the opportunity.
Unidentified Participant
Sir.
Unidentified Participant
I had just one, you know, just one. Just figuring out whether in the detail book right now our yields are close to 14% and our cost of funds stands at around 9% and we have 4% of opex to is right. So a differential, a spread of 5% on which we are doing some opex of 4% and then against this after, even after this your credit cost comes to around maybe, let’s say, let’s say on a optimal basis, let’s say it comes around 50 units. So largely the retail roas would seem to be more of flattish, right? More of like muted.
So I would just want to know, I mean in next to years or maybe even more, how should we see the trajectory and where should we see the differential coming going forward?
Jairam Sridharan
Okay, see the math that you did is a math on margin. It is sorry on spreads, not on margin. So just go to the margin math. Today we are at about little over 1%. 1.1, 1.2%. We showed that growth book ROA is about 1.4 1.5% during the quarter and 86% of the growth book is retail. Though you cannot be flat or losing money in retail and still make 1.5% in growth book. Right. So retail, let’s call it. And that will continue to move upwards based on two or three parameters. Number one, Opex, where there is about a 50 basis point play between where we are and where we have guided.
And the fee thing which we have indicated on slide 20. If you have seen we have shown how the amortization fee impact the back book kind of coming in, it has already caught up. There is another 30 odd basis points to come from there. So between that and cost which are fairly certain outcomes, you’re already looking at anywhere from 60 to 80 basis points of delta between these two items. So that is the kind of ROI expansion that is in the bag in some sense. Apart from that we have to work on margin by essentially finding the right time to accelerate on unsecured and hopefully get a little bit of benefit on cost of funds, etc.
Those will provide the other impetuses overall in a world in which growth book is 100% of our business, 80 to 85% of the growth book is retail and another kind of 15 to 20% is wholesale split, let’s say kind of one is to three between CMML and retail estate. That’s the portfolio we are trying to build. And that portfolio with kind of somewhere in the 275 to 3 kind of roa is something we can realistically achieve over the next couple of years.
Unidentified Participant
Okay, so largely the current mix, it’s 110 weeks easy increment in ROAS and rest is dependent on the mix. Okay sir. And only on the cost of fund side. I mean our cost of funds have remained incremental cost of funds received in the same range. So any trajectory on when should we see some improvement?
Jairam Sridharan
In the second quarter we have seen some improvement but towards the very end of the first quarter. So it actually didn’t show up much on the quarterly numbers. There was also a little bit of like there were some favorable spillovers in the last quarter in terms of baseline interest costs. Favorable spillovers which have made last quarter look kind of unrealistically, kind of slight bit lower than what it otherwise would have. But anyway, the point is that there have been, if I look at pure on a purely economic basis, if I look at Q1 versus Q4, we have seen a benefit of about 7 basis points.
You see only 1 basis point on this because there is some one offs as I said in the favorable one offs in the last quarter. But anyway, but even 7 basis points is not that much. You will see a little bit more in the second quarter because all, all the reductions that have happened in Q1, you will see the full benefit of that in Q2 and hopefully you will see more banks reducing NCLRs. See, till banks start cutting NCLRs, you’re not going to see that much benefit in our numbers. But now banks are starting to cut so you will start seeing that more in Q2.
Unidentified Participant
Got it sir. Okay. Okay. Thanks a lot sir. And all the best for this.
Jairam Sridharan
Hey, sorry one, I do want to take, you know, 15 seconds to go back to Kunal’s question on Merger and whether there are anything, whether there is anything to be expected. Of course we spoke about the capital adequacy thing but there is also Kunal and others. We should expect one time cost of mergers that will happen. Merger is a big process. It’s a big corporate action. So there’s a lot of like legal costs and a bunch of these other costs, stamp duty and some of the stuff that will come up. All of that, we will of course disclose that separately in the, in the second quarter.
That’s a material one time event though. Nothing so huge. You shouldn’t get, you shouldn’t get worried about it but you know, but it will be, it’ll be something. It’ll be like a 2 digit crore number, not a 3 digit crore number but it will be meaningful. It will be noticeable. Yeah. And it is fully incorporated in our full year guidance of 1300-1500. So you shouldn’t have to worry about that. Sorry, let’s go back to the question queue.
operator
Thank you ladies and gentlemen. In order to ensure that the management is able to address questions from all the participants in the conference, please restrict your questions to one per participant each. If you have follow up questions, please rejoin the queue. Our next question comes from the line of Shubrancho Mishra from Philip Capital. Please go ahead.
Shubhranshu Mishra
Hi Jayram. So the first question is around the special DG that you just mentioned. The sizable listed Fintech mentioned that they are going off SNDG with their lending partners. While we are seeing the opposite that we are doing more of FLDG with our fintech partners. What is the divergence here between these two new stances? Second is that another large pair of us mentioned about stress in msme especially in tickets unsecured business loans. So what are we seeing in the unsecured part of the business loan with specialty ticket sizes less than 10 lakhs and when do we see them resolving?
Jairam Sridharan
Okay, on your first part of your question. See different companies will have different strategies. I can’t comment on what, what this other competitor said. Our belief is that Fintech originated business continues to be of a risk profile and volatility that a listed large regulated entity like us wouldn’t want to keep a large part of that on our balance sheet. I would want to protect that risk and so I’m not that keen on actually doing a lot of non FLDG business. Others might have a different viewpoint and that’s fine. But our strategy is a more FLDG driven strategy and not that it’s not like we don’t do non FDG business with some partners with whom we have worked for a very long time and where the customer profile we find is much more stable and where the risk profile is such that we can put it on our balance sheet directly, we are happy to do it, but those are few and far between.
So in the main we want to do FLDG business and there are enough providers of FLDG in this market so we don’t feel the need to take on risk on our balance sheet. That is our strategy. Others might have something different. Your second point on MSME risk, I mentioned this in my opening remarks as well. Yes, we are seeing risk in MSME unsecured, particularly in the open market business. And so we are being careful. We have cut disbursements there quite, quite radically in the last three quarters. If you look at our Q1 numbers, it is down 30% QoQ.
So for three quarters now we’ve been cutting in our open market MSME unsecured business, replacing it with a little bit of cross sell MSME unsecured, which is doing well.
Shubhranshu Mishra
If I can squeeze in one last question.
Shubhranshu Mishra
If you mentioned that you can do non fldp, would that be more in personal loans or in business loans?
Jairam Sridharan
No, no. If we do with. If we do with through a partner, we will show it in EF only. We’ll show it as part of the EF business only. There is one significant partner in EF where we do non FLDG business. Otherwise practically everybody else we do with fldg.
Shubhranshu Mishra
Thanks. Thanks Yaram. Best of luck.
Shubhranshu Mishra
Thank you.
operator
Thank you. A request to all the participants. Please limit to one question each per participant. Thank you. Our next question comes from the line of Jigar Walia from OHM Group. Please go ahead.
Unidentified Participant
Yeah, thanks for the question.
Unidentified Participant
Then the question is if the. Yeah. Basically accredit rating, when is it up for the next review? And also if any specific leverage number guidance given it may help improve valuations.
Jairam Sridharan
Yeah, so Jilya, we do a conversation with credit rating agencies on a very regular basis. We are slaughtered to have a conversation right after this quarter’s results as well. So I’ll be speaking with them next week. Don’t have much more to say on that. Let’s see what they think. You know, in terms of leverage. What we have said historically, and I’ll repeat is that we, you know, we think a right level of leverage or an appropriate, appropriate level of leverage, beyond which we will probably not be comfortable, is four is to one debt to equity.
We are currently Very far away from there. So it’s not something that’s a binding constraint right now. I think we ended this quarter two and a half is to one so there is still a lot of room for that. But beyond four is to one we will probably not be comfortable.
Unidentified Participant
Okay. Okay. Thanks.
Jairam Sridharan
Thank you Jigar.
operator
Thank you. Our next question comes from the line of Vijay Sarta from Systematics Group. Please go ahead.
Unidentified Participant
Hi Jaram. Congratulation on good set of number. Just wanted to understand two things, broader aspect. Basically if you can dwell more upon this W2O book, how we are managing the risk. I think we have been doing quite excellence with zero delinquency. But getting into intricacy as things on the IT side is slightly getting bad in terms of the hiding and all that. Do you see this because 80% of your exposure is into all these IT hubs. So just wanted to understand things going forward for that. And secondly if you can touch upon this pause on the branch expansion strategy.
So what is the plan there? So are we more tuned to expand the business as you said on the parabrant side before taking the next leap on the branch or this is just a temporary pause?
Jairam Sridharan
Yeah. My colleague Yashul first take the first part and I’ll jump into the second one in a moment.
Yeshwant Ramchandra Nadkarni
Yeah. So on your question, look our intention is to actually build a very highly diversified and granular book on wholesale side comprising both our real estate lending piece which is about 70 75% of the portfolio but also diversified by way of getting granular exposure to a number of industries in our corporate mid market lending strategy. So what we are looking at is a wholesale portfolio that is very different than what it was in Our Previous version 1.0 version of the legacy business that we have built in that it’s very highly sort of granularized as reflected in the ticket size of being 74 crore per deal but also very diversified and not therefore relying on any one or two or three sectors.
Right. As it relates to how we are building this portfolio, clearly there are very detailed set of sandbox conditions that we have designed designed which we apply through every deal and every deal has to stand on its own underlying credit metric being conservative credit ratios, the corporate leverage, the appropriate structures and so on and so forth. Your question also was specifically in regard to demand from it. Actually what we are seeing in the obviously the headline in the last couple of weeks has suggested that there was some slowdown in the IT hiring and etc. But that slowdown so far we are seeing happen only in some segments of the IT industry as a whole, for instance, the IT outsourcing companies have actually seen muted headcount growth, but that slowdown has been compensated by significant hiring by global capability centers, for instance.
Right. And therefore, on net basis, what we are seeing happen in the market is a significant growth in demand for IT office space. I mean, this data is all public. So you can see the IT office space, which is in turn depend on the IT company’s expansion and headcount. And therefore demand for offices as well as residential spaces in these locations continues to grow at 20, 25%. Right. And that’s reflected in our portfolio as well. We’ll obviously monitor how situation evolves, how the sector grows, and then depending on that, we’ll design or redesign our portfolio as it grows.
At this point in time, we are not seeing any material impact of that at this point in time. I will also reiterate that the way we are constructing our portfolio has a very strong element of sector sort of diversification as well as granularity and therefore far more diversified than ever.
Jairam Sridharan
On your branch question, you’re right to point out that we’ve been on a pause with respect to new branches for the last few quarters. It is a temporary pause. We did need to take a little bit of breather. We had opened about 200 branches over a course of about seven, eight quarters. So we wanted to take a pause, let all of those branches settle in and for us also to absorb the OPEX coming in from new branches, et cetera, and get to a point where our OPEX is a little bit more of a manageable level before we give ourselves the license to build out branches again.
We have continued to do well on the OPEX ratio front and the ratios are moderated. Let’s see, in a quarter or two we might get to a point where we feel comfortable again and we will restart branches. We are not done with respect to branch openings. At about 5, 17 branches, we have enough to go for a little while. But this is not end state for Piramal. So we will be opening more branches, but maybe not in the next quarter or two. But you might see us do that, do some branch openings after that.
Unidentified Participant
Just last question, Shreeram. I wanted to understand we were supposed to do some new segment like gold and all that. So have we started with the pilot or we are deferring that for some timing or.
Jairam Sridharan
No, no, we have started working on it. We will let you know some details once we have done a little bit of business. Once we have kind of scoped out what, you know, what is working well for us, etc. Last year as well, you might recall that we started our microlab business. We ran it for two or three quarters and after that we came out and told you guys that this is something that we are that we have started a little while ago. That is stylistically what you should expect from P. Ramal. We are not going to make announcements before we launch a business.
We will launch it, we will run it for a little while, get comfortable and then you will hear us talk about it. The same you should expect in gold loans as well.
Unidentified Participant
Thank you sir. Thank you very much and all the very best.
Jairam Sridharan
Thank you.
operator
Thank you. We will take our last question from the line of Abhijit Tebrewal from Motilal Oswal. Please go ahead.
Abhijit Tibrewal
Yeah, thank you so much for allowing me a follow up. Jayram. Just wanted to understand. You spoke about microlabs just now. Earlier in the call you also alluded to the fact that less than 10 lakh ticket size is not doing well. Less than 5 lakh ticket size is even worse at all. So the micro lab product that we are trying to build, right. How is it that we are looking at it? Which ticket sizes, which geographies kind of looking at? Because why I ask you is, I mean in the last one year there has been so much euphoria around this Micro Lab product, right? Everyone wants to be doing micro lab and given how small ticket a lab has behaved.
Right. I’m just trying to understand how are we approaching this product.
Jairam Sridharan
No. So it’s a good question, Abhijit. See our average ticket size is 9 lakhs in Microlab. And yes it is. It is not the. If you just look at the last 2/4 of data, you’ll be worried about about it and you will think that this is not really a business that we should be looking at right now. But you know, as we have mentioned in the past, businesses get built with the long term in mind. We are building this business because we believe it will be a really good thing 20 years from now. We can’t get caught up in where we are in the cycle right now and we will not be overly optimistic about the business and like do thousands of crowds, crores of this in the short run.
Nothing like that is going to happen. It will probably reach a total of like 1000 crores by the end of this financial year or something like that. So it’s going to be a really small thing in the larger scheme of matters. But building businesses is a five, six year game. So we have to start somewhere. And at some point of time we don’t get worried about business cycles when we are starting businesses. Because we are building for the long run. And we hope that we will be going through multiple cycles in the life of that business.
So timing is just not our thing. We are building this business. We know it’s a tough market for it right now. Same as micro finance. We know it’s a tough market. But we’ll still build the business. Because through cycles we believe that we’ll be able to make good money in it in the long run. So we are in the investment phase right now.
Abhijit Tibrewal
Got it. And just one more clarification. We spoke about our pilots in gold finance and we’ll disclose when appropriate. The question here is this gold financing that we’ll do. Will they have dedicated gold loan branches or will they be in the nature of co located branches?
Jairam Sridharan
We have to try both models. Abhijit. Let’s see which one is more cost economical. We have not yet figured out which one we want to bet on. We will try both. But right now the bias is towards doing more gold loan specific branches. Let me be clear. But there is a small chance we might also try some mixed usage models.
Abhijit Tibrewal
This is useful. Thank you so much.
Jairam Sridharan
Thanks Abhijit.
operator
Thank you. Ladies and gentlemen, we will take this as a last question. I now hand the conference over to Mr. Jayaram Sridharan for the closing comments.
Jairam Sridharan
Thank you everybody. It’s been a slightly longer call than usual. I hope that’s a good thing. Thanks for participating actively in this call and have a very good evening.
operator
Thank you sir. On behalf of Piramal Enterprises Ltd. That concludes this conference. Thank you all for joining us. And you may now disconnect your lines.