Piramal Enterprises Ltd (PEL) Q2 FY23 Earnings Concall Transcript

Piramal Enterprises Ltd (NSE: PEL) Q2 FY23 Earnings Concall dated Nov. 09, 2022

Corporate Participants:

Unidentified Speaker —

Hitesh Dhaddha — Chief Investor Relations

Jairam Sridharan — Managing Director

Vivek Valsaraj — Chief Financial Officer

Analysts:

Abhijit Tibrewal — Motilal Oswal — Analyst

Kunal Shah — ICICI Securities — Analyst

Vivek Ramakrishnan — DSP Mutual — Analyst

Sanket Chheda — B&K Securities — Analyst

Bhaskar Basu — Jefferies — Analyst

Nischint Chawathe — Kotak Securities — Analyst

Presentation:

Unidentified Speaker —

[Starts Abruptly] 1.9 times despite creating the additional provisions over the last few quarters, our company has an equity base of INR27,506 crores in Q2 FY 2023, in addition, there are significant pockets of value embedded in our balance sheet, where we expect value unlocking to take place in the coming few quarters. Coming to the retail performance, this is a milestone quarter for us, as we successfully completed one year of DHFL integration journey. Over the last one year our loan book has grown and with diversification, the retail loan book has grown over 4.5 times from the pre-merger levels to INR24,872 crores.

With retail now already at 43% of the overall loan book we are now much closer to our stated target hovering 50% of our total loan book, as retail in the near-term. We are building a diversified and granular retail portfolio at an average ticket size of nearly 12 lakhs with a large part of the book comprising of secured lending products. Our disbursement growth during this quarter has been impressive, quarterly disbursements grew across all the product categories by 8 times year-on year and 62% quarter-on-quarter to reach INR3,973 crores.

We are already much ahead of our earlier stated guidance of INR2,500 to INR3,000 crores by the third quarter of FY 2023. Over the last two quarters as our disbursements grew higher than the run-offs, it has resulted in a growth trajectory for our retail AUM where we ended this quarter at 126% AUM growth. This performance has been driven by various endeavors we took in the last few quarters. One, addition of new branches, two adding multiple new products to diversify our retail portfolio three activation of branches to sell multiple products and fourth growth in the customer-base through the digital lending business enabling in cross-sell opportunities.

In the one year since the DHFL acquisition, we have opened 64 new branches and shut-down 22 branches resulting in our branch network growing to 343 branches now. We are now present Pan-India across 293 cities and towns in 27 states of India. We aim to be present at 1,000 locations through 500 to 600 branches over the next five years. We have also launched multiple new products now offering 11 retail products during the last few months we entered into microfinance via the business correspondent model. During the quarter, we also launched branch led personal loans to salaried individuals in Tier II and III towns.

Apart from launching new products, we have also been focused on making our branches activated with multiple products. Nearly 82% of our branches are now selling products beyond just the home loans. Hence, not only housing and secured MSME loans disbursement 6 times in the last 12 months, but also the disbursements under the non-mortgage loan categories have been much higher — seen much higher traction though from a low-base to INR1,358 during the quarter. Non-mortgage loans had a 42% share in our overall retail disbursements.

As of September 30 we have 20 Live partnership with FinTech OEMs and aggregators under our Digital embedded finance business. Our digital offerings have enabled us to significantly expand our customer franchise, to 2.2 million giving us substantial cross-sell opportunity. We achieved cross-sell disbursements of INR945 crores over the last year. The asset quality of the acquired DHFL book remains in-line with our expectations. We continue to make recoveries from the policy book. We are continuing to invest to strengthen technology and analytics to further enable us to build scale and maintain a healthy asset quality in our retail businesses. I will now come to the wholesale business. Our focus on recoveries and monetization of Stage 2 and 3 — Stage 3 loans and while the Stage 3 loans remained stable at INR5,888 while the Stage 3 assets remained stable INR5,888 crores worth of assets moved from Stage 1 to Stage 2 largely completing the asset classification cycle. We have been working towards making our wholesale book more granular. Progressing on the same, exposure to the top 10 accounts, reduced 33% since March 2019 by INR6,050 crores and now no account exceeds 10% of net-worth as of September 2022. Our wholesale AUM has further reduced by 12% in the last one year to INR38,908 crores, we will be increasing our focus on recoveries, monetization of the Stage 2 and Stage 3 loans, which will further moderate the wholesale book size in the short-term.

In addition, we will continue to remain vigilant across our portfolio and have well provided for Stage 2 and Stage 3 assets. I’d like to comment on the quality and granularity of our Stage 1 assets. Post these movements of loans from Stage 1 to Stage 2 our Stage 1 loan book is much more granular as the average ticket size of the Stage 1 wholesale book is lower at INR189 crores per loan over 90% of the Stage 1 wholesale book is into asset bank loans in real-estate our Stage 1 book largely excludes promoter Holdco corporate lending transactions.

Over 78% of the Stage 1 real-estate book is with large and medium developers and over 60% of the Stage 1 real-estate book has limited or no completion. We believe that this is an opportune time to build the real-estate book while efforts are being made towards largely completing the recognition cycle on the existing wholesale book, we are also investing to build a granular cash-flow and asset-backed real-estate and mid-corporate lending business that would give loans to well-capitalized promoters. We will build this book in a calibrated manner, while capitalizing on this market cap.

We are cognizant of the trends in the real-estate industry that now favorable to grow this business. Real estate lending is a large market of INR4.5 lakh crores which supply of credit significantly lower than the demand offering significant growth potential for select players like us that has continued to remain strong even after prolonged environment. From a cyclical perspective we believe it’s a good time to build-up the real-estate book as the developer consolidation has resulted in a better-quality ecosystem, which is now a lot more capitalized.

A few major NBFCs /HFCs have vacated the space. We are also witnessing the beginning of a growth cycle as affordability is at an all-time high and inventory levels are bottoming out. Leveraging our retail setup, we will also be selectively entering into Tier 2 and Tier 3 markets which are relatively under-penetrated. Within the corporate mid market lending we have already built a book of INR800 crores with an average ticket size of INR50 crores. On the liability management our ALM is well matched with positive gaps in all buckets. Due to our, strong balance sheet and healthy liability mix our average cost of borrowings stood at 8.8% for the quarter with 18% of our liabilities being fixed in nature, we continue to maintain our cost of borrowings despite a rising interest-rate environment.

To conclude the demerger which is a long awaited event by the investor and analyst community has concluded successfully, creating two sector focused entities giving investors an opportunity to choose the entity, they would like to invest in. The DHFL acquisition turned out to have delivered better-than-expected results in the last one year. The retail business is continuing to deliver on its growth part, already taking the loan book makes much closer to a retail 50% 50% wholesale now. The wholesale business has also largely completed the asset classification cycle now and has also well provided for it’s Stage 2 and Stage 3 loans.

Our healthy mix of liabilities is helping us gradually bring down our cost of borrowings over the last few quarters despite the adverse rate environment and our balance sheet remains strong with a capital adequacy ratio of 23%. With this we continue do remain committed to our FY 2027 aspiration doubling the AUM from FY 2022 levels with strong growth in retail disbursement keeping the net-debt to equity 3.5 times to 4.5 times. In this process making the loan book more retail oriented with a loan mix of two-thirds retail and one-third wholeasale.

We will continue to work towards creating long-term value for our shareholders. Thank you.

Operator

Should we open it up for Q&A.

Unidentified Speaker —

Yes, let’s do that.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]

Unidentified Speaker —

Given, while the question queue assembles there is one quick clarification that we would like to offer in case, it wasn’t entirely clear. There are two metrics which we want to reiterate the absolute numbers. The total amount of provisions and fair-value adjustments that have been done during the quarter is INR3,311 crores. The second clarification is on PAT. In case, it wasn’t clear the net loss during the quarter was INR1,536 crores. So those are two numbers there was a little bit of confusion in the original call, so I just want to clarify for everybody’s records. Thank you, we can go to the question queue now.

Operator

Thank you. The first question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.

Abhijit Tibrewal — Motilal Oswal — Analyst

Good evening, everyone and thank you for taking my questions.

Operator

Mr. TIbrewal, if you can take the phone off speaker please, your audio is coming in a bit low.

Abhijit Tibrewal — Motilal Oswal — Analyst

Is it better now?

Operator

Yes, sir.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yeah, thank you for taking my questions. The first one was on the wholesale assets so I mean the way I look like it we have moved around INR5,900 crores of assets from Stage 1 to Stage 1, so two things that I wanted to understand here. One is, I mean we are still saying that this will largely complete the asset recognition cycle, so the emphasis is still largely completing and this is still not completed is what I’m able to understand so I mean, how do we how should be we think that’s the first question? The other thing is — I mean while we say that we are very well provided for Stage 2 and Stage 3, will be fair to say that given that we’ve now moved this INR5,900 crores of assets from Stage 1 to Stage 2, the idea will be to monetize these assets, which are now in State Two, other than over the course of time, moving them to Stage 3, which will again warrant higher provisioning in Stage 3.

And then the third question again on the wholesale assets is, we’ve talked about picking-up prudential write-off of about INR360 crores during the quarter. So, what were these write-offs about and if you could also give some color on this INR5,900 crores that you’ve moved from Stage 1 to Stage 2, what were the nature of these wholesale assets, were there in real estate or non-real estate and whatever basically whatever color you can provide and the last question is indoor P&L, you’ve talked about our net loss on fair-value changes which is included in this INR3,300 crores of provisions or credit cost that you have reported, what are these net loss on fair-value changes?

JAIRAM SRIDHARAN — MANAGING DIRECTOR

Okay, so obviously there are like five questions that we’ve heard and what you said, between me and yes we will try and take all of them. Let me take the first stab at it and, then we’ll keep will keep trying to take all of your questions the first question the most important question. I think that you know the use of the phrase largely completed on our asset recognition cycle. I think you’re worrying about the word, largely the way I’d frame it is our emphasis is on the work completed. Not on the word largely. I think we are in an uncertain business there might be some new things that might come up in the next quarter that we’re completely unaware of right now, but as far as we’re concerned this was our first-quarter as a financial services company, entirely it was our effort to go into the market with as clear an articulation as possible of what the overall level of stress is in the book.

I know that there has been a lot of conversation and speculation about what could be potential levels of stress, our intent was that in this first-quarter we should, be very clear about what that is we did a full-fledged analysis internally and, what you see is a reflection of that. Unless something kind of dramatically changes. We believe that we are we are done from the perspective of recognition of pockets of strength, so please focus on the work completed like the were largely it’s just too keep some completely unforeseen events in mind and so that’s as far as the first one is concerned.

You had a you had a question on fair-value loss on what fair-value losses, fair-value losses essentially again the same intent of saying that in this our first-quarter as an FX company we got to we got to, make sure that. That the AFS. Sort of balance sheet. It reflects all get potential problem areas so when we looked at the investment book and we looked at and the assets and to try to, see what is the best sort of mark-to-market adjustments that we might need to make.

That is what is reflected as fair-value loss we are clubbing it with the provisions item, I’m giving you the full number of INR3,300 crores roughly INR1,000 crores is in that fair-value adjustment and about INR1,300 crores. Just under that is INR2,300 crores is in the provisions pool. But the other question prudential write-off is, about INR300 crores, INR350 crores of prudential write-off that was done during the quarter prudential write-off is essentially those accounts where we had 100% provision we had made 100% provisions and it we want from the perspective of Stage 3 managing the three book and ensuring that it reflects the it reflects the right around.

There we have gone ahead and actually prudentially written-off those accounts. As, you can see our even after that prudential write-off our provision coverage ratio in Stage 3 is well north of 60% at an overall level and at about 74%, 75% at the wholesale level so we are fairly well provided even after the prudential write-off of about INR350 crores that we did during the quarter. You had a question on what was the nature of assets that were that moved from Stage one to Stage one to Stage two, they were largely real-estate assets, there are assets in all which comprised this group that you that you see here. Anything you would add?

VIVEK VALSARAJ — Chief Financial Officer

I just wanted to add a couple of points towards Jairam said to reassure. I think the movement of assets from Stage 1 to Stage 2 driven purely by our desire to change our stance to get more proactive with regard to the management of these FX therefore to say that, these are not necessarily those assets which are not performing and want to make sure that that’s clear to everyone. The common theme that we have seen in this assets as we manage our portfolio is that, these are some of the larger and lumpy assets on our book and where we, have seen some sort of stress at the group level mostly and in some cases at the underlying assets.

We’ve seen performance-related delays and so on and so forth so this really is our overall strategy of being proactive about categorizing them as such on Stage two for book and systematically resolving them as we go from here so that’s the background I wanted to add that actually leaves the Stage 1 part of our book which is roughly INR27,000 crore in size. I think I just wanted to outline a few points as it relates to the belief we have and which is this is a very-high quality book which is the performing book and which is latest stage one and in a way sort of bringing the assets.

That I just referred to earlier to Stage two is again clearly the marketing but into the two buckets that we have on our balance sheet the Stage one assets really are 130 plus on loans this is really a granular super part of our wholesale portfolio where the average size loan is in the range of INR190 crore odd as Chairman alluded to year. These assets are well secured in terms of the underlying loan structure security structured. These are senior secured pivoting fantastic mostly where the assets and cash flows on mortgage to us. This book is very well seasoned.

A significant part of this book doesn’t have construction development risk, which is a key differentiator in risk as it relates to real estate industrial assets. And these projects lastly are backed by established developers in sort of well-managed balance sheets our counterparties. So, I just wanted to give the opportunity of somebody. I think our stage one asset Stage 1 portfolio as well while we described stage in answering your question.

Abhijit Tibrewal — Motilal Oswal — Analyst

Thank you Vivek, just one small follow-up here would it be fair to say that given that you’ve noticed INR5,900 crores of assets from stage one we would have done that because like we explain we were seeing some pockets of stress at the group level or somewhere else and then going-forward you would make some endeavors to maybe monetize this exposure and lastly for Jairam, during opening remarks. Mr. Chairman, also kind of alluded to some hidden pockets of value so this BP and BPL that we still have on our balance sheet which we created at the time of the DHFL acquisition. I mean, have your conversations with tax experts or tax authorities progressed in terms of whether you will be able to utilize it going ahead?

VIVEK VALSARAJ — Chief Financial Officer

So managing these assets categorizing these assets as Stage two, doesn’t make any difference towards whatsoever as far as management of these assets is culture — I think I’ll just remind that these are self-liquidating, amortizing loans and therefore the monetization of the it actually happened as we go and that will not change at all, in certain cases, will be more focused on monetizing by we are considering very unfortunate is like recapitalization of the underlying SPVs or refinancing our exposure for any other means that we made consider appropriate in resolving it but there is no differentiation whatsoever between Stage 1 and Stage 2, Stage 3, other than saying the fact that Stage 2 we would have even more focus.

JAIRAM SRIDHARAN — MANAGING DIRECTOR

I think the one thing that I would add to that Abhijeet is at the moment you move something to Stage 2 you in some sense to do that because it increases your ability to make provisions on those accounts. And once you have made a certain higher-level of provision on that account it increases your degrees of freedom in terms of potential ways in which you could resolve the resolve the account. So things like refinancing the account with somebody else becomes a lot more feasible once you have moved it to stage two, once have made a certain amount of provision on it and hence you, have some room for negotiation with any potential buyer right so it does increase degrees of freedom a little bit, but operationally as asked was mentioning on-the-ground people who keep trying to also subject to try and work the account appropriate.

Your second question on pockets of value. The pocket of value you heard Chairman, talking about it that we expect value unlocking to take place in the coming, few quarters. We remain fairly confident of that our confidence on some of those pockets of value has if anything increased in recent months, three of these like that or that are there we continue to, of course, have the retail both the book from where we continue to get. To get collections and recoveries we continue to have the investments in on our book of Shriram etc where the coal production is proceeding and is likely to close. The imminently and the moment that happens there is a lot more liquidity that gets introduced into our into our holdings and potential MTM gains that come through and that the deduct related elements that you mentioned both on the asset side and on the liability side both of them we have we have made good progress in our conversations. A meaningful part of the on the liability side the contingent liabilities that we’ve got set-up is a meaningful part of that has already time barred so we know that there is there is there a stronger reasons that are accumulating over-time so overall I’d say that our level of confidence is fairly high.

Operator

Thank you. [Operator Instructions] The next question is from the line of Kunal Shah from ICICI Securities, please go ahead.

Kunal Shah — ICICI Securities — Analyst

Yeah so let me — with respect to this flow what actually got that okay in terms of the development in last one quarter, and maybe also providing great position in terms of maybe these are the assets were obviously to be resolution in the credit amount that but these are equivalent to almost when we look at it more than 12% of the portfolio as such so is it a pure management tools that triggered it or there were any other progresses with respect to this project that triggered this recognition?

JAIRAM SRIDHARAN — MANAGING DIRECTOR

So let me start and Vivek can jump in as well, as Kunal you know in India’s Stage 2 while there are lot of rules that you can set-up about how account can move to Phase two but there is a there is a level of discretion which you can apply and actually determining significant increase in credit risk of accounts. As we mentioned before this is our first-quarter as a financial services company, it is our desire to make sure that the financial services balance sheet is as transparent and clear as possible so given this very significant milestone in the life stage of our company it was our desire to actually look into the portfolio in some detail and identify accounts where if not at the account level, but maybe at the parent level there are some stresses sort of building up and make sure that the balance sheet is appropriately approved towards that.

We have adequate level of — more than adequate level of equity so the provisions are — we have the ability to actually take what hit necessary right now but the transparency and clarity on-balance sheet was really was really important. As Vivek mentioned before the INR5,900 odd crores comes from roughly 18 accounts that tells you the size on average of the accounts that have actually moved, they are fairly substantially sized accounts and that has certainly a risk factor that has come through and as we mentioned on the previous question most of these are in the R&D real-estate sector there are three broad categories of issues that had been used by team to identify and invite us to close that about what we have used to classify accounts rates. I will reiterate that application of judgment in determining pockets of stress is what is, what you’re seeing reflected here this is that suddenly stopped paying in Q2 that’s not, what you’re seeing here. Vivek?

VIVEK VALSARAJ — Chief Financial Officer

Yes absolutely and far from it is our intent to get granular and the rest and also in-line with our stated strategy of having mix between retail and so these accounts really are lumpy accounts and as I mentioned earlier. I think our objective was to really focus on resolution of these accounts not because they are not performing our stricter sense of the word but because. These are large risk-on our balance sheet and with the passage of time we just want to brand right you. But that’s what we focused on I think as we reviewed our portfolio we also have identified some of these assets where the group level issues and therefore actually superior for resolution and focus on.

Sort of monetizing this asset one we want to do want to really drive in the following quarters one addition this is a venture where in addition to what’s been said there also some subset of these accounts, without getting into the specifics which are nearing specific resolutions and closures and that required certain type of provisions as well. Yeah so if we look further get granular in terms of this portfolio of INR5,800 crores have you done anything in terms of stage of resolution and what so maybe if we want to just highlight into maybe something which is in the red zone, something which would be in the green zone you mentioned some subset is there which is nearing resolution. [Technical Issues]…as you are saying maybe when you are confident of growing the now portfolio again on the real-estate side saying that affordability is improving inventory levels are improving but still the recognition has not been there and provisioning is getting filled up yeah. So, Kunal. I’ll reiterate what we said before. On the specific point of deferred recognition. I don’t think this is a different thing this is if you if you look purely a repayment behavior these accounts wouldn’t end-up in Stage two. Our intent this being our sort of first-quarter as an FX company was to actually increased transparency in portfolio and we have significantly and we tightened the norms in terms of moving to Phase-II so if anything it’s the opposite which is the which is that you’ve pulled forward and potential events which can happen. In the future and make sure that you’ve recognized all of them all of them upfront there is if we continue to have if we had continued to have the same. Same policies based on pure repayment behavior of these accounts you would have seen a very different picture during the during the quarter and the specific we put this not also on account there were some changes in credit policy, which has been recommended and approved at the let’s call it which is now driving. Fairly model-based outputs. In addition to specific objective inputs that we need to add for extremely stressed accounts since basically etc.

JAIRAM SRIDHARAN — MANAGING DIRECTOR

[Operator Instructions] The next question is from the line of from Vivek Ramakrishnan of DSP Mutual Fund, please go ahead.

Vivek Ramakrishnan — DSP Mutual — Analyst

Hi, thank you for the question. The in know some kind of you said there is some Stage 2 that were closer to resolution somebody just take a long-time if we look six months down the line, let’s say by March 2023 would you expect a big chunk of these accounts to get resolved or is it some kind of timeline you can put forward to how the process will flow from hereon.

JAIRAM SRIDHARAN — MANAGING DIRECTOR

At this time we would prefer not to. I think we can tell you that all efforts are on it there are various teams working on each account and all efforts are being made, Vivek already mentioned the segregation between recognition versus what the business and the management teams need to do in terms of ensuring payments recoveries, etc. The other point also that was mentioned which I’ll reiterate that in some cases it’s not labor payments have stopped it recognition today off some potential stress X months next quarters down the line-based on cash-flow mismatches that we see versus what the builder MACI so allow us some time and they are the right time we’ll be able to share more information as time goes by.

The other piece, I’d also reiterate is what Chairman has mentioned in his opening comment which is that with this and the other efforts that are that are going on our intent is for us to consolidate and reduce the size of the wholesale book overall over the next over the next few quarters so between now and March certainly the overall book will reduce and yes you should expect some of the reduction to come from stage two a little bit from stage one as well and so on but you will see the reduction in the in the overall book in the next few quarters.

Vivek Ramakrishnan — DSP Mutual — Analyst

Okay thank you and good luck.

Operator

[Operator Instructions] The next question is from the line of Sanket from B&K. Please go ahead.

Sanket Chheda — B&K Securities — Analyst

Yeah hi sir, so again strong wholesale only but answers to the previous questions. It is right to assume that what you are suggesting is rather than looking and towards how much stress or the extent of stress in INR6,000 crore addition in the Stage two the way to look at is these are the set of assets you would you want to monetize and, rather than keeping building any pause. Many quarters you have taken the hit in one part of in terms of recognition and providing it?

JAIRAM SRIDHARAN — MANAGING DIRECTOR

I think that’s a good way to frame it. The way to — I mean if you just look at our overall our overall numbers you can, see what the total amount is between Stage two and Stage three, right. And you can see the amount of provisions that you know that we have made on that so on essentially a INR11,000 crore portfolio in wholesale that is sitting in stage one and stage two and stage three. We’ve got about INR4,400 crores of provision so 40% of have covered on that Phase two and Phase three book so that gives you a lot of room to achieve whatever kind of resolution you want to achieve within that portfolio.

Sanket Chheda — B&K Securities — Analyst

Okay. So out of this INR9,000 particular launched H2 is it that the entire pool you look to monetize or maybe there is a portion we do feel will get regularized on its own?

JAIRAM SRIDHARAN — MANAGING DIRECTOR

..regularized fairly quickly man. These flows — forward and backward will happen account-by-account is very hard to be precise right now however on the full pool level we know that on the full pool level we’ve a lot of provisions we got one third provision sitting in stage 2, 75% provision sitting in Stage 3 so we know that. That our degrees of freedom in terms of what we can do with management action is significant with this level of provision already in there.

Unidentified Speaker —

I mean given the fact that we are stating now that we will shrink our wholesale footprint for the next few quarters to come the bucket where we would want to focus on the shrinkage is feedstock clearly that also directionally answers your question it just to give you one data point and this question was asked well you go into more detail but in stage two for example we do have one transaction was sitting in early November that just got repaid that’s, about INR50 crores so just giving an example so there will be some movement up-and-down around just alluded to it so sometime over the next one-two quarters where there’ll be lot more clarity and will reflect, you’ll see that in our numbers. One last question on wholesale and then.

I have on the question. In general. So you do one of the last question so participant question you I mentioned that going ahead Phase two will come down and also Stage one if I’m down so are there any stage one also that you look to monetize in the coming quarter. Not as a matter of deliberate strategy but. I remind again that in our business these loans are self amortizing loans where cash-pay and these activities with the passage of time which basically means that if you’re not adding new loans to that category with the passage of time you will see the reduction and that natural rate of accretion of the margin would pan-out for Stage one as well but not at our end the only other element. I would add is in some cases you will also see because these are good projects that could be the financing pressure from competing financing sources for the real-estate.

Sanket Chheda — B&K Securities — Analyst

Sure sir, thank you.

Operator

Thank you. The next question is from the line of Bhaskar Basu from Jefferies please go-ahead.

Bhaskar Basu — Jefferies — Analyst

Yeah good evening just a couple of questions firstly just wanted to get. Was there any policy gains which was netted off against provision. In this quarter of, INR334 crores. And how much was that INR100 crores gross that is — I mean that’s the number is a net number the net number, correct? And could you give some details around the fair valuation of investments? What was it regarding exactly — I may have missed it in the notes, but some color would be helpful.

VIVEK VALSARAJ — Chief Financial Officer

I think you should trade the fair-value of fair-value losses/provisions effectively it’s part of so there are certain instruments which are effectively loans but categorized more as fair-value instruments, given how these from an accounting standpoint, how they work so if they have variable-rate attached to it there were some loans that may have been enforced ban we own assets investments it’s a combination of two but from your vantage point and hence that’s the way we’ve shown in the IR deck together effectively AUM hit on the P&L that has been taken.

Bhaskar Basu — Jefferies — Analyst

So, just to be clear this is this also pertains to the loan book itself, right, because you classify some of the lower part of the loan book as investments?

VIVEK VALSARAJ — Chief Financial Officer

This is pertaining to the same book and I think you should treat them similar to the provision broadly.

Bhaskar Basu — Jefferies — Analyst

Okay got it that’s all from my side. Thanks.

Operator

Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities, please go-ahead.

Nischint Chawathe — Kotak Securities — Analyst

Thanks for the opportunity. I’m just looking at Page 43 of the presentation. You have investments of INR20,000 odd crores. Could you give some breakup in terms of these investments, how much of this is PTC?

VIVEK VALSARAJ — Chief Financial Officer

Sorry how much of this is what? The PTC, the pass-through certificates? PTC, very little. INR255 crores, as of September.

Nischint Chawathe — Kotak Securities — Analyst

And this is this is the current value that you have — I mean this is the current trial right yeah? [Technical Issues]

JAIRAM SRIDHARAN — MANAGING DIRECTOR

So, it’s worth mentioning which we don’t have so any kind of product-line which maximizes our ability to flex that muscle — we’ve taken we’d be quite happy to do so for example the digital origination that you talk about are exactly of that variety even microfinance today in micro-finance credit person of our sitting in a central location can see a video that the that the sales are on-the-ground is taking off the village or of the heart of the of the borrower and as the video streaming we can have an AI engine here which is reading every image that is coming through and identifying assets that the that the potential client all running it through and running it through an ML model and instantly figuring out what the potential credit rating of that.

Given that as advice to the credit person sitting in the central office, right. That is capability that is incredibly hard for an established large with a bank or NBFC. To be able to do we are able to do that because we are starting now and we have that in our DNA of how we are setting up that business so those are the two big connecting of what you’re seeing in the in the product mix the why of it though the why we need a product mix is that we firmly believe that. We are in the kind of business where cycles tend to come and we want to be.

Any single-product can have a significant material impact on the overall outcome of the retail business and hence we are building a portfolio that is sufficiently diversified and can and can deal with all parts of the of the credit cycle as and when they might come right now of course we are in a very benign part of the cycle so everything looks great but we want to build a portfolio that is robust enough to survive any scarce in any part of the retail business in the years to come.

Nischint Chawathe — Kotak Securities — Analyst

Okay, so it would it be right to say that the disbursement pie-chart that but that we have will start eventually looking like the AEM chart as well in terms of diversity?

JAIRAM SRIDHARAN — MANAGING DIRECTOR

Directionally, the diversification on the will absolutely grow you will see more-and-more on colors on that pie-chart that you see on the OEM side. However, remember that secured businesses and longer duration businesses tend to be more sticky on the balance sheet compared to the unsecured digital businesses etc so these digital type things always contribute more to disbursement, then they will ever contribute to when the AGM will always be a, little bit more secured heavy than what you see in the disbursement chart.

Nischint Chawathe — Kotak Securities — Analyst

Okay great, got it. Thank you so much and wish you good luck.

JAIRAM SRIDHARAN — MANAGING DIRECTOR

Thank you.

Operator

Thank you. I now hand the conference over to Mr. Hitesh Dhaddha for closing comments. Over to you sir.

Hitesh Dhaddha — CHIEF INVESTOR RELATIONS

Thanks everyone for joining the call, in case you have more questions, please feel free to reach out to the IR team thank you.

Operator

[Operator Closing Remarks]