Piramal Enterprises Ltd (PEL) Q3 FY23 Earnings Concall Transcript

Piramal Enterprises Ltd (NSE:PEL) Q3 FY23 Earnings Concall dated Feb. 08, 2023.

Corporate Participants:

Hitesh Dhaddha — Chief Investor Relations

Ajay Piramal — Chairman, Piramal Group

Anand Piramal — Executive Director, Piramal Group

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending, Piramal Capital & Housing Finance Ltd

Upma Goel — Chief Financial Officer

Jairam Sridharan — Managing Director of Piramal Capital & Housing Finance Limited

Analysts:

Abhijit Tibrewal — Motilal Oswal Financial Services Limited — Analyst

Shreya Shivani — CLSA Ltd. — Analyst

Santosh Kumar Keshri — Keshri Wealth Consultancy Pvt. Ltd. — Analyst

Nischint Chawathe — Kotak Securities Ltd. — Analyst

Gopinath — PNR Investments Limited — Analyst

Bhavik Dave — Nippon India Mutual Fund — Analyst

Bhaskar Basu — Jefferies Group LLC — Analyst

Sandeep Jain — Baroda BNP Paribas Mutual Fund — Analyst

Rikesh Parikh — Rockstud Capital LLP — Analyst

Vineet Sharma — Sankhya Funds — Analyst

Nimish Maheshwari — RSPN Ventures Pvt. Ltd. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Piramal Enterprises Limited Third Quarter and Nine Months FY 2023 Results Conference call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Hitesh Dhaddha, Chief Investor Relations from Piramal Enterprises Limited for the opening remarks. Thank you, and over to you, sir.

Hitesh Dhaddha — Chief Investor Relations

Q3 and nine months FY ’23 earnings conference call. Results material have been uploaded on our website, and you may like to download and refer them during our discussion. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks that our businesses face.

On the call today we have with us our Chairman, Mr. Ajay Piramal; Mr. Anand Piramal from Piramal Enterprises and Piramal Group; Mr. Jairam Sridharan, MD, Piramal Capital & Housing Finance; Mr. Rupen Jhaveri, Group President, Piramal Enterprises; Mr. Yesh Nadkarni, CEO for Wholesale Lending business; and Upma Goel, CFO of our company.

With that, I would like to hand it over to our Chairman, and I would request him to share his initial thoughts. Thank you. Over to you, sir.

Ajay Piramal — Chairman, Piramal Group

Thank you, and welcome to our third quarter earnings conference call for the year FY ’23. We are at an inflection point currently and this quarter finally puts us on a solid foundation for future growth and steady profitability with historical asset quality issue now fully accounted for. The performance of this quarter as far as the AUM and the operating performance movement is concerned, I’d like to say that we continue to deliver on our strategic priority of achieving an AUM mix of two-thirds of retail and one-third wholesale, and in this regard, our retail AUM grew 29% year-on-year to INR27,896 crores.

Our Wholesale 1.0 AUM reduced 20% year-on-year to INR35,101 crores. This has resulted in continued improvement in our retail wholesale AUM mix. Retail AUM now accounts for 43% of the overall AUM as compared with 33% in the third quarter of FY ’22. We are very close in achieving our near-term target of having 50% retail composition of total AUM and are on track to achieve our stated target of having two-thirds retail composition of the total AUM in the medium to long term.

As we continue to expand our retail lending business, we’re are also investing in manpower, branched infrastructure, technology, and analytics of our retail lending business for its future growth. The financial performance for this quarter, we have registered a net profit of INR3,545 crore during the quarter as compared with a net profit of INR888 crore in the same quarter of last year. The key transactions leading to the gains here, INR3,328 crore on account of reversal of an income tax provision.

Secondly, INR1,106 crores on account of restructuring of Shriram Capital Group and bond buyback. Also, during the quarter, we created a one-time additional provisioning buffer of INR1,073 crores on Stage 1 and Stage 2 assets of the Wholesale 1.0 AUM. With this provision, we have adequately provided towards Wholesale 1.0 AUM and we are in the process of reducing our Wholesale 1.0 AUM in line with our strategy through a combination of various means such as accelerated repayment, settlement, etc.

Our total provision stood at INR6,485 crores versus INR5,491 crore at the second quarter of FY ’23. For the balance sheet, with our increasing nature of net profits even after creating this one-time additional provisioning buffer, our net worth has strengthened to INR31,241 crores from INR27,472 crores in the Q2 of FY ’23. At these equity levels, our net debt to equity stands at 1.3 times with a consolidated capital adequacy ratio of 31%. Our retail lending book continues to deliver strong growth with 3Q growing 29% year-on-year to INR27,896 crores. In-house originated loan book at 53% of retail AUM is now larger than the acquired loan book.

Disbursements grew by 593% on a year-on-year basis and 29% on a quarter-on-quarter basis to INR5,111 crores with a healthy growth across both digital as well as digital products resulting in an improvement in disbursement yields at 13.9% for the quarter. Our average disbursement ticket size stood at INR11.6 lakhs for this quarter. We are firmly committed towards building a diversified and a granular retail portfolio. The performance has been driven by the following initiatives over the last few quarters.

First, the addition of branches. Over the last one year, we have added 74 new disbursement active branches. With this today, we have a growing network of 375 conventional branches, namely 343 conventional branches in Q2 FY ’23 and 116 micro-finance active branches versus 72 micro-finance active branches in the previous quarter. We have established our presence across India, serving 450 districts across 25 states of the country. As stated earlier, our target is to serve 1,000 locations through 500 to 600 branches over the next five years and we are constantly working to achieve it.

Second part is branch activation. Moving beyond launching new products, we are also working towards making our branches activated with multiple products. Nearly 67% of our branches are now selling products beyond just the home koan. Hence, not only housing and secured MSME loans disbursements grew 387% in the last 12 months, but also the disbursement under the unsecured loan categories has seen a growth of 46% from the previous quarter and stand at INR2,215 crores during the quarter.

Third, project — product expansion. We have been consistent in launching new products, and currently, our product stack consists of 13 retail products catering to different customer segments. This quarter, we launched two new products, Budget Housing in the housing loan category and LAP Plus in the MSME loan category. As we focus on the Bharat market, we also launched a maiden brand campaign to build the brand Piramal Finance in our target segment.

Fourth point is on Digital Embedded Finance. We have 22 program live across 20 partners who are Fintechs, OEMs and aggregators and that are Digital Embedded Finance business. Digital Embedded Finance disbursements grew to INR1,238 crore contributing to 6% of our AUM in retail. Our digital loan offerings aspired us to significantly expand our customer franchise to 2.6 million with an active customer base of over 1 million providing a substantial cross-sell opportunity. We’d achieve — we received cross-sell disbursement of INR1,862 crores in the last one year.

The first point is on focus on technology and analytics. In line with our endeavor to focus on technology, we also launched a new innovation hub in Bengaluru to accelerate the development of next-generation lending solutions and analytics. In line with stated attachment, we have been working towards bringing down our Wholesale 1.0 book is wrestling on the same, our Wholesale 1.0 book AUM reduced 20% year-on-year to INR35,101 crore. We continue to focus on resolution of Stage 2 and Stage 3 assets which will further moderate the wholesale book price in the short term. A dedicated team is involved in monitoring and executing campaign the resolution strategy for recoveries and monetization of assets. In addition, we will continue to remain vigilant across our portfolio and remain well-provided for Stage 2 and Stage 3 assets.

We are also focusing on building a high-quality Wholesale 2.0 book. While efforts were made towards completing the recognition cycle of 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 will give loans to well-capitalized promoters across multiple sectors and geographies. We will build this book in a calibrated manner while capitalizing on this market cap. We have already built a new wholesale portfolio of INR1,870 crores by adding INR1,041 crores of loans during the quarter.

Within the new real-estate lending business, we have deals worth INR697 crores outstanding as on December 2022. Within the corporate mid-market lending business, we have already booked off INR1,174 crores across diversified industry.

I’ll now speak on the liability management. Our ALM is well-matched with positive gap across all bucket. Due to our strong balance sheet and improving AUM mix, our average cost of borrowings improved to 8.4% for the quarter as against 9.1% in the same quarter of FY ’22 and 8.8% in the quarter two of FY ’23, despite a rising interest-rate environment. With 77% of our liabilities being fixed in nature, we have remained well cushioned against major increases in interest rates.

Our cash and cash equivalents is INR6,032 crores at the end of this quarter.

To conclude, the retail business is continuing to progress on its growth path with the AUM mix at 43% of retail and 50% — 57% of wholesale now. In wholesale, we are focused on bringing our Wholesale 1.0 book and at the same time, build a new granular real-estate and mid-corporate lending business in a calibrated manner. With one-time additional provisioning buffer created during the quarter, we are now adequately provided towards Wholesale 1.0. Healthy rate of of liabilities is helping us to gradually bring down our cost of borrowing over the last few quarters despite an adverse rate environment, and our balance sheet remains strong with the capital adequacy ratio of 31%. We will continue to work towards creating long-term value for our shareholders. Thank you.

Operator

Should we begin the question-and-answer session?

Ajay Piramal — Chairman, Piramal Group

Yes.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.

Abhijit Tibrewal — Motilal Oswal Financial Services Limited — Analyst

Yes, sir. Good evening, everyone, and thank you for taking my questions. Just three questions. First is on the asset quality and the related provisions talks. See, last quarter we had moved around INR500 — INR5,900 crores of exposures from Stage 1 to Stage 2 and made associated provisions and write-offs and we had said that, I mean the asset recognition cycle is largely complete. This quarter, again, we have taken escalated provisioning. While we might obviously choose to call it a prudential or a management overly but now our press release says that we are adequately provided on the Wholesale 1.0 book. Sir, even in your opening remarks you have said that the historical asset quality issues have now been fully accounted for. My simple question is now can we draw the comfort that we have fully provided on the stressed wholesale exposures? So, sir that is my first question.

The second question is again on your investments in the Shriram Group. I think if I recall correctly, earlier we had articulated that we would want to exceed the Shriram investments by March ’23 which is this fiscal year. Wanted to understand that will we still adhere to this timeline or has there been somebody think on our strategy or timeline on when we want to exit our investments in Shriram Finance. And, sir, lastly, recently there was a media article I think which talked about our exposure to Sahana Group or its promoter, wanted to understand what is our exposure in that account. In which of the three stages is this exposure classified now? And after the seal of the flat in the transaction, have you now recovered your money and what is the haircut that you have to take on this account?

Anand Piramal — Executive Director, Piramal Group

Thank you, Abhijit, for all your questions. Very good questions. Let me start and Yesh will chime in with a lot more of the details as well as others in the room. Your first and most important question was around the provisions, the one-off provisions that we have made, one-time provision buffer that we have created during the course of the quarter and so some color on that. When we said last quarter that we were largely done with respect to the recognition cycle that was absolutely correct, we stand by that statement that we were done, as largely completed from an asset quality recognition perspective in that cycle.

This quarter as you have seen, there have been a lot of one-off gains that have come in in the balance sheet that has created an opportunity as well to create some additional buffers over and above whatever our models, etc., might have employees asked for and continue to ask for, so we’ve created this sort of one-time buffer. We want to be clear that we are done with respect to asset quality recognition, you saw that in the Stage 2 and Stage 3 numbers as well.

If you see our Stage 2 plus Stage 3 numbers, there were INR11,000 crores last quarter for — in wholesale and that number has come down a little in this quarter to about INR10,800 crore, INR10,900 crores available. And so, the total amount has come down. We have made more provisions, we have written out stuff, there is nothing surprising that’s going off from an asset quality perspective. We just chose the opportunity to create or get on the other side of the cycle and start creating some provisioning buffers for ourselves. So we want to reiterate that we are done with respect to the Wholesale 1.0 asset quality and provisioning issues.

Ajay Piramal — Chairman, Piramal Group

We will take the other one.

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending, Piramal Capital & Housing Finance Ltd

I think the only thing that I would add here is, I think what you articulated is a good summary, but the reality also is because we changed our stands towards the asset resolution last quarter and sort of consistently executed our resolution strategy, we have seen a significant reduction in the wholesale book. So we are on this journey where the wholesale book will continue to go in that direction. And as you again rightly highlighted, we have seen a fair bit of reduction in Stage 2 and Stage 3 assets but because of the additional buffer that we are taking in Stage 1 and Stage 2 assets as well as overall provisioning, our coverage ratio is going up quite significantly across these stages and that’s the only thing which I’ll highlight.

Anand Piramal — Executive Director, Piramal Group

On your second question on Shriram, as you know, this company, the restructuring and bulk of the asset value is now in the form of listed shares. We continue holding our shares on our balance sheet, some part of the gain attributable to the one-off is related to that and that you should expect going forward whether it’s mark-to-market gain or loss. Given it’s a public stock it’s large value for us. Like we mentioned last time, we continue to monitor it and once we decide what the right course of action is we shall lead focus on.

And on your third point on buffer question on news articles, again, we will not comment specifically on news articles, but what we can tell you is that we as part of the DHFL acquisition inherited a bunch of wholesale loans. And from the time of acquisition which was September 21, we have been consciously trying to sell those whether it’s NPAs, PTCs or whatever the case may be, and what you read in one such example, so that’s our response to that.

Abhijit Tibrewal — Motilal Oswal Financial Services Limited — Analyst

Okay. Thanks for the detailed answer. Just one follow-up question here. So when we have done this fair value accounting for exposure in the Shriram Group, when we do the fair value, is that fair valuation done based on the current market price of Shriram Finance, let’s say, as on December 31st which is the end of the quarter? Is that how fair valuation has been done during the quarter?

Anand Piramal — Executive Director, Piramal Group

That’s correct. And we will do that again in March 31st as we still hold the shares, and whatever the gain or loss will reflect in the fair-value gain loss. So, that would be very easy to spot and we will be calling that out anyway every quarter.

Abhijit Tibrewal — Motilal Oswal Financial Services Limited — Analyst

Thank you. Thank you, sir.

Ajay Piramal — Chairman, Piramal Group

Also, there is — part of it is also unlisted, so about 75% of the total value is in listed stock and the balance is in unlisted. So that is value debt cost.

Anand Piramal — Executive Director, Piramal Group

That’s right.

Abhijit Tibrewal — Motilal Oswal Financial Services Limited — Analyst

Got it. Got it. So in summary at least on the Shriram Group our stance is that we will kind of want to exit it by March and then after the transaction, whatever fair value gains or losses are we’ll again recognize it in the March quarter.

Ajay Piramal — Chairman, Piramal Group

I don’t want to put a time limit of March, it depends on where the markets are and we will have the appropriate time to do what is necessary.

Abhijit Tibrewal — Motilal Oswal Financial Services Limited — Analyst

Got it, sir. Thank you so much and I’ll come back in the question queue. Thank you so much.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Shreya Shivani from CLSA. Please go ahead.

Shreya Shivani — CLSA Ltd. — Analyst

Hi. Thank you for taking my questions. I have two questions. First is can you tell us what is the interest reversal for this quarter? And the other question is on our — given that our product mix is rapidly changing between retail and wholesale, what is the run-rate credit cost assumption that you guys are building in? Any guidance around that? Thank you.

Upma Goel — Chief Financial Officer

Shivani, first question on interset reversal, during the quarter, we have reversed INR58 crores during the quarter.

Anand Piramal — Executive Director, Piramal Group

And as far as the run rate credit cost are concerned, the kind of business model that we are building which we have spoken about in the past, two-thirds retail, one-third wholesale, within retail, about one quarter of it being unsecured and the rest being secured, and within wholesale, a little bit of cash flow type mid-market lending and the bulk being real estate lending. That kind of business that we are working towards. So that business in the go-to state will likely have a credit cost in the 1% to 2% range. So we’ll see, but it’s a little ways away. Right now because we are so heavily provided in the short term, the credit cost metric might look more suppressed because of the heavy level of provisioning that’s there right now and the fact that the wholesale book is degrowing. So in the short-term, you might see a very different number, but in the medium to long term that’s the range that we are building towards.

Shreya Shivani — CLSA Ltd. — Analyst

So, 1% to 2% in the medium term is for the whole book, right?

Anand Piramal — Executive Director, Piramal Group

Yes.

Shreya Shivani — CLSA Ltd. — Analyst

Not, not — yeah, okay, okay. Got it. Thank you.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Santosh Kumar Keshri from Keshri Wealth. Please go ahead.

Santosh Kumar Keshri — Keshri Wealth Consultancy Pvt. Ltd. — Analyst

Am I audible?

Ajay Piramal — Chairman, Piramal Group

Hi, Santosh.

Santosh Kumar Keshri — Keshri Wealth Consultancy Pvt. Ltd. — Analyst

Yeah. So I am an individual investor and manage funds for my family and myself. I think that we have been invested in your company for more than two years now and since that time, it’s been all downhill. For example, the numbers that you’re providing for ECL model changing and suddenly they’ve set new provision of INR2,300 crores. And to the earlier participant’s question, you said that we had an opportunity because there is a income tax paid back, and there is a valuation gain also from Piramal Pharma, so that led you to create further provision. But when I look at the financials, top line and above the line and below the line, the tax provisioning for the gain on pharma valuation, all this is below the line, whereas the provision that you are making is above the lines.

So our gains are one-time, the losses that you are accounting is for all time on the FX and this is not actually giving a very good picture of the financial health of the company. So what should we take as an indicator? Shall we get exit from the company or it’s like — it’s all downhill and there would be further extra skeleton on the cupboard? Sorry, my — if my question is sounding negative, but the point is that the financials are not giving us any confidence. How do you see it, sir?

Anand Piramal — Executive Director, Piramal Group

Firstly, Santosh, thanks for the question. Thanks for being a patient shareholder over the last two years. It is our endeavor as a management team and the promoters are on the call as well, you heard. It is our collective joint endeavor to actually build the — build a business which is built with strength for the long-term, a business which will continue to be around decades from now and has the solidity and predictability of — that we expect from financial services institution.

Some of these transitions from an — from asset quality problem do take multiple years in financial services. I’m sure, if you have been invested in the Indian market and international services in the past, you would have seen other situations as well. What we have attempted to do is we disciplined over this last two-year period in trying to address each of the issues as openly and honestly as possible, and use every opportunity to actually both clean up the book as well as make provisions that are necessary to strengthen and create a strong foundation for the future. That is the path that we are on.

As Chairman mentioned in his opening remarks, we believe we are at the point of inflection and this quarter marks the moment when from kind of making defensive a provision, we start moving a little bit more to the front foot and go on the offensive and start making some provisions like other banks have been able to do over the last year and a half, two years and created large, large buffers for themselves. You’ll see us getting into that domain in this quarter. So our intent, Santosh, is to build this business for many decades to come and hopefully, we will continue to see you as a shareholder in this period as well, and hopefully, we will be able to pay you for the pain and the trust that you put in the company.

And one other thing that I’ve mentioned in this regard is that in the sort of two-year period that you mentioned, if you just look at the net worth of the firm, the net worth of the film has significantly increased. Now, market values we cannot control as a management team. Market does what it does, but we are at our all-time high in terms of our net worth on the financial services business of INR31,000 crores plus right now and that results in a capital adequacy of upwards of 31%, some of the highest capital adequacy that you will see in any large NBFC in the country. So we are doing the utmost to create an institution which is generational in nature, and hopefully, you will see the benefits of that in the years to come.

Santosh Kumar Keshri — Keshri Wealth Consultancy Pvt. Ltd. — Analyst

Fine. That’s very good and nice words you have put through the whole thing. But the second point is Mr. Dhaddha that every quarter we say that there would not be fresh provision, this is like we have taken extra buffer, but somehow or the other we find opportunities to create fresh provision, and that is somehow not convincing the investors, the financial community as a whole. So what do we do to finally see an end to it or whatever are the provisions required on the worst-case basis, maybe you can take all in one-go and be done with it?

Because there are some things hidden in the cupboard, it may not be true, I’m just — it’s a figure — a way of seeing, there may be something hidden in the cupboard that’s I am suspecting investor might feel and then lay down the stock or there is a large sell-off. So it’s not that the reaction of the financial community is negative, it’s that the financials are not providing that confidence. So my simple question is that why don’t you take all hit in one quarter or at most two quarters and be done with it?

Anand Piramal — Executive Director, Piramal Group

That’s precisely what we’ve been doing in these last two quarters, Santosh. And I think we are — as we mentioned before, we reached the point where we feel very confident about where we are right now. Anything you’d add, Yesh?

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending, Piramal Capital & Housing Finance Ltd

No. I guess, thinking I like the fact that we have been consistent in achieving the objectives that we have been aiming for ourselves, be it in terms of change of businesses which is retail and wholesale and be it about focused the way in which we are doing about resolving the assets, which is reflected in the shrinkage of the wholesale book while also providing, which we believe we are not adequately provided for. So [Indecipherable]

Santosh Kumar Keshri — Keshri Wealth Consultancy Pvt. Ltd. — Analyst

I got your point. Thank you.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Nischint Chawathe from Kotak. Please go ahead.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

Thanks for taking my question. There are two questions actually. We just discussed about this exposure for a real estate — to a real estate project in Mumbai that have you had probably some flash sales and recoveries. Now, just — and you said that this was something that you inherited from the DHFL portfolio. So just trying to understand the book value0 of this exposure would probably be 0, right, so we would probably — whatever you would see would be a gain?

Anand Piramal — Executive Director, Piramal Group

Thanks for the question. So we — at the time of the DHFL acquisition, obviously, we inherited this as you rightly said. There was a certain value attached to all that, whether it’s retail or wholesale. This is one of many assets that were part of that book and as I mentioned, for the last one and a half years, systematically, that’s been coming down. At this point, we would not be able to go into specific account details, etc. This asset is actually not on our books, we have sold it some time ago.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

Okay, okay. And just on the home loan side, on the retail business, how much interest rates would you have raised over the last four to five quarters?

Anand Piramal — Executive Director, Piramal Group

On the portfolio, about 50 basis points in terms of the — in terms of new originations about 30 basis points.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

On the home loan side is what you are saying?

Anand Piramal — Executive Director, Piramal Group

Yes, yes.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

Perfect. Thank you very much.

Anand Piramal — Executive Director, Piramal Group

Thanks, Nischint.

Operator

Thank you. [Operator Instructions] We have a question from the line of Gopinath from PNR Investments. Please go ahead.

Gopinath — PNR Investments Limited — Analyst

Hello, sir. Good evening. My first question is regarding the Shriram Finance investment that we have done, sir. Initially, yes, there was stress a couple of years back in our books, so we might have got the need to sell that investment and we were looking for an opportunity to get out of it. Now, given the balance sheet position and our strengthen and our — we have capital adequacy ratio of 31%, do we really need to look at exiting that company or we can retain it for a long-time is my question. Do we really need to sell it is the primary question. That is one.

The second one is as the previous investor who talked to you as a individual investor, my question is a bit related to that only, sir. Like last quarter even though you have — even the presentation said that largely provided, in the conference call you said, it’s not largely actually we have provided completely. And this time, coming up with another INR1,000 crores is like, really, it’s a bit disappointing because when you clarified in the last quarter conference call, it give a confidence that its true, and it is a surprise having this INR1,000 crore provision again. He did said, I’m a two-year investor, I’m a 12-year-old investor in this company, sir. I trust this company completely, but this gave EBITDA bad taste kind of — I mean, we — I genuinely believed that last the complete provision when you clarified about that almost provided in. Hope this — I mean, these kind of things may not repeat kind of. Are — is there any specific stress that we have found and provided or completely just because we had the INR3,000 crores unexpected extra into books this time due to that tax reversal that we have simply provided terms of, would you please give the confidence this time, so that it will help?

Anand Piramal — Executive Director, Piramal Group

I mean, that’s a fair question. First, the response to that would be, we will evaluate any and all disposition or holding depending on the conditions of the market, it is a liquid stock. Currently, it’s mark-to-market on our books. At this point, we obviously cannot disclose what they’re going to but in due course, once we make up on buying, we shall do the needful.

Ajay Piramal — Chairman, Piramal Group

Yeah.

Anand Piramal — Executive Director, Piramal Group

On your second question. Yeah. On the provision, I will reiterate what I mentioned in the previous — to the previous caller as well. We stand by what we said in the previous quarter. We said in the previous quarters that we were largely done with respect to asset quality recognition cycle and we will — and what we’re doing in this quarter is getting on the front foot, getting a little bit more on the offensive and essentially creating award chair, creating a little bit of a defensive buffer as we have seen a lot of banks and financial services institutions do over this last year and a half since COVID. People have created a lot of these things, whether you call them contingency buffers or by other name, people have created these buffers because profitability has been around and there you want to create a little bit of bullet for your portfolio for the future.

So far till last quarter, we have not been in a position to actually get there but this quarter we are. So, you’ve seen us actually get into that more a little bit and try and start creating some bulletproofing of the future. So, we continue to feel really good about the recognition cycle. I will reiterate that our Stage 2 and Stage 3 assets are today lower than what they were in the previous quarter and most of the provisions that we have made — in fact, all of the provisions that we have made is in Stage 1 and 2, as you saw. So clearly, we are giving the indication that we are creating the sum — creating a buffer for the future perspective, not because there is any new information that has come about in this last one quarter about the asset quality status of any of our accounts. We want to be quite unequivocal on that point. So we continue to feel very comfortable about our staging of assets as well as the level of provisioning the assets held. Prior to this, this one-time buffer creation and of course with one-time buffer only strengthen that situation even further.

Gopinath — PNR Investments Limited — Analyst

That is very helpful, sir. Thank you. I just — I mean this reconfirmation helps a lot. And coming to the first question, sir, about Shriram Group, my question was a bit different. I am asking whether do we — I mean that it looks like that business is doing good, so do we really still need to think up for exiting or we can retain it, why not is my question. Why not retain that as a strategic investment as long as the business is going good?

Anand Piramal — Executive Director, Piramal Group

See, there are various possibilities, we can do many things. That is also one of the possibilities. For you as a shareholder, you could directly own the Shriram share as well. Why would you want to hold it through us? That — for us to — for one publicly listed company to hold large shares in another publicly listed company is a bit weird and it adds a layer of intermediation and ownership which is non value adding for the ultimate beneficiary shareholder. So, but that said, like we are — we will take a call on kind of strategically how we want to proceed with this over the coming months, and we’ll let you know the moment there is something to disclosure here.

Gopinath — PNR Investments Limited — Analyst

Okay. Thank you. Thank you. That’s all from my side. I will join the queue if needed.

Operator

Thank you. We have our next question from the line of Bhavik Dave from Nippon Mutual Fund. Please go ahead.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Yeah. Hi. Good evening. I hope I am audible. One question is regarding the Stage 3 assets that we have on the wholesale side and that is around INR2,700 odd crores, which was like INR1,300 odd crores that — the more that you mentioned that there is a non-RE exposure which is credit impaired, but obviously it’s not yet like 90 overdue — 90-day leave. Just wanted to understand what kind of exposure it is, like what is in — which sector is this? And also wanted to understand in this INR2,700 odd crores kind of Stage 3 that we have, what is the kind of resolution pipeline can we — can one think of? Like because you visibly provided a 72% but is there any visibility on resolutions on this front or any pipeline that we can think about from our next 12-month perspective?

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending, Piramal Capital & Housing Finance Ltd

Yeah. So to address your first question, there is one specific asset that had moved during the quarter to Stage 3, which is non-real estate sector asset.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Right, sir.

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending, Piramal Capital & Housing Finance Ltd

And it’s been prepared and should have been provided for significant lead we extend of #75 odd percent which has caused change in the numbers as you see between Stage 2 and Stage 3, and that’s what this is about. As far as resolution of that specific asset is concerned, we have been working on resolution for many months now and are in literally the final stages of the documented settlement which is again in line with the numbers that you see in front of you as in relation to provisioning for that specific asset. As far as the other Stage 3 assets as concerned, mostly they are in — again it’s a mixed bucket between the real estate and non-real estate assets and we’ve been actually working on a separate sort of resolution strategy for each of the assets communicating the underlying complexities involved in those assets.

We made significant progress in terms of resolving some of them and for — from the resolution, it will take a few more quarters to come. As you would say, I think it’s the movement of assets on Stage 3 in this quarter, I think our Stage 3 assets have actually reduced our margin and that’s a whole new right direction.

Bhavik Dave — Nippon India Mutual Fund — Analyst

And sir, it will be great if you could just provide some color on the resolution pipeline because that number that INR3,700 odd crore that we have, if we can get a reasonable sense in how many — like how many accounts we have, like the top 10 exposures, in the sense that how can that be resolved over a period of maybe 12 months, 15 months. What will be their exact state? We can understand that given some clarity on how that…

Operator

Sorry. Your sound is coming muffled.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Hello. Yeah. Sorry. I was trying to understand that if you can give us some details maybe this time around or next time on the top 10 accounts that we have and that can — the resolution timelines that we can anticipate that will be great and because that will give more clarity on the Stage 3 assets that we have, it’s a large chunk.

Second question is to Jairam, sir. Sir, I just want to understand on the retail piece, we’ve been growing the digital unsecured piece reasonably at a reasonable pace and just wanted to understand, what exactly are we doing there, in the sense, who are the large two, three partners where we’re taking the loads from in the sense, the originators, what kind of funding is this, like what ticket size is? Any color on that would help because that’s growing at a reasonable pace. And I just want to understand the unit economics we have. What kind of ROAs do these businesses generate, right? Because they are like not AUM building, they are more disbursement linked, so from that perspective, how does the profitability on this product is — unsecured products work from a digital front here. Thanks.

Anand Piramal — Executive Director, Piramal Group

Got it. Okay. Lots of questions there on embedded finance. See, broadly, I’ll start with the last thing you said, and that’s the right way to think about it. This is not a business that is about AUM building, this business will always be kind of single-digit percentages of AUM. It’s unlikely that it gets larger than that. And it is about acquiring a lot of customer relationships to whom you can in the future cross-sell or not. So this is our largest customer acquisition engine and hopefully, over time, we will see converting these customers into a franchise by actually cross-selling them other products as well.

We have made some disclosures that how our cross-sell engine is working etc., and you will continue to see more of that. This business has today about 22 partners and 26 odd programs under which we do this. The name of partners, etc., are disclosed on our website, you should take a look at it. Our largest partners here would be some Fintech companies like Navi or EarlySalary or ZestMoney or moneyview and KreditBee. Many of these guys are all at roughly the same level. Some of the biggest partnerships like Paytm etc., are still relatively small for us and we are just scaling them up because we have still — so those are still new partnerships and new relationship that will get scaled up. About half of this business, about 50% of this business is, yeah, it’s a roughly INR1 lakh ticket size and greater than one-year duration, the rest of the business is short-duration small-ticket business. Overall, the way the economics of this business work is that on a net-net basis, we make an ROA of upwards of 4% on this business. And so it is — it’s a small AUM — part of the AUM pie, but it make very strong ROAs and also gives the snap-share of our customer base. So that’s the way to kind of think about this part of the business.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Understood. And Paytm and all are new partners, right? That’s what I understand.

Jairam Sridharan — Managing Director of Piramal Capital & Housing Finance Limited

Yes. We thought we went live with Paytm and did our first disbursement in the third week of December.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Sure. Understood, understood. And the other businesses that you’re running in the sense housing and the secured side of the business, is the business being done by the same team which we acquired from DHFL or how has the manpower worked around or there’s been a [Indecipherable] our business?

Jairam Sridharan — Managing Director of Piramal Capital & Housing Finance Limited

Yeah. Most of our manpower now is new, it’s neither from kind of the legacy Piramal company nor from the legacy DHFL company, most of the people are new and have been kind of hired post the merger. You might recall that right after the merger, we were about 4,000-odd people in terms of our total strength. Today, we are upwards of 10,000 people, so practically that entire staff has joined us in the last year or so.

So these are people from the industry. We are at about 90% lateral and about 10% fresher right now. For most of the population that you’ll see running the retail business are people who have come in laterally with very solid retail lending experience in various other institutions and are now part of this joint retail finance business.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Understood. This is very helpful, sir. Thank you.

Operator

Thank you. We have our next question from the line of Bhaskar Basu from Jefferies. Please go ahead.

Bhaskar Basu — Jefferies Group LLC — Analyst

Yeah. Thanks for taking my question. I had a couple of questions. Firstly, on the asset quality, I mean, there has been some slippages from Stage 2 to Stage 3, and we still have about 12% Stage 2. So when you say you’re done in terms of provisioning, have you kind of accounted for a move from Stage 2 to Stage 3, and — or would you need to incur more provisions when these assets slip possibly into Stage 3?

Anand Piramal — Executive Director, Piramal Group

Some of these…

Jairam Sridharan — Managing Director of Piramal Capital & Housing Finance Limited

No, these are adequately provided for these assets as — in fact, today, we have seen that the Stage 2 and Stage 3 assets put together is roughly INR10,000 odd crore. We believe we have an odd INR1,000 crore which is the number for last quarter. While the book has reduced, we actually have increased the provisions combined for this asset — the stage categories to INR4,600 odd crore from INR2,400 odd crore, which makes us believe that we have actually adequacy provided for the complexities of the underlying assets under pressure.

Anand Piramal — Executive Director, Piramal Group

So Bhaskar, we have roughly 45% provided between Stage 2 plus 3 and for a 100% secured book in real estate. We think that’s a pretty good place to be in. Now, there might be kind of one-off timing issues in some quarter, something goes from 2 to 3 and in the next quarter, we get some recoveries, etc. I mean, some timing issues might happen, but they will be minor. In the larger scheme of things, Stage 2 plus 3 asset pool with a 45% provision cover, when it’s all sort of a 100% secured book, we believe that — that’s fully provided for that book.

Bhaskar Basu — Jefferies Group LLC — Analyst

Thanks. The second question was on the AIF front. Basically there — I mean, AIF amount has been stable for quite some time, but this quarter we have seen a INR2,000 crore increase, so if you can just kind of help me understand that?

Anand Piramal — Executive Director, Piramal Group

Sorry. Could you just clarify your question?

Bhaskar Basu — Jefferies Group LLC — Analyst

The AIF, which is part of your wholesale book which used to be about INR5,100 crores roughly and in prior quarters have gone up to about INR7,200 crores.

Anand Piramal — Executive Director, Piramal Group

Just to clarify, this quarter the only increase would be in the form of one resolution that we’ve done and that would lead to some security-related increase. But we can take this offline, I’d be able to help further clarify more exactly and then we’d be happy to provide more information.

Bhaskar Basu — Jefferies Group LLC — Analyst

Okay.

Jairam Sridharan — Managing Director of Piramal Capital & Housing Finance Limited

The AIF number, Bhaskar, has not changed materially last quarter to this quarter. So maybe we could just catch up offline on what number you’re looking at, maybe there’s some confusion.

Bhaskar Basu — Jefferies Group LLC — Analyst

Okay. I’ll take it offline. The third question was when you kind of look at running down this book as kind of intend to, do you foresee any further haircuts as you try to kind of monetize these assets or sold down or that’s all accounted for now?

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending, Piramal Capital & Housing Finance Ltd

No. In fact that — besides the point that we’ve been trying to make for the last couple of quarters that the provisions that we’re taking has actually enhanced our ability to — on the front foot and actually recovere money using whatever new strategy is appropriate for taking an asset, right? We don’t actually expect any further provisions for losses to come beyond what we already have provided for the category of asset and therefore what we have decided for.

Bhaskar Basu — Jefferies Group LLC — Analyst

Okay, sir. My final question was on the Shriram Investments. So basically, just wanted to understand the thought process once if you decided to kind of liquidate that, what is the plan with the excess capital, because you are already excess or overcapitalized, so what’s the plan to do with the proceeds?

Anand Piramal — Executive Director, Piramal Group

So at the right time, I think we will share that. You would have seen over the last one, two quarter as we do note opportunistically for the right kind of acquisitions that fit our broader financial services strategy. So these will keep coming. We have few things in mind, so at the right time, we’ll be able to share lot more.

Bhaskar Basu — Jefferies Group LLC — Analyst

Okay. Thanks. Thanks a lot. That’s all from my side.

Operator

Thank you. We have our next question from the line of Sandeep Jain from Baroda BNP Paribas Mutual Fund. Please go ahead.

Sandeep Jain — Baroda BNP Paribas Mutual Fund — Analyst

Hi. Thanks for taking my question. First, some on the PL side. If I look at that — sorry, I joined slightly late, so I don’t know whether you explained it or not, operating cost is slightly higher, so what’s our kind of range in terms of guidance in terms of operating expenses if I look at it that way for years to come? And the second on the book, just to continue with the Bhaskar question. So if I look at the wholesale Stage 1, it is declining, right, from INR39,000 odd crores to INR26,000 odd crores. From here onwards the decline in the book, what you are trying to say would be largely due to the repayment and not due to the further recognition or provision kind of thing, that is what the sense which we are taking.

Jairam Sridharan — Managing Director of Piramal Capital & Housing Finance Limited

Yeah. Certainly, the latter of what you are saying, like there is no provision-related reduction. Like, of course, I mean, if we had to guide that, the best way to resolve our asset is to actually sell it, and we might get the right opportunity to do that given that we are well provided it — the ability to actually consummate some of those transactions is a lot higher, so that might happen. But otherwise, no, there isn’t any provision to led reduction in net advances that you should expect in the times to come. That’s not the way we are talking about. When we’re talking about reduction and wholesale book, it is through resolution not through additional provisioning.

Now, your first question on opex, you might have seen that we made in our presentation or a disclosure on opex to assets as a ratio and we have shown kind of that this quarter, we were at 3% annualized opex to assets. Historically, you might recall that when we were a wholesale-only company, we used to have an opex to assets of roughly 1.3%. Right now, that number is at about 3%. As we continue to make investments in the retail business, as we continue to expand our branches and our staff like this that all should continue for another year or so, you should expect to see opex to assets go up a little.

In the medium term, our expectation when we recover book which is two-thirds retail, one-third wholesale and we started to see more of the scale efficiencies come in on the retail side of the business, you should expect opex to assets in the 2.5% to 3% kind of range with wholesale being at about one in a quarter and retail being at roughly three.

Sandeep Jain — Baroda BNP Paribas Mutual Fund — Analyst

So the related question which you have said that the digital unsecured retail book and the retail book kind of thing, when you’re saying that this business is giving you a 4% kind of ROA, so what kind of opex to assets and what kind of credit cost you’re assuming in that 4% kind of ROA?

Anand Piramal — Executive Director, Piramal Group

So in the digital embedded finance of opex that numbers are very low because most of the opex is actually being borne by the partners. So our opex is very limited to our internal staff, etc. Apart from that, the rest of it is all acquisition costs that we shared with the partner. So we give the partner a revenue share in the form of origination fee or a scheme on the interest based on performance of the past etc., So — but really apart from that there is no real operating expenses on our side in that business.

Sandeep Jain — Baroda BNP Paribas Mutual Fund — Analyst

And in terms of credit cost?

Anand Piramal — Executive Director, Piramal Group

So in terms of credit cost obviously it’s a higher risk business than normal, but again because of the way the opex is structured, where there is a scheme on interest which is linked to the creditors’ performance — our creditors calculate gap in almost all cases. So, overall kind of we can — we have budgeted in up to 4% of our credit cost in that business, the effective number that we are seeing is much, much, much below. It’s actually — we are seeing effective numbers in the 1% range.

Sandeep Jain — Baroda BNP Paribas Mutual Fund — Analyst

Okay. And again, last question on Wholesale 1.0. The declining of the book from here onwards, what kind of percentage decline we will see from here onwards? See, we have seen a 20% decline in last one year, so now the repayment or resolution means any kind of timeline or any kind of stage that okay from here onwards, it will not decline kind of thing and we will run this book kind of. So how you will look at that Wholesale 1.0 book?

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending, Piramal Capital & Housing Finance Ltd

So, look, I think we’ve got a fairly good traction on resolving the assets across stages, right? And part of our book also runs off organically, given the fact that they’re still somewhat as in the books, right? From what we have achieved in the last one year is a reflection of that. We are shrunk by about 20%. I think going forward we don’t give any specific guidance, but something similar is what — this is sort of important [Indecipherable]

Sandeep Jain — Baroda BNP Paribas Mutual Fund — Analyst

Fine. Thank you.

Operator

Thank you. We have our next question from the line of Rikesh Parikh from Rockstud Capital LLP. Please go ahead. Rikesh Parikh?

Rikesh Parikh — Rockstud Capital LLP — Analyst

Yeah. Sir, thanks for the opportunity. Just one question. Sir, this quarter we have provided a contingency raise provision on the overall asset. So just wanted an insight from overall portfolio point of view, what kind of provision we have — as a contingency we will look to where we’ll be comfortable at such — a from that — future onwards, we can expect that much additional provisions would be possible as such?

Anand Piramal — Executive Director, Piramal Group

I don’t think there’s any specific number that we have in mind. I think what — it is a little bit opportunistic, you do it when you can. We had an opportunity, we did it. I don’t think we have a plan of continuing to do it in this manner. So I think at an overall provisioning level if you see, on a INR64,000 crore book, we have INR6,400 crores of provision. So we have a ton of provision right now on our book, I don’t think there is much interest on our part to create kind of much more in the form of any of these contingency provisions. I think they are good right now.

Rikesh Parikh — Rockstud Capital LLP — Analyst

Thanks. And second is I just want to understand about wholesale DHFL books for what we acquired, is it shaping up right now?

Anand Piramal — Executive Director, Piramal Group

Yeah. The DHFL book is shaping up quite rough. We’ve — we continue to get recovery from all DHFL NPAs. We are also seeing the core performance of the non-NPA book of DHFL continue to hold up quite nicely so we’re very happy with the performance. It is — it continues to be a little bit ahead of our estimations when we did the [Technical Issues] that it had been a highly transformative and positive acquisition for our company.

Rikesh Parikh — Rockstud Capital LLP — Analyst

Thank you. That’s it from my side.

Operator

Thank you. We have our next question from the line of Vineet Sharma from Sankhya Funds. Please go ahead.

Vineet Sharma — Sankhya Funds — Analyst

Thank you for taking my question. Some of them were already raised earlier. Couple of comments, one, it would be helpful if you could give some guidance for FY ’24 for provisioning-related credit costs. And second, given the steep discount that the stock trades compare to book value given that we are very comfortably capitalized, would we consider a buyback? Thank you.

Anand Piramal — Executive Director, Piramal Group

Yeah. Now on your first point, guidance etc., those are Q4 event, so you will see as we get to Q4 results we will take a look at our current year, and how we want to talk about some of the forward-looking statements on where we are. I think as Chairman mentioned in his opening remarks that this quarter has been a little bit of inflection point quarter for us and hopefully that will — you’ll continue to see that imperative being in the quarters to come and in the next year as well where you should expect to see a lot more of the AU type business performance rather than a lot of one-off driven business performance.

On your second idea, we note your suggestions. Thank you for that and we have — we always welcome suggestions and ideas from shareholders on what might be good ways to actually utilize the capital that we have. Needless to say, you will appreciate that any capital market action of that nature, we will — we can only talk about if and when there is something concrete for us to disclose to you. So we take your suggestion on board.

Vineet Sharma — Sankhya Funds — Analyst

Thank you.

Operator

Thank you. We have our next question from the line of Nimish Maheshwari from RSPN Ventures. Please go ahead.

Nimish Maheshwari — RSPN Ventures Pvt. Ltd. — Analyst

Hello. Thanks for the opportunity. I just want — it might be a repetitive question, but what is the connection or the DHFL connection with the Sahana Group and will it come in our book in Q4 or how much if it is?

Anand Piramal — Executive Director, Piramal Group

We have already replied to that. We had mentioned that we have already sold this asset and this was part of the acquired assets from DHFL in September 2021 at a significantly marked-down price and that asset is already off our books.

Nimish Maheshwari — RSPN Ventures Pvt. Ltd. — Analyst

Okay. Thanks. That’s it from my side.

Operator

Thank you. We have our next question from the line of Vinod Jain from WF Advisors. Please [Technical Issues] Ladies and gentlemen, due to time constraints that was the last question. I now hand over the call to Mr. Hitesh Dhaddha for closing comments. Over to you, sir.

Hitesh Dhaddha — Chief Investor Relations

Thanks. Thanks, everyone. Please feel free to reach out to IR for any further questions. Thank you.

Operator

[Operator Closing Remarks]