Piramal Enterprises Ltd (PEL) Q4 FY23 Earnings Concall Transcript

Piramal Enterprises Ltd (NSE:PEL) Q4 FY23 Earnings Concall dated May. 05, 2023.

Corporate Participants:

Ruchika Jain — Associate Vice President, Investor Relations

Ajay Piramal — Chairman, Piramal Group

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

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

Analysts:

Nischint Chawathe — Kotak Securities — Analyst

Avinash Singh — Emkay Global — Analyst

Bhavik Dave — Nippon India Mutual Fund — Analyst

Nishid Shah — Ambika Fincap Consultants — Analyst

Piran Engineer — CLSA — Analyst

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Chintan Shah — ICICI Securities — Analyst

Praveen Rathi — Praveen Rathi and Associates — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Piramal Enterprises Limited Earnings Conference Call for Q4 and Annual FY 2023. [Operator Instructions]

I now hand the conference over to Ms. Ruchika Jain, Associate Vice President, Investor Relations from Piramal Enterprises Limited. Thank you and over to you ma’am.

Ruchika Jain — Associate Vice President, Investor Relations

Thank you, and welcome to the earnings conference call for Q4 and Annual FY ’23. Our results have been uploaded on our website, and you may like to download and refer to them during our discussion. The discussion may include some forward-looking statements, and these must be viewed in conjunction with the risks that our business faces.

On the call today we have with us, our Chairman, Mr. Ajay Piramal, Mr. Anand Piramal, Director, Enterprise and Piramal Group, Mr. Rupen Jhaveri,

Group President, Piramal Enterprises, Jairam Sridharan, Managing Director, Piramal Capital and Housing Finance, Mr. Yesh Nadkarni, CEO of our Wholesale Lending business, and the CFO of our company, Ms. Upma Goel.

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

Ajay Piramal — Chairman, Piramal Group

Thank you, and welcome to our earnings conference call. Today, as we mark the end of FY ’23, I would like to discuss how we have delivered on our strategic priorities over the past year. Our total assets under management stood at 60 — approximately INR64,000 crores. We have significantly improved our retail, wholesale mix to 50-50 from 33% retail and 67% wholesale in FY ’22.

Our retail AUM witnessed a 49% year-on-year growth to INR32,144 crores from INR21,552 crores in the last year. Quarterly disbursements have grown by 34% quarter-on-quarter and 361% year-on-year to INR6,828 crores in the retail business. The wholesale 1.0 AUM reduced by 33% year-on-year to INR29,000 crores from INR43,175 crores in FY 22.

Our Stage 2 and Stage 3 wholesale assets reduced by 39% quarter-on-quarter to INR6,374 crores from INR10,369 crores in the Q3 of the current year. We concluded four stressed asset monetization transactions during the quarter through a combination of asset sale and ARC sale. With this we generated over INR12,500 crores of cash realization through accelerated repayment and resolution proceeds from a wholesale 1.0 portfolio in line with the provisions on these assets.

We have built a wholesale 2.00 AUM worth INR2,792 crores across real estate and corporate mid-market lending. Our GNPA ratio reduced to 3.8% in this quarter — the last quarter of FY ’23 from 4% in the third quarter. Profit after tax for FY ’23 grew 5% year-on -ear to INR1,902 crores post excluding exceptional gain of INR8,000 crores in FY ’23 pertaining to the demerger related — demerger of the pharma business transaction. The PAT for the quarter stood at a loss of INR196 crores led by MTM loss of INR375 crores on Shriram Investments. Excluding the impact of this MTM loss on Shriram our PAT would have been INR136 crores for the quarter.

As of yesterday, this MTM loss has been reversed by INR218 crores. Net interest income for FY ’23 grew 21% year-on-year to INR4,176 crores. We have maintained a strong consolidated net worth of INR31,000 crores for FY ’23 and a capital adequacy ratio of 31% on the consolidated balance sheet. We have maintained a strong liquidity with cash and liquid investments of INR7,430 crores, despite of all the provisions undertaken during the FY ’23. Due to our strong balance sheet and improving AUM mix, we have reduced our average borrowing cost to 8.6% for FY ’23 against 9.6% in FY ’22 despite a rising interest rate environment.

The Board has recommended a dividend of INR31 per share subject to the shareholders’ approval at the AGM. The total dividend payout would be INR740 crores. Now coming to the liability management. Our ALM is well-matched with positive gap across all buckets. 59% of liability is being fixed in nature, we have remained very cushioned against the interest rate cycle. We saw an improvement in disbursement yield at 14.2% for the quarter. Our average disbursement ticket size stood at INR11 lakh for the last quarter of FY ’23. We are consciously pivoting to a multi-product strategy in which banks are less present. We are present majorly in four product categories in retail business, mainly housing loans, secured MSME that is LAP, other secured, currently used car loans and unsecured loans.

Our secured offerings which include housing loans, secured MSME LAP, and other secured loans contribute to 80% of our retail AUM. In these product mix over 50% lending happens in Tier 2 and Tier 3 cities, with an average typical score greater than 735. In our unsecured loan offerings, we are experiencing strong growth for multiple channels. We have served 880,000 customers with an average CIBIL score of 753. As we continue to expand our retail lending business, we are also investing in manpower, branch infrastructure, technology and analytics of our retail lending business for future growth.

Over the last one year we have added 95 new disbursement active branches, with this, today we have a growing network of 404 conventional branches, and 120 micro finance active branches. We have established our presence across India, serving 515 districts across 26 states. We’ve acquired more than 4 lakh new customers during the quarter. With this, our customer franchise now stands at 3 million, having more than 1 million active customers.

Now let me talk to you a little bit about wholesale, where we continue to focus on the resolution of Stage 2 and Stage 3 assets, which will further moderate the wholesale book size in the short term. Our focused professional team is involved in monitoring and executing the resolution strategy for complex recoveries and enforcement, aimed to improve recoveries and monetization of our assets.

The recognition and provisioning parts of our asset cycles have been completed. We are now deep in the resolution part of the cycle. We’re deploying the following tools for resolution of stressed assets. A, the monetization of underlying assets. B, one time settlements, three enforcement via IDC or other means. Portfolio sales, ARCs in cash our SRs. We had good success in our resolution strategy in FY ’23, particularly in the last quarter.

We concluded four stressed asset monetization transactions during the quarter, through a combination of asset sale in ARC deals, as part of these deals we called out last quarter, but we are working on the resolution of a large non-RE Holdco loan namely Mytrah. We’d like to inform you that we’ve exited the same this quarter, thereby achieving a reduction of INR1,908 crores in a single transaction.

We’ve also concluded sale of NPA portfolio in cash. Further, we concluded sale of certain stressed assets through two separate transactions under the 15-85 structure. With this, we generated over INR12,500 crores of cash realization through accelerated repayments and resolution proceeds from our wholesale 1.0 portfolio, in line with the provisions of these assets. All the ARC sales have been undertaken at post-provisioning valuations. Security receipts were issued at 63% mark down to face value of underlying assets, sold in FY ’23.

Post the transaction, we received INR1,364 through cash receipts and SRs. As of FY ’23, we have an outstanding SR portfolio of INR3,630 crores and 44% of the outstanding SRs have retail loan as underlying assets. As resolution process continues, we expect no ARC sales over the next two quarters and related continued enforcement. We’re also focusing on building a high-quality wholesale 2.0 AUM. We are focused to build a diversified and granular wholesale book backed by cash flows and assets that we give loans to well-capitalized companies across multiple sectors and geographies. We’ve already built a wholesale 2.0 AUM of INR2,792 crores, by adding INR922 crores of loans during the quarter.

We will further build this book in a calibrated manner, by capitalizing on the market, yes. The average ticket size is around INR200 crores for real estate loans and INR55 crores for CMML loans. What are our mid-term strategic priorities? We have drawn our strategic priorities for the mid-term, wherein we intend to achieve the following mid-to-high teens AUM growth.

AUM mix of two-thirds retail and one-third wholesale. Lending to Bharat markets in retail business, building a new granular wholesale business. Keep technology and analytics at the core of lending. Ensure a conservative liability mix. Scout for opportunistic inorganic plays. Achieve a 3% ROA and mid-teens ROE.

Now with this, I would request to move to the questions. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.

Nischint Chawathe — Kotak Securities — Analyst

Hi, thanks for taking my question. We have a couple of questions actually. The rundown in your housing book appears to be sort of rather large. If you could kind of give up, help us understand what would be the reason for this.

Ajay Piramal — Chairman, Piramal Group

Are you talking about the wholesale book or are you talking about the housing book, I couldn’t hear you.

Nischint Chawathe — Kotak Securities — Analyst

I’m talking about the housing book, yes, I’m talking about the housing book, essentially on slide number eight, trying to sort of add up [indecipherable]

Ajay Piramal — Chairman, Piramal Group

Okay. So if you go through our slide once — that’s okay. If you go to slide number 19 that shows the pure housing AUM and how the AUM has grown quarter-on-quarter, so that will give you a sense. In general quarter four tends to be the peak quarter for balance transfer out so you will see higher level of run-offs in Q4 that’s seasonal and you usually see a reversion quite steeply in Q1.

So we haven’t seen anything particularly unusual in Q4, that we do not normally expect.

Nischint Chawathe — Kotak Securities — Analyst

On the annual basis your run down is something like around 23%, 24%, right?

Ajay Piramal — Chairman, Piramal Group

That is correct.

Nischint Chawathe — Kotak Securities — Analyst

And any specific reason why it’s so large in housing, so high in housing?

Ajay Piramal — Chairman, Piramal Group

See a player like us who’s originating housing loans at 12%-ish yield will end up seeing a lot of balance transfer. Also if you compare the metrics to — given the environment where good quality credit customers are able to get single digit pricing. So you will have to imagine that your runoff rates will be a little bit higher. As we disclosed on our slides today, our average CIBIL score of our housing customer is 748, so these are pretty high-quality customers, so some of them will end up getting competing offers where — and that’s fine and that’s something that we have baked in into the way we have priced the tranche

Nischint Chawathe — Kotak Securities — Analyst

And you’re probably assuming of similar run rate going forward as well?

Ajay Piramal — Chairman, Piramal Group

As I said, you have to adjust for seasonality, Q4 is very high from a seasonal runoff perspective, but takes of that, yes.

Nischint Chawathe — Kotak Securities — Analyst

And then probably as your cost of funding comes from, maybe you can offer a lower rate, is that a fair assumption to make?

Ajay Piramal — Chairman, Piramal Group

I think that’s absolutely correct.

Nischint Chawathe — Kotak Securities — Analyst

Perfect. Just one small suggestion is that, I think the AUM on housing on Page 8 and Page 19 maybe if you can read and see probably we can do this offline, but I think some of the management numbers don’t really add up. Just one more question is what constitutes like 8.9% odd fees for you?

Operator

Mr. Chawathe, sorry to interrupt, the audio is muffled from your line, sir, please use the handset mode.

Nischint Chawathe — Kotak Securities — Analyst

Yeah, sure. Fee income of around 9%, if you could clarify what does it comprise of?

Ajay Piramal — Chairman, Piramal Group

So if you’re referring to slide number 12, which is where we have shown that. See this is fees as a percentage of total income. So the total income — what we are calling the operating income which is NII plus fees, that total is about 6.25% which is what you see in the chart on the top left, so that’s the 6.25%. What we are trying to show is that of that what proportion is fee and what proportion is NII, and what we’re essentially seeing is roughly 91% is NII and 9% is fee.

Nischint Chawathe — Kotak Securities — Analyst

Got it. Thank you very much.

Operator

Thank you The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.

Avinash Singh — Emkay Global — Analyst

Yes, hi. good evening. Thank you. If I sort of try to focus on Slide 39, that’s where you have given the wholesale asset details and [Technical Issues] I do understand

Operator

Mr. Singh, the audio is unclear from your line. Please use the handset mode.

Avinash Singh — Emkay Global — Analyst

Is it better now?

Operator

Yes, sir. Please go ahead.

Avinash Singh — Emkay Global — Analyst

Yeah, so what I am trying to focus on Slide 39 where you have given the details about the wholesale assets and the provisioning I do understand that there’s one sort of a chunky corporate account that you have resolved. However, still even adjusting for that, if I see a kind of a provision cover has gone down in [indecipherable] as well. So I mean what sort of — I mean, that comfort you are getting that sort of [indecipherable] reducing the provision covers. That’s one.

And also if you can just help with sort of that impact of your POCI and sort of recoveries rather impact on the P&L and balance sheet for the quarter and the full year? So yeah, these are my two questions here.

Ajay Piramal — Chairman, Piramal Group

Got it. So let me try and see whether we understand your question correctly, and we’ll try and answer. See the Stage 2 and Stage 3 provision pool was about INR4,700 crores last quarter, and it is about INR2,100 crores now, right? If you look at the actual pool itself, the pool itself has come down from about INR11,000 crores to about INR6,000 crores, INR6,500 crores, you were saying, correct? So essentially we’ve had a INR4,000 crore odd reduction in these two increased pools, and how did that reduction happen? The reduction, of it, roughly, let’s say is the Mytrah transaction or a little less than half. But the rest of it is still, significant decline has happened in Stage 2 and Stage 3 population.

And this is when — we are going through the resolution cycle, so as you go through the resolution cycle, the provisions that you have made, you use that to actually either sell the asset or you basically get it off your books. And so that’s precisely what you’re seeing here. As we — since we have completed the recognition and the provisioning part of the credit cycle, and we are in the resolution part of the cycle, in the resolution part of the cycle, the provisions that you’ve made will get used up and you get those assets off your books, and that’s precisely what you’re seeing here.

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

I’ll just add two points to this. This is Yesh here. If you actually look at the math in December quarter Stage 2 plus Stage 3 AUM provision coverage ratio we had was about 45%, which today stands at about 34%, that 45% that we had in December quarter had Mytrah, which had more than 70% provision. So if we exclude Mytrah and there is the reason why, we provided 70% specifically against Mytrah, and we actually sold it at a value which was in line with that provision. If you exclude Mytrah from the bucket, 2 and 3 for December quarter, we have roughly 37% versus 34%. If you actually look at the rest of the pool, decrease in provision is not as material as it appears on the face of the acquisition.

And the second point I would mention is that, in terms of all the monetizations we have seen over the last quarter, including Mytrah, which I alluded to have happened in line with the provisions which only substantiates our confidence that we have been providing for the Stage 2 and Stage 3 assets in line with what the recoveries [indecipherable] Answer your question?

Ajay Piramal — Chairman, Piramal Group

You had also one question on proceeds the proceeds book as we’ve shown on Page 38, the proceeds book was INR3,00 crores, it has come down to INR1,400 crores. Some of the — and that that reduction of about INR1,600 crores, INR1,700 crores, some of that was part of one of the two ARC transactions that we did during the course of quarter.

So if you see our slide on our SR portfolio, that have added, you will see that about 44% of the outstanding SRs are retail in nature, and that comes from here so what — the reason you see the POCI reduction is that it was part of one of these SR transactions that we did.

Avinash Singh — Emkay Global — Analyst

Any impact on P&L for the quarter?

Ajay Piramal — Chairman, Piramal Group

There isn’t any.

Avinash Singh — Emkay Global — Analyst

Okay. And one follow up if I may have one different question, I mean in your this — on business partner sales, if the regulation for the particularly the direct NBFC, do you have FLDG arrangements in place or it is just like a nascent part of this?

Ajay Piramal — Chairman, Piramal Group

We have no FLDGs in place. FLDGs are not allowed by the new digital lending guidelines. So I know RBI is talking about it again based on a bunch of lobbying that’s happening from the fintechs and maybe some version of it will come back in the future. But as of today FLDGs are not allowed in digital lending so we don’t have any of course.

Operator

Thank you. The next question is from the line of Bhavik Dave from Nippon India Mutual Fund. Please go ahead.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Hi. Good evening, sir. Two questions, sir, one is on the yields and actually that yields are moving up obviously because of the matured and unsecured —

Operator

Sorry to interrupt you Mr. Dave, please use the handset mode. Sir, the audio is muffled from your line.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Sure, sir. just two questions, one is on on the yields front wherein the yields are going up because of the shift in mix, if you could just explain me like broadly what would be the yields that we like charge in like different segments like home loans and the unsecured pay that you’re doing. Roughly what would be the yields there?

And second is on the operating expenses, like I understand we’re building a retail business, which will require higher costs. Just want to understand the trend line on opex, because this year — like when I see year-on year the opex grew almost 89% which is understandable. But going ahead how will the operating expenses move like what — how should we think about it? Is it like opex to AUM is how should we model that number?

And like from one, one and a half year perspective and then maybe things become steady state.

Ajay Piramal — Chairman, Piramal Group

Sure, sure. Great question. So our product wise disbursement yields are disclosed on Slide 41, so you can just take a look at that and you will see housing we do at roughly 11%, LAP we do at 12.5%, cars — used cars we do 16%, and unsecured we do at between 18% and 19%, so that creates the overall weighted average of 14.7%.

You will notice that in the other slide, we have 14.2%. I want to emphasise that, that 14.2% is only for assets which are greater than one year duration, because there were some short-term assets to do which are fairly high yielding, but they’re not going to be on your books from your modeling perspective, it’s not super useful to actually keep that in mind. So we disclosed separately the yield for asset which is greater than one year duration, which is at 14.2% that we disclosed up ahead. Otherwise, our fall in yield is about 14.7%.

Now to your point on cost to AUM, what — the way you should think about it is, as the mix shift — so there are two trends that are happening here, one is that retail cost to assets will continue to come down from where it is kind of every year, you should expect that to come down. Wholesale cost so assets will probably roughly remain the same, it might come down a little bit. So trend wise number one is, retail [indecipherable] will keep coming down. But trend line number two is that retail, as a proportion of overall book keeps going up, the net of both of these is that over the next year or so, you will see the cost to asset go up before it comes down.

Eventually, we expect cost to assets to settle at about a 3% level. So imagine, about 3.5% of retail and about 1% of wholesale and at a 2/3, 1/3, that gets you to about a 3% overall company level cost to asset, that’s where it will eventually settle down.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Correct. But before that will it like stay at 3.5% to 4% mark where we are today, maybe like in the fourth quarter.

Ajay Piramal — Chairman, Piramal Group

I think so.

Bhavik Dave — Nippon India Mutual Fund — Analyst

If that make a fair assumption. Okay. And the last question is on the unsecured piece, the yields like under microfinance segment were 18.5%, 18.8%, and like when we see the standalone microfinance companies charging 20% and above. Do you think that, that can like inch up or what happens there? And the second is —

Ajay Piramal — Chairman, Piramal Group

There are two parts to our microfinance portfolio, that you see here. One part is where we originate microfinance business that business is being originated at 24% asset. Where second part of this is, some microfinance transactions we did and we continue to do as a direct assignment purchase. And we do this just to get a sense of different parts of the market because we are still new in this business. So we want to get a sense of where the market is and where portfolios of different states are. So to get a sense of that we DA transaction, those tend to happen more around the 13% — 12% to 13% kind of range.

So that the weightage average is what you’re seeing here at about 18%. The MF that we originate happens at 24%.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Perfect, understood. And — sorry, last question is on the wholesale side. When we see the PCR that like Yesh spoke about which has gone down. And like you rightly mentioned the large account that we resolved this quarter had a 70% kind of PCE, do you think that this 55% on the Stage 3 and like overall 34 odd percent that you spoke about states to Stage 3, that holds us good for like any other resolution that we are planning or sell down that we are planning for next year FY ’24 like when this book keeps coming down, incremental provisioning requirement on this should not be March, right, like is that a fair assumption that we have to like model that well?

Ajay Piramal — Chairman, Piramal Group

Yea, we believe that’s a fair assumption.

Bhavik Dave — Nippon India Mutual Fund — Analyst

Great, that’s helpful. Thank you so much. yeah.

Operator

Thank you. The next question is from the line of Nishid Shah from Ambika Fincap Consultants. Please.

Nishid Shah — Ambika Fincap Consultants — Analyst

Good evening. Thanks for taking my question. I would like to I understand the rationale for the wholesale book two. When on one side, we are trying to reduce the wholesale book one and we are still at INR30,000 crores, remaining and we’re still trying to grow the book two. So how is the book one different than book two, because what problems we added up — my apprehension is, what problems we ended up in book one can also happen in book two.

Ajay Piramal — Chairman, Piramal Group

So these are two different parts of our business strategy, right? Wholesale certain assets where we are seeing stress outside of that which represents stage one is where we actually are seeing run off, which is organic and which is coming from the underlying cash flow from the assets. So stage two and stage three is where the issues are and we are actually resolving that part of the book and shrinkage is happening predominantly there.

So that happened, but that doesn’t take away the final stage one is performing and it does allow us to — building a book in this space allow us to actually capitalize on a big market gap which exist by way of doing a portfolio, which is granular and which is diversified in terms of our increased loan. So our intention, as — our focus as it relates to the one point of shrinkage is concerned is on a part of the book — only that part of the book where we have complex assets and we see the problems, outside of that we consider how is that book, it’s not that we are exiting one point to whole in totality. And as we reduce that book, we also actually belong a more granular and diversified part of our wholesale business, which is a profitable business to be in, where there is a market gap and therefore we think it’s a great vintage to start building that book as well, across not only real estate but also across other corporate sectors as we call it mid market lending.

Nishid Shah — Ambika Fincap Consultants — Analyst

Yeah, the other question is, can we have the names of the top exposures in the wholesale book one, because that has been the apprehension in the market? And my question also comes from the fact that on a INR65,000 crores book of asset management, under management, your market cap has gone down to INR15,000 crores market is just not valuing, and not giving any credit there are guys trading at multiple times on book and we are trading at 0.5 on book. So can we have some more details on the wholesale book one, the names and et cetera?

Ajay Piramal — Chairman, Piramal Group

We’ll probably — we’ll not be able to actually disclose individual account level details, we have never done and that is poor practice for a lender to start talking about individual client relationship in public forum. So it is unlikely that we will do that. Your point on kind of market valuations and multiples, we fully understand and empathize with — I totally hear the concern and anxiety that you have and we feel the same anxiety ourselves.

We would like to believe that the quality of our franchise, the quality of the book is much better and much more than what the market values today are ascribing to it. Our best hope is to do our best quarter-on-quarter, to continue to resolve more and more of these assets, and show as we have shown in this quarter that all the provisioning part of the work is done and that the resolutions that we’re able to bring in, the reduction in book that we’re able to bring in, by genuinely selling and exiting some of these positions are happening at precisely the kind of provision levels that we already have on our books.

If we do that regularly, and if we’re able to demonstrate to the market as we have done this quarter that exits are possible and without taking any incremental hits to P&L. Hopefully some of this negative overhang that you are talking about will go away, but that is — that’s a little bit less in our hands, we need to do our karma of actually doing the right things with respect to the portfolio which is what we are focused on.

Nishid Shah — Ambika Fincap Consultants — Analyst

Sir, my last question is on the book one, and on an overall basis, are we sufficiently provided now or are there any provisions yet to be taken? Like last quarter, we had some one time gain and we had booked against that some provisions. So are we done with the provisions or are we still to do some more provisions?

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

No, no we reiterated that we are done with provisions, so we don’t expect any more provisions at all. In fact, two large transactions that we concluded in the March quarter proved the point that for those transactions, we did not take any further provisions and the actual realization happened in line with what we had provided for.

So that only increases our confidence in pounding the table and saying that what we have provided for is indeed what we believe the provisions are required.

Nishid Shah — Ambika Fincap Consultants — Analyst

That’s useful, and thank you very much for taking my questions. Thank you sir.

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

Thank you.

Operator

Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.

Piran Engineer — CLSA — Analyst

Yeah, hi. Just a couple of questions to understand this stage two movement. So firstly we had two ARC sales, what’s the total quantum of it? One was INR5,500 crores, that’s in the media.

Ajay Piramal — Chairman, Piramal Group

So that you’re referring to face you Piran don’t get confused by that. That does not — that doesn’t help you understand actually the portfolio very well. What I’d encourage you to do is to actually look at our Page 27, which gives you a sense of the [indecipherable] portfolio that will give you a sense of how some of those transactions have actually gone down through the course of this year.

So if you look at Page 27, what you see is that, we have — there was a — we have taken whatever there was a big original value, let’s say 12 odd thousand crores. We took a 60 plus percent mark-down on that and we received through multiple transactions, many of which happened in this last quarter. The purchase consideration of INR4,600 crores, of which we received INR700 crores of cash and about INR4,000 crores of SRs. And since then out of that INR4,000 crores, we have received from a further INR660 crores as cash, so we have about INR3,300 crores less. This is for the full year. A majority of it or a large part of it actually happened in Q4. So I’m just using this as a base. This is a better way to actually understand it.

So here, as you see, we are doing a transaction at a significant haircut to the face value. So on average about 63% haircut to face value. If you just look at the face value number, which is what sometimes the press code and it’s a big number like INR5,000 crores, INR6,000 crores and all that seems really, really large, but actually the transaction size is not anywhere near that large. We are talking about the transaction which is. 60 plus percent haircut from there, and the haircut is already passed through our P&L, either through purchase price allocation or through P&L effects that we’ve taken in prior quarter. So that’s been kind of the nature of these transactions. So basically, what I’ve seen is that this INR4,622 crores is the value of the loans, the INR4,622 crores also was in [indecipherable] Stage 2 and Stage 3 or was it a higher value? That’s what I’m trying to understand here.

Piran Engineer — CLSA — Analyst

No, no, it will be a lower value. See basically these consist of actually I was using this more as a base line to give you a sense of how to think about the ARP transaction. So if you were to look at our Stage 2 and Stage 3, if your intent is to say, okay, let me just figure out which of the — what are the movements in Stage 2 and Stage 3 and kind of what went in what went out. So let’s start with Stage 2.

In Stage 2 firstly, there was no incremental Stage 2 creation that happened during the course of the quarter. Nothing moved from Stage 1 to Stage 2, right? [indecipherable] In fact entirely like there was zero movement from Stage 1 to Stage 2 slippage happened. So that’s kind of point number one. In terms of sale to ARC, there was about INR500 crore referring. So INR500 crores from Stage 2 and about INR500 crores from Stage 3, that were part of the ARC transaction plus — Sorry, can you repeat that INR500 crores on Stage 2 and INR500 crores from Stage 3?

Ajay Piramal — Chairman, Piramal Group

Yes, and there is some other POCI stuff as well, you’ll see POCI reduction that has happened. So that’s also part of the multiple ARC transaction. So there were two ARC transactions that happened during the course of the quarter.

Piran Engineer — CLSA — Analyst

Sir, that gets me back my first question sir, just tell me the value at which of these loans that you’re carrying on your book that were sold to ARCs, forget what the media says, what was like on your book.

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

No, so, if you actually look at the Page 26, the Stage 2+3 AUM reduction, there is a pie chart there, right? Another INR4,000 crore reduction, about 20% came from the sale of ARCs under 15-85 structure, right? That doesn’t take into account the sale of NPA portfolio for cash, which is the 10% additional. And since it was done at cash [indecipherable] but there was — that was nevertheless an ARC transaction. So 20% of the INR4,000 crore, which got transferred is equal to INR800 crore in terms of the book reduction but that happened in loss of INR200 crores. So the claim value in these assets we’ve got transferred at about INR1,000 crores.

Piran Engineer — CLSA — Analyst

Okay, sir, and I think I’ll take this offline. And just secondly, if I have to just take a credit cost for the quarter, [Technical Issues] you’ve had some loss on the recognition of [indecipherable] INR2,900 crores, but which has a gain of INR130 crores on your bonds with roughly INR3,000 crores, and provision reversal of INR2,500 crores. So it’s fair to say that the credit cost for this quarter is INR500 crores, right?

Ajay Piramal — Chairman, Piramal Group

No, no, there is — the credit cost for the quarter is INR300 crores only. The bond buyback and all are from previous quarter, Piran. There is only INR300 crores credit cost this quarter. That’s about 50-50 retail and wholesale, the retail part was almost entirely Stage 1, and the rest of the stuff is —

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

MTM loss —

Piran Engineer — CLSA — Analyst

If I just look at your number, there is a INR2,900 crore net loss on the recognition and correspondingly a provision reversal of INR2,500 crores, so that is INR400 crores, plus INR130 crore gain on the bond buyback.

Ajay Piramal — Chairman, Piramal Group

If I just draw your attention to Page 32 of the — I think you’re referring to the [indecipherable] Page 32 was the IR deck, we try to simplify we combined the total line items into ECL losses/fair value loss gain. If I just focus on the Q4 numbers, which is the first column, that number is INR298 crore before the INR300 crore referenced earlier.

So for the quarter there is no bond buyback gain et cetera. The total number is INR298 crores for the quarter which on a annualized basis, the percentage of credit cost is significantly lower than what we went through in the first nine months of the year.

Piran Engineer — CLSA — Analyst

Okay, okay. That answers. And just lastly in terms of the SRs that we are holding of the people [Technical Issues]

Ajay Piramal — Chairman, Piramal Group

Piran, your voice is breaking. We can’t hear you.

Piran Engineer — CLSA — Analyst

Sorry, is it better?

Ajay Piramal — Chairman, Piramal Group

Yes.

Piran Engineer — CLSA — Analyst

Yes, the SRs of INR3,600 crores that we have, are they corresponding provisions on that if say —

Ajay Piramal — Chairman, Piramal Group

Piran, SR are investment instruments, so there is — unlike a loan, there is no provision outstanding against them. The way you work on SRs is you keep taking fair value heads which already goes through the P&L. The point at Page 27, which is where we have got all the details of our SR portfolio, that is to make the point that these SRs have been haircut by 63% from where they were originally outstanding. And after the transactions, we have already received 11% more as cash from the transactions already, right? And the remaining 26 odd percent is what you see outstanding on our book right now. We have also disclosed here that these SRs are about 45% retail and 55% wholesale. The reason we make this point is to tell you that a lot of it is very granular, where there is predictability to how much of it will actually get recovered, and hence, pricing it has been relatively straightforward and easy.

Piran Engineer — CLSA — Analyst

Got it, got it, okay. That’s all from my end. Thanks a lot sir.

Ajay Piramal — Chairman, Piramal Group

Thanks, Piran.

Operator

Thank you. The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Hi, good evening. My question is on the wholesale book in terms of how we expect the resolution, I mean not resolution the roll down that happened in the current year and where do you expect it as a natural flow — part of the inflows, where do you expect it to close at the end of this year this is the wholesale 1.0.

And in terms of the SRs that you just spoke about, where did the retail SRs come from and it is interesting that why didn’t you just resolve it on your own and why did you need to sell it out to as SSRs. Those are my two questions. Thank you.

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

Okay. So I’ll address the first question. Just a few data points that we alluded to earlier. But in FY ’23 we reduced the wholesale 1.0 by a total amount of INR14,000 crore. And in the last quarter of FY ’23, we reduced the book by INR6,000 crores of INR6,000 crore out of INR14 crore came in the last quarter. So we’re quite happy with the momentum that the book reduction exercises has taken. Because we are running this as a project where a dedicated team of people working, just with the objective of working on these complex asset valuations.

Now going forward in the next 12 months, we wouldn’t give any specific guidance, but we would want to maintain the momentum that we have built and we do expect us to make quite material progress in the direction of reducing this book for us.

Ajay Piramal — Chairman, Piramal Group

Your point in SRs in retail, all the SRs came from the erstwhile DHFL portfolio. You might recall that when we purchased DHFL the retail part of the DHFL book had 26%, 27% NPA ratio, so we have been carrying that with us for a while and we had that as part of our POCI book, you will see a reduction in the POCI book shown in the presentation. That’s the part that has actually gone into a SR.

One could have actually kept it and continued to recover from it ourselves as well. However, as you do — as a company as you do resolution strategy where there are accounts that you want to resolved and you want to actually create pools of assets for which there will be potential buyers in the marketplace. You are always mix and match assets of various asset classes to make pools attractive and to find enough buyers and for there to be enough price tension when you go out to sell. So that’s what’s behind some of this — some of these transactions that you see.

Vivek Ramakrishnan — DSP Mutual Fund — Analyst

Okay, got it. Thank you very much and good luck.

Ajay Piramal — Chairman, Piramal Group

Thank you.

Operator

Thank you. The next question is from the line of Chintan Shah, an Individual Investor. Please go ahead. Chintan Shah, your line is in the talk mode.

Chintan Shah — ICICI Securities — Analyst

Yes. Thank you for the opportunity. Chintan Shah from ICICI Securities. so two, three questions from my end. Sir firstly on the wholesale portfolio only our sales, so basically if you could just help me with some color on the portfolio which is under when — Stage 3 so would that — how much of that would be towards RE and towards non-RE, any ballpark percentage.

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

It would be predominantly towards RE, a small part of that would be towards non-RE.

Ajay Piramal — Chairman, Piramal Group

The single largest non-RE transaction just went off our books, Chintan. So pretty much what’s remaining now is largely RE.

Chintan Shah — ICICI Securities — Analyst

Okay, sir. And so sir, under RE — any ballpark on —

Operator

I am sorry to interrupt you sir, but the audio is not clear from your line. Please check.

Chintan Shah — ICICI Securities — Analyst

Yes, so sir on RE, which is under Stage 2 and Stage 3, so any ballpark on how much would be towards under construction projects?

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

Most of it is under-construction projects. [Speech Overlap] I mean, we don’t have specific data that we share.

Chintan Shah — ICICI Securities — Analyst

Yes, that is fine. Okay sure, sir, understood. And so sir secondly, so now as we are building this wholeslale 1.0 wherein companies looking to build on granular ticket size portfolio. So is there any cap on a maximum ticket size beyond which you won’t be looking to enter that — for that lending towards that account?

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

No, so as a matter of our credit policy, we have [indecipherable] if you look at page number 29 and 30 that would give you a good sense of how we are looking at granularity here, right? And from here I think we are hopefully expected to get more and more granular.

As far as the real-estate part of 2.2 is concerned, as we can see here that the outstanding is about INR1,296 crore as at March across two deal — across 10 deals, which is roughly INR189 crore per deal in terms of outstanding, but in terms of sanction it’s roughly INR200 crores. We also have a strategy that we are actually putting in place for small developer financing fees, which would have an average ticket size of iNR25 crore to INR30 crores.

So there are two distinct parts of our real estate wholesale build out strategy where on the first part, the average would be in the range of INR200 cores, and the second one will we have the average of INR25 crores, INR30 crores so that will give you a weighted average in the range of let’s say INR150 crore or so as we actually progress.

On the corporate mid market side as you could see, we have built a granular portfolio across multiple sectors and across multiple positions, where the average ticket size is INR55 cores, this was page number 30 of the deck.

Chintan Shah — ICICI Securities — Analyst

Sure, under sir — under wholesale 1.0 also we had — we have average ticket size of roughly INR200 crores, right?

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

No, that was for Stage 1 part of it when the average was smaller, but otherwise the average was much larger.

Ajay Piramal — Chairman, Piramal Group

So the good part of wholesale 1.0 was average of INR200 crores, for the past where we had a challenge had a much higher ticket size.

Chintan Shah — ICICI Securities — Analyst

Sure, sure, understood. And sir, just one thing on the margins front, the last question. sir the cost of borrowings actually for this year so it has improved for us and relatively also we have been benefited on the yield side, but from going ahead given the next year so do we see any challenges on the cost front, given the repo hike? And also do we expect the yield is still fasting, given that we are largely we’re getting now into the retail piece, so any thoughts on that would be helpful. Yeah.

Ajay Piramal — Chairman, Piramal Group

I think we have — I think the margins will stay around here or in the near future as well. See there are, in the very short term, let’s say in Q1 right now, you’d see some of the accumulated effect of pass-through of repo rate increases, that might happen so you might see a little bit of cost of funds increase in Q1, but overall as we get through the latter part of the year, our view is that — is that rates will stabilize after Q1 and maybe start declining towards the very end of the financial year.

So you should see some impact of that coming through from our side as well. As part of the yields are concerned, yields have had upward trajectory for a while, there’s a little bit [indecipherable] left in there, you might see a little bit more upward trajectory in yields as well, so while there might be a little bit of upward trajectory in cost of funds there is also a little bit of upward trajectory in yields. So on the whole we’re not super worried on that front.

If you see Slide 12 in our presentation, you will see our operating margins which is NII plus the margin and that has been relatively stable around the 6.3% kind of mark and that should give you a good idea of where we are going to be in the very short term.

Chintan Shah — ICICI Securities — Analyst

Sure. Sir, just one last thing if I may squeeze in on the credit cost part, so. I think your credit cost was around 1.9 percentage in Q4 so probably can we expect this kind of run rate also sustain for FY ’24 as well [indecipherable] range?

Ajay Piramal — Chairman, Piramal Group

See we’re not offering any specific guidance for FY ’24, but as Yesh mentioned before, we believe that the provisioning cycle as far as phase one wholesale is concerned is completed. Now most of the provisions if at all that you see are all going to be about new business that we originate under Stage 1 provisions that come with that according to Ind AS. So that depends a little bit more on the growth of the businesses rather than on asset quality.

So growth is what’s going to drive provision numbers. We feel like we’re getting there in terms of what normalized credit cost, maybe it’s not be quite there just yet, but we are kind of getting there.

Chintan Shah — ICICI Securities — Analyst

Sure, sir, this is very helpful. That’s it from my side. Thank you.

Ajay Piramal — Chairman, Piramal Group

Thank you, Chintan.

Operator

Thank you. The next question is from the line of Praveen Rathi [Phonetic] from Praveen Rathi and Associates. Please go ahead.

Praveen Rathi — Praveen Rathi and Associates — Analyst

Good evening sir. My question [indecipherable] First one is for — regarding the professional and legal fees paid during the quarter and for the year. And the second one is our position pertaining to the deferred tax assets of DHFL. And the third one is anything on Shriram Finance share sales.

Ajay Piramal — Chairman, Piramal Group

Okay. See the first two questions I don’t have them readily available. I’ll have somebody can reach out to you and give this to you offline. If you could — we will — our IR team will just send you. I don’t have the specific focus on [indecipherable] numbers with me offline. As part of the Shriram sale stuff is concerned.

Yesh Nadkarni — Chief Executive Officer, Wholesale Lending

Yeah, maybe I can add at the very back end of last quarter large part of the value of Shriram is now in linkage shares and that’s one of the key reasons why the P&L has swung this quarter. We own 8.34% stake in Shriram Finance if lifted we have no lock up. We don’t sit on the Board. And as we’ve discussed before now that is listed at the right time we will be looking to monetize this stake.

Praveen Rathi — Praveen Rathi and Associates — Analyst

Sir the affected asset which was on the books and which we are currently showing in our books in notes of account also. is the net deferred tax asset or the gross tax asset?

Ajay Piramal — Chairman, Piramal Group

No, no it is net, but it’s not on our books right now, we’re showing —

Praveen Rathi — Praveen Rathi and Associates — Analyst

What we’re showing on our notes account basically.

Ajay Piramal — Chairman, Piramal Group

Correct. so we’re showing it in our notes right now, we’ve not brought it onto our books yet. So we will, at the right time when we’re speaking with our auditors, et cetera we will decided on what is the right time to actually bring it onto our books. So far we have not done that. So we have spoken in the past to you all about pockets of value that exists on our balance sheet. Some of the pockets of value you’ve seen then actually get realized over the course of the last year. This is one of those pockets of value which is not yet realized and it still remains with us.

Praveen Rathi — Praveen Rathi and Associates — Analyst

Okay. Thank you, sir.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Jairam Shridharan for his closing comments. Thank you and over to you sir.

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

Thank you very much everyone for your participation in this earnings call. [Technical Issues] available to you to offer any further details or clarifications on our results. Thank you for being part of the call and have a very good evening. Thank you.

Operator

[Operator Closing Remarks]