Piramal Enterprises Ltd Q3 FY22 Earnings Conference Call Insights

Key highlights from Piramal Enterprises Ltd (PEL) Q3 FY22 Earnings Concall

Management Update:

• In financial service, PEL said it plans to increase the share of retail loans to two-thirds in the medium- to long-term.

Q&A Highlights:

• Abhijit Tibrewal from Motilal Oswal asked about the disbursement split between the Engine 1 business versus Engine 2 businesses. Ajay Piramal Chairman answered that 23% by value of disbursements in the quarter was in Engine 2, and about 77% was in Engine 1.

• Abhijit Tibrewal from Motilal Oswal also asked about the wholesale book that moved from Stage 2 to Stage 3 and the reason for it. Khushru Jijina, ED said that the one that moved from Stage 2 to Stage 3, the amount was INR147 crores. It was a packaging company and the reason for it being moved to Stage 3 was because it was a part of the resolution of the packing company and needed to restructure it to safeguard the loan. Also, the entire money would be recovered.

• Abhijit Tibrewal from Motilal Oswal enqiured about provisions on the wholesale book. Ajay Piramal Chairman said that of the total provisioning pool of about INR2,600 crores, roughly 10% of it has been retail and about 90% of it has been wholesale. The entire pay value adjustment done as part of the DHFL transaction is not shown as part of provisioning, which sits over and above the INR2,600 crores of provisioning.

• Tushar Manudhane from Motilal Oswal Financial Services asked about the COVID impact on the CDMO business. Khushru Jijina, ED replied that COVID has not impacted demand and in fact the demand for these services continues to remain high. Excluding the generic APIs in all other spheres, PEL has seen good and consistent increase in demand. The challenge has been on the execution side.

• Tushar Manudhane from Motilal Oswal also asked about the hospital generics business and the impact of COVID on the business.  Khushru Jijina, ED said that the business saw improvement in the US market, but in the ex-US market the condition has been volatile. Additionally, depending on the country and the pandemic wave that has been there, the demand has been very volatile.

• Tushar Manudhane of Motilal Oswal also asked about the biologics CDMA side, how the company is building the capability, either in form of capex or any further acquisitions. Khushru Jijina, ED answered that the strategic investment PEL has done in Yapan with a minority stake is the first foray into biologics. So far the company has not done anything concrete in terms of doing any acquisition or investment. The reason for testing it out is, with minimal capital outflow, PEL will have access to technical talent.

• Kunal Shah from ICICI Securities asked about the scale up, and the intensity at the branch level, if the company is still building in some attrition, adding 2000 people. Ajay Piramal Chairman said that when PEL took over DHFL, the core employee base of DHFL had already fallen 55% from its peak. A lot of the merger is catching up on the lost people in the pre-merger era to make sure the branches are functional but it has a basic level of functional staff.  PEL expects to add 100 branches in the next 12 months, and some headcount additions will be seen in 4Q itself.

• Prakash Agarwal of Axis Capital enquired about EBITDA margin seasonality. Vivek Valsaraj, CFO said that it’s the mix of the projects that got booked in 1H versus what is getting booked. In 1H, PEL had an adverse product mix where the projects with lower margins got invoiced and the ones with higher margins were going to get invoiced in H2. This resulted in overall improvement in gross margin and EBITDA margin. Similar trend will play out in 4Q22 as well.

• Aditya Jain from Citigroup asked about the monthly disbursement targets for the new products and housing or collectively. Ajay Piramal Chairman said the pre-DHFL retail disbursements were about INR500 crore per quarter. And in the first 12-15 months after acquisition, PEL expects that disbursement number to grow 5-7 times and that continues to stand.

• Abhishek Sharma of Jefferies asked that on pharma side there was some deferral of few orders to 4Q on the CDMO side and reasons for it.  Khushru Jijina, ED answered that the deferral of orders happened due to challenges on execution at PEL’s overseas facility. The execution constraints were due to non-availability of people, material, or customers asking for change of schedule.

• Abhishek Sharma of Jefferies also asked that specifically on CDMO, given the fact that PEL is halfway through this quarter, if the company will be able to meet the CDMO target. Vivek Valsaraj, CFO replied that one has to look at the pharma revenue as a whole and not get into specific guidance on individual businesses. PEL intends to deliver nearly 20% revenue growth for pharma as a whole.

• Bhaskar Basu from Jefferies asked about the difference between AUMs and loan book and what part of it is AIF and what part investments. Khushru Jijina ED said the major amount is AIFs, except for a large investment, which PEL took over at the Andheri East land from Omkar few quarters ago, which is INR1,300-odd crores. Balance everything can be assumed in AIF.

• Vinod Jain from WF Advisors queried about other comprehensive income, and what does the changes in fair value of equity instruments is in OCl companies. Khushru Jijina ED said it’s primarily Shriram City Union, that’s equity accounted currently. And there has been a 29% increase in the share price of Shriram City Union, comparing April to December; that’s the primary deriver for that.

• Vinod Jain from WF Advisors also asked about what comprises the share of net profit of associates and joint ventures in the quarterly results of INR183 crores and what’s the outlook on that.  Khushru Jijina ED said it basically comprises of PEL’s share of profit in Shriram as well as the JV with Allergan. On outlook, PEL said Allergan has been growing and PEL is optimistic on that.