Stock Of The Day: Piramal Enterprises Set To Erase 2024 Gains As Margin Pressures Mount

Piramal Enterprises Ltd.'s shares are poised to reverse all gains they have made this year, as Jefferies sees a sharp decline in the scrip on margin pressure and higher credit costs.

The global brokerage expects the stock to fall by 34% from the previous close of Rs 1,224.4 apiece. The counter has seen a maximum surge of 35% this year and currently trades with gains of nearly 25%.

The stock slipped as much as 3.5% to Rs 1,182 per share on Wednesday. It is on a declining trend since touching a near two-year high of Rs 1,275 on Nov. 12. The stock will test the immediate support of Rs 1,170, which is also 2-standard deviation below the 14-day moving average.

Piramal Enterprises' stock fell past the 21-day exponential moving average during the session on Wednesday. In a lower timeframe, the momentum of the stock has switched to the downside as seen in Heikin Ashi.

The stock was trading 3.26% lower at Rs 1,185 apiece, compared to a 0.4% decline in the benchmark Nifty 50 as of 11:32 a.m. The total traded volume so far in the day stood at 1.3 times its 30-day average. The relative strength index was at 50.

One of the seven analysts tracking the company has a 'buy' rating on the stock, two suggest a 'hold' and four have a 'sell', according to Bloomberg data. The average of 12-month analysts' price target implies a potential downside of 18%.

Jefferies maintained its 'underperform' rating on the Piramal flagship as it expects some net interest margin pressures and higher credit costs in the near term.

Retail asset under management growth will moderate, but stay near 25-30% for the current financial year, the brokerage said in a note on Dec. 17. "Return on Asset can improve slowly due to unwinding of legacy book, lower operational expenses and higher fee income."

Loan demand is strong in loans against property, and used cars, but housing disbursement growth has moderated, it said. In the unsecured segment, Piramal Enterprises has progressively tightened lending approval rates. "This lifts operating expense intensity of unsecured loans."

Secured segment asset quality is holding up, but stress in unsecured is still elevated, it said. "Growth business credit cost to edge higher," it said.

Operating expense reduction in growth business should be gradual and legacy book operational expenditure can stay a drag and can take some time to be absorbed, Jefferies said.