Piramal Enterprises expects RoA improvement to be driven by benefits in the opex ratios, and improvement in the fee income. Additionally, further improvement in margins is likely to come from increasing the share of unsecured loans at the appropriate time and realizing benefits from a decline in the cost of borrowings.
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Motilal Oswal Report
Piramal Enterprises Ltd. reported a healthy operational performance during the quarter, led by strong growth in its retail loans and continued scale down of the legacy wholesale book, which now accounts for just ~7% of total AUM.
Asset quality remained broadly stable across key product segments (except MSME and used cars). Credit costs in the growth portfolio declined sequentially, while improving branch and employee productivity resulted in better opex ratios.
With rising retail traction and a better funding mix, net interest margin expanded further, reinforcing the shift toward a more stable and profitable lending model.
Our earnings estimate for FY26 and FY27 factor in gains from the AIF exposures, deferred consideration of $120 million from the sale of Piramal Imaging, and zero tax outgo in the foreseeable future.
Due to the uncertainty and unpredictability surrounding the monetization timing of the stake in Shriram Life and General Insurance, we have not factored it into our estimates yet.
However, the eventual monetization is expected to provide one-off gains, which could help offset credit costs associated with the disposal of the residual stressed legacy AUM (of ~Rs 63 billion).
While we anticipate greater earnings stability and an improved outlook going forward, its return metrics remain modest, with RoA and RoE estimated at 1.9% and 8%, respectively, for FY27.
We value the lending business at 0.8x Mar’27E P/BV and reiterate our Neutral rating on the stock with a revised target price of Rs 1,315 (premised on Mar’27E SOTP).
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Also Read: 'Buy' L&T Shares Maintains Motilal Oswal On Above Estimate Q1 Results, Hikes Target Price
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