Piramal Enterprises stock soars ahead of ₹750 cr fundraising proposal meet. Should you buy?

Conglomerate Piramal Enterprises witnessed a bull run on Thursday ahead of its board of directors meeting to consider a fundraising proposal to the tune of 750 crore on private placements. Piramal shares climbed more than 2.5% during the day. Analysts at Emkay Global have given a ‘buy’ rating on Piramal shares as they expect the company’s loan book to almost double to 1.21 lakh crore by FY27E at a CAGR of 15%. Post the de-merger of its pharmaceutical business, the NBFC has a presence across both retail and wholesale financing and assets under management (AUM) of 645.9 billion.

On BSE, Piramal shares rose by 20.80 or 2.18% to end at 976.30 apiece. The shares hit an intraday high of 979.55 apiece.

Its market cap is around 23,300.74 crore.

Piramal board of directors will meet on September 23 to consider and approve the issue of Secured, Rated, Listed, Redeemable, Principal Protected, Market Linked Non-Convertible Debentures up to 50 crore with an option to retain oversubscription up to 700 crore. Thereby, the total size aggregates up to 750 crore on a private placement basis.

Earlier this week, Piramal received approval to allot 2,150 secured market-linked NCDs having a face value of 10 lakh each — totaling 215 crore on private placement. The debentures are proposed to be listed on the Debt Segment and Capital Market Segment of NSE and BSE respectively.

Should you buy Piramal shares?

In a coverage report dated September 22, Manjith Nair, Rhave Shah, and Nemin Doshi Research Analysts at Emkay Global said, «analysis of the acquisition shows it to be NPV positive for PIEL. It has catapulted PIEL into a leading HFC with retail assets of Rs222.7 billion – a feat accomplished in the past by other similar-size HFCs over a period of more than 7 years. With the retail leadership team under Jairam Sridharan (ex-CFO, Axis Bank), PIEL has hired ~2,000 additional employees, till Q1FY23, to augment the 3,000-strong employee base of DHFL. With 100% of the erstwhile DHFL branches online, we forecast the retail portfolio of PIEL to quadruple, from ~Rs215 billion in FY22 to ~Rs810 billion by FY27E – a feat last seen on the DHFL network in FY18. While secured products like home loans and LAP are expected to be the mainstay of the retail portfolio, unsecured loans at 20% of the portfolio should help deliver 2.5% RoA by FY26E-27E.»

Also, they added, «building on its acquisition of Dewan Housing Finance (DHFL) and capitalized by the infusion of capital of ~Rs185bn, from stake sales and the rights issue, we forecast PIEL’s loan book to almost double to Rs1.21Tn by FY27E, at a CAGR of 15%. Backed by an experienced leadership team, we forecast the retail portfolio to clock CAGR of 30% over FY22-27E, while the wholesale portfolio is expected to remain flattish. Consequently, the retail assets are expected to constitute ~67% of the portfolio in FY27E, up from the current level of 37%.»

Further, the analysts have forecasted the company’s provisions on the legacy wholesale book to increase, from ~8.3% in FY22 to ~18.3% by FY25E. Credit costs, net of POCI recoveries, are estimated to be 116 basis points over FY23-25E (FY22: 133bps).

On valuation, the analysts note said, «We initiate coverage with a BUY rating and Sep-23 TP of Rs1,360, based on SOTP methodology, valuing: i) the financial services business using the Excess Return on Equity (ERE) method for a per-share value of Rs845, implying 1.03x of Sep24E BVPS; ii) Investments in Shriram Finance based on our TP for Shriram Transport and Shriram City Union Finance, post holdco discount, at Rs179 per share; iii) Investments in the AIF and Insurance at allocated equity book value of Rs58 and Rs40 per share, respectively; and iv) the unallocated networth at Rs237 per share. Key risk: Integration issues from the merger due to mismatch of corporate culture and technology.»

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