Motilal Oswal Suggests: Buy This Largecap Conglomerate Stock Post Demerger, Retail Loans Up 55%

Stock To Buy: Target Price

The Current Market Price (CMP) of Piramal Enterprises (PIEL) is Rs. 988. Motilal Oswal has estimated a Target Price for the stock at Rs. 1,320. It is a large-cap stock with a market capitalization of around Rs. 23,020 crore, with a dividend yield of 3.42%. This stock has the potential to give 34% return, in the upcoming 1 year.

Ex-merger trade

PIEL had fixed September 1, 2022 as the record date for the demerger of Piramal Pharma (PPL). Price discovery for the Financial Services business has already occurred, and PIEL now trades as a diversified NBFC registered with the RBI. Integration of DHFL has progressed well. The Retail lending business continues to gain traction, with an improvement in the disbursement run-rate. Multiple partnerships with FinTechs and Consumer-Techs have aided the momentum in the Embedded finance product segment.

Stock Advantages: Motilal Oswal

The brokerage firm stated, "We expect its Wholesale loan book to continue to moderate as the company looks to aggressively create provisions on stressed exposures, and then monetize them. Within Retail, we expect a disbursement/AUM CAGR of around 90%/30% over FY22-25E. We estimate a PAT CAGR of 37% over FY22-25, resulting in a FY25 RoA/RoE of 2.2%/10%. Using the SoTP method (FY24E based), we value the Lending business at 1x BVPS, Shriram group investments at our TP for its subsidiaries, and Life Insurance and alternatives at 0.5x trailing EV and BV, respectively. PIEL has an excess net worth of Rs. 48b, which we have valued at 1x."

Asset quality

Asset quality (with slippages in the Wholesale book) has deteriorated over the last two quarters, with PIEL making provisions in corresponding accounts. The company currently carries ECL provisions of 6.2% of its total AUM and ~8.5%

(MOFSLe) on its Wholesale AUM, with a PCR of 38%/~54% on S2/S3 loans. PIEL will utilize any recoveries from the POCI book, or any one-off gain from the contingent liabilities (~Rs. 33b), to make requisite provisions on the stressed portion of its Wholesale loan book in FY23, the firm said.

Balance Sheet

Over the past two years, PIEL has strengthened its Balance Sheet by running down its Wholesale loan book; ensured its Wholesale book is granular, with no exposure over 5% and only 10 exposures over 2% of Wholesale AUM; improved texture of its borrowings, driving lower cost of borrowings; and fortified itself against contingencies, with ECL provisions at 6.2% of AUM.

Company Portfolio: Piramal Enterprises

Piramal Group is a global business conglomerate with diverse interests in Pharma, Financial Services and Real Estate. The Group has offices in over 30 countries and a global brand presence in more than 100 markets. The company has offices in over 30 countries. They have a team of over 10,000 people from 21 diverse nationalities.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.