NBFC Stock Available At Near 52-Week Low Price, NII grew 36% YoY, Buy Stock For 30% Return

Top brokerage firm Motilal Oswal has given a buy rating to the stock of Piramal Enterprises. The company's retail disbursements grew 62% QoQ to Rs. 39.7b. Excluding embedded finance, disbursement yields improved to 12.3% in 2QFY23, led by a better product mix. Digital Embedded Finance disbursements of Rs. 8.4b in 2QFY23 contributed 21% to overall Retail disbursements.

Stock To Buy: Target Price

The Current Market Price (CMP) of Piramal Enterprises is around Rs. 889. Motilal Oswal has estimated a Target Price for the stock at Rs. 1160. This stock has the potential to give a 30% return, in the upcoming 12 months. It is a mid-cap stock with a market capitalization of Rs. 19,403 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 889
Target Price	Rs. 1160
Potential Upside	30.00%
52-week high share price	Rs. 2,863.45
52-week low share price	Rs. 786.15

Stock Valuation

According to Motilal Oswal, "We expect the business to deliver a consolidated RoA/RoE of ~2.3%/7-8% in the near term. We have cut our target multiple to 0.8x P/BV for the Lending business. We arrive at our SoTP-based target price of Rs. 1,160 (FY24E based) and maintain our Buy rating. We expect PIEL to continue to exhibit recoveries from the POCI book. It has cumulatively recovered Rs. 15.2b from the POCI book."

Q2 Earnings

PIEL reported a consolidated loss of Rs. 15.4b in 2QFY23. NII grew 36% YoY, but fell 15% QoQ, to Rs. 8.4b. This included interest income reversals of Rs. 2.3b due to the movement of Wholesale exposures to Stage 2 from Stage 1. PPOP declined by 16% YoY to Rs. 4b. Total AUM declined by 5% YoY to Rs. 638b, while Retail loans grew 12% to Rs. 249b. The share of the Retail loan book rose to 43%. PIEL recently launched its Microfinance business under the BC model and has started offering Salaried Personal loans from its branches.

Balance Sheet

Over the past two years, the company has strengthened its Balance Sheet by running down its Wholesale loan book, improved the texture of its borrowings, targeted lower cost borrowings; and fortified itself against contingencies, with ECL provisions at 8.6% of AUM. The brokerage firm added, "We strongly believe that the company will be able to utilize the DTL of Rs. 33b in 2HFY23, which will accrue as an extra-ordinary gain and will be accretive to profitability in FY23. We have modelled this in our FY23 PAT estimate of Rs. 19.8b."

About the stock

Piramal Enterprises Ltd. (PEL) is a leading diversified Non-Banking Financial Company (NBFC) registered with Reserve Bank of India (RBI), with presence across retail lending, wholesale lending, and fund-based platforms. The company has investments and assets worth ~$10 billion, with a network of over 300 branches across 25 states/UTs. The Company also has a 50% stake in Pramerica Life Insurance - a joint venture with Prudential International Insurance Holdings.

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.