Piramal Enterprises Ltd – Stock Analysis

Detailed Share Analysis

Introduction

Piramal Enterprises Limited is the flagship company of the Piramal Group. In this article, we are going to do a detailed stock analysis of Piramal Enterprises Ltd.

Piramal Enterprises Ltd – Stock Analysis

Company Profile

• Piramal Enterprises Limited (PEL) is one of India’s large diversified companies with presence in Pharma, Financial Services and Healthcare Information Management.
• The company generates around 46% of its revenues from international markets.
• PEL has steered dynamic business growth over the three decades of its existence driven by both organic as well as inorganic strategy.

PIRAMAL ENTERPRISE LTD. Business Overview

As we have mentioned above, piramal enterprieses has 3 major business verticals : Financial services, Pharmaceuticals and Healthcare Analystics

1. Financial Services :
   • Piramal Enterprises Ltd. made its foray into the financial services sector with Piramal Capital & Housing Finance Limited (PCHFL), a housing finance company that is engaged in various financial services businesses.
   • It provides end-to-end financing solutions in both wholesale and retail funding opportunities across sectors such as real estate and infrastructure, renewable energy, hospitality, logistics, industrials, auto components etc.
2. Pharmaceuticals :
   • PEL’s Pharma vertical, has end-to-end manufacturing capabilities across 13 global facilities and a large global distribution network in over 100 countries.
   • It sells a portfolio of niche differentiated pharma products and provides an entire pool of pharma services (including the areas of injectables, Highly Potent Active Pharmaceutical Ingredients (HPAPI) etc.)
3. Healthcare Analystics :
   • PEL’s Healthcare Insights & Analytics business division is the premier provider of healthcare analytics, data & insight products and services to the world’s leading pharma, biotech and medical technology companies.
   • Thus, Piramal’s healthcare analytics products and services enables these companies to take informed business decisions.

Revenue for FY2019

• Total revenue of Piramal Enterprises for FY2019 is Rs.13,215 Crores.
• Revenue contribution for FY 2019 is as follows :
  1. Financial Services = 54%
  2. Pharma = 36%
  3. Healthcare Analytics = 10%

Capital Employed FY2019

1. Financial Services = 60%
2. Pharma = 23%
3. Healthcare Analytics = 17%

Comparing Capital Employed with Revenue Contribution FY2019

• From the above figures, we can see that even with the 23% of the total capital employed in Pharma vertical, the percentage of revenue generated is 36%. Since, Pharma is a very stable kind of busniess.
• While in case of Healthcaree Analytics, even after capital employed is 17%, the revenue contribution is only 10%. It is because PEL has recently invested in this newly emerging vertical after realising the power of data and information in critical healthcare. Thus, there is a high growth opportunity in coming future for Healthcare Analytics business of Piramal.

Let us analyse Piramal Enterprises’ Financial Services Vertical in detail.

Analysis of Financial Services Vertical

In Financial Services of Piramal Enterprises, major lending is wholesale type of lending ie. corporate funding is greater than the retail lending.

1. Loan Book :
   • The total loan book of Financial Services is around Rs.56,600 Cr. Out of which :
   • Wholesale lending = Rs.51,500 Cr. (Around 90%)
   • Retail Lending (Housing Finance) = Rs.5,188 Cr. (Around 10%)
   • Loan book has seen a growth of 34% YoY.
   • Gross NPA = 0.9%
   • Provisioning = 1.93% of Loan book
2. Alternate Asset Management :
   • Piramal Enterprises has invested Rs.10,000 Cr. in alternate AUM. This type of investment is closely related to real estate sector.

Wholesale Loan Book Portfolio Mix

1. Out of total wholesale loans of Rs.51,500 Cr, 72% wholesale loans are contributing to construction finance loans including Commercial, Residential Real Estate Developers.
   • Out of this, 72% construction finance loans, 32% loans contribute to Top 10 Builders in Mumbai, Delhi-NCR etc. This is a very concentrated kind of portfolio mix employed by PEL in their loan book.
   • Since the kind of development was going on easpecially after demonetization, most of the Builders were facing many problems in their business. Thus, definitely it will adversely affect those 32% loans offered to those top builders in the above mentioned diamond cities. Becuase the cash-flow schedules of these builders must be not so good.
   • Thus, such a high concentrated portfolio mix in wholesale lending might have an unfavourable impacts on them.
2. Out of 72%, remaining 40% construction finance loans are offered to the other builders.
3. Corporate Finance Group Loans contribute to 17% to the total loan book.

Due to the above mentioned concentrated risk taken by Piramal enterprises in their wholesale lending business, the stock has gone through a series of corrections, close to 30% to 40% correction was seen during the period after IL&FS Crisis.

Key Financial Indicators

• Market Capitalization = Rs.34,637 Cr.
• PE Ratio = 19.86
• ROE = 27.69%
• D/E Ratio = 1.56
• Promoter Holding = 46%, which is a positive sign for the company.
• There is not pledging of shares.

Investments in Shriram Group

• Piramal invested in the Shriram group to gain entry into the retail financial business, having initially focused on corporate debt and equity financing for realty and infrastructure projects.
• PEL owns 20% in Shriram Capital and 10% in Shriram City Union Finance Ltd.
• Piramal has sold its 10% stake held in Shriram Transport Finance Co Ltd. for Rs.2,300 Cr based on the closing price of the stock on Monday, June 17, 2019.
  • The Rs 1,652-crore investment in Shriram generated a compounded return of just 6.5% in six years for Piramal Enterprises compared to 12% by Sensex or Nifty in the same period. 
  • This exit from Shriram Transport Finance is cited as a broader strategy to leverage opportunities for growth in its financial services business.

Notes :

• The numbers that are used are approximate and have been rounded for presentation purposes.
• We are not in any way saying that this is a bad company or that the stock of this company is bad.
• We are also not suggesting anyone to immediately go and buy this stock or invest in the stock markets.
• Only an analysis has been presented here. No judgments or final statements are being made here.