MOSL: PIRAMAL ENTERPRISES (Buy)-Strong growth led by new products-Factoring recent capital raise in estimates

Piramal Enterprises: Strong growth led by new products; Factoring recent capital raise in estimates

(PIEL IN, Mkt Cap USD7.6b, CMP INR2822, TP INR3500, 24% Upside, Buy)

• FY18 is likely to be another strong year for Piramal Enterprises (PIEL). In 1HFY18, the loan book grew ~70% YoY driven by all segments, especially non-real estate corporate financing. The healthcare business too witnessed improving traction. Consolidated PAT was up 28% YoY in 1HFY18. We expect 2HFY18 to be as strong, with 28% PAT YoY growth to INR9.5b.
• On account of a strong growth outlook for FY19 and FY20 (35% CAGR in our view), PIEL recently raised INR50b via Compulsorily Convertible Debentures (CCDs) and also plans to raise additional INR20b via rights issue, of which the promoters have agreed to underwrite 90%. We believe much of this capital will be used to support growth in the financing business.
• Having proved its mettle in real estate wholesale financing, PIEL is now targeting other segments such as infrastructure, auto components and renewables to grow its wholesale financing piece. This book (corporate finance) has doubled in 1HFY18 to INR62b. Also, it has forayed directly into retail housing finance in September 2017. Its forays into new products have helped diversify as well as de-risk the loan book.
• Pharma business has shown strong improvement post demonetization and GST implementation. Strong growth in existing business and inorganic methods should drive healthy revenue CAGR of 12% over FY17-20E.