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MOSL: PIRAMAL ENTERPRISES (Buy)-Annual Report Update- Financial Services’ domination increases; Moderating growth

PIRAMAL ENTERPRISES (Annual Report Update): Financial Services’ domination increases; Moderating growth
(PIEL IN, Mkt Cap USD5.5b, CMP INR1965, TP INR2400, 22% Upside, Buy)

** The liquidity crisis, lag impact of demonetization, RERA implementation and stress in the Real Estate financing space has weighed down the growth of PIEL's Financial Services (FS) business. FY19 saw PIEL's customer assets grow by 34% YoY to INR566b v/s 50%+ in the past few years. Nevertheless, dominance of FS in overall revenue and operating profitability continue to rise with share of 53%/67% v/s 47%/67% in FY18.

** Pressure on margins (partially led by move towards low yielding Retail Housing loans) and cost of Retail rollout weighed on profitability. ROAs declined ~50bp to 3.1%.

** Stress loans increased with stage 2/3 loan share at 1.9% v/s 0.9% a year ago. Outstanding provisions on the balance sheet stand at 1.8% of loans (stable YoY). Real estate share of the loan book is down to 71.6% YoY v/s 75.9% a year ago, helped by sharp rise in the share of Retail Housing loans (9.5% v/s 2.9% a year ago).