MOSL: PIRAMAL ENTERPRISES (Buy)-Robust growth on FS business-Profitability lower than expectation

Piramal Enterprises: Robust growth on FS business; Profitability lower than expectation

(PIEL IN, Mkt Cap USD6.8b, CMP INR2468, TP INR3300, 34% Upside, Buy)

• Piramal Enterprises’ (PIEL) 4QFY18 consol. PBT grew 16% YoY to INR4.7b. However, a DTA benefit (on account of reverse merger of subsidiaries) of INR35b led to PAT of INR39b in the quarter.
• During the quarter, PIEL merged all its lending subsidiaries into one, namely, Piramal Capital & Housing Finance Ltd. This would help the company diversify its borrowing profile, and thus, lower its cost of funds.
• Financial Services: The loan book continues growing at a rapid pace (+69% YoY to INR422b). With incremental disbursements in relatively safer segments, yield on loans declined 50bp QoQ to 14.8%. Likewise, cost of funds declined 20bp QoQ to 8.4%. RoA, on a QoQ basis, declined 100bp to 3.1% – we await clarification from management.
• Pharma Services: Revenue grew 10% YoY to INR13.6b. The global pharma business is on a solid trajectory, with revenues up 13% YoY to INR12.4b. Margins in this segment improved 200bp to 22% in FY18 on the back of high-margin acquisitions and operational improvements.
• In FY18, the company achieved certain milestones – it completed capital raise of INR70b via CCDs and a rights issue. PIEL also grew its loan book by 69% YoY and PBT by 50% YoY for the full year.