Piramal Enterprises PAT muted after MFI slippages, higher credit costs

Of these provisions, ₹300 crore was for the legacy wholesale book that the company has been de-growing for the last several quarters. The remaining was for the ‘growth book’ which includes both wholesale and retail segments that the company is growing. Within the growth book, ₹270-280 crore of provisions were for retail loans.

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In the earnings call, Piramal Capital and Housing managing director Jairam Sridharan said that the microfinance segment is going through a “very tough and challenging” time leading to a rise in delinquencies and credit cost for the segment. The company expects the stress to continue in the fourth quarter and even increase slightly before improving going into FY26.

“We probably have one more quarter of pain left in this portfolio. However, secularly if you look at the long term, we continue to like the business and believe that there is a need for this product,” Sridharan said, adding that the company will continue to lend in this segment and grow this book in the future.

“It’s good to actually go through a cycle like this when it’s still a very small part of our portfolio as it will help us strengthen all our defences and get our models right,” he said, adding that the NBFC’s interest in the business is “not diminished”.

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The microfinance portfolio stood at around ₹1,350 crore as of December 2024, against which the company has made provisions of about ₹80 crore in the nine-month period ended 2024 of which ₹50 crore was made in Q3 FY25.

Credit cost on the growth book grew to 1.9% from 1.6% in the previous quarter, largely due to stress in the microfinance portfolio and some in the business loan space, Sridharan said, adding that the credit cost for the retail book is about 2% for the reporting quarter.

Consolidated gross NPA (non-performing assets) ratio of the company stood at 2.8% as of December 2024, higher than 2.4% a year ago but lower than 3.1% in the previous quarter. The net NPA ratio at 1.5% too was worse than 1.1% in the previous year but flat compared with a quarter ago.

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In the corresponding quarter of the previous year, Piramal Enterprises had made provisions of ₹3,540 crore following the Reserve Bank of India’s circular on providing for exposure to alternative investment funds (AIFs). However, following a clarification by the central bank, the NBFC rolled back provisions of ₹1,000 crore in the subsequent quarter.

Sridharan said that of the remaining off-book exposure of ₹2,500 crore, the company has slowly made recoveries of ₹557 crore so far in FY25. Of this, recoveries made in Q3 were ₹551 crore resulting in a one-time gain of ₹376 crore, supporting profits. He added that the company expects these recoveries to continue in Q4 and going into FY26.

The company utilized ₹300 crore of these gains to make loan loss provisions during the quarter whereas ₹150 crore was used from pre-existing provisions to write down the legacy book which reduced by about ₹1,700 crore during the period.

Piramal Enterprises posted a consolidated net profit of ₹39 crore in Q3 FY25, 76% lower on-quarter and as against a net loss of ₹2,378 crore in previous year.

AUM grows

Assets under management of the NBFC grew 16% on-year to ₹78,362 crore as of 31 December. The AUM of the growth book grew 40% on year to ₹68,009 crore. The retail AUM was up 37% on year at ₹59,093 crore, of which secured loans comprised 78%.

AUM of the discontinued legacy book fell 45% on-year and 14% on-quarter to ₹10,353 crore, with the company saying that it is confident of reducing the legacy AUM to below 10% of total AUM by March 2025. The growth-to-legacy AUM mix improved to 87:13 in Q3 from 34:66 in FY22.

Sridharan said that in the long run the aim continues to be for the retail AUM to comprise 75-80% of total loans and wholesale loans for the remaining 20-25%.

Future growth will depend on liquidity conditions improving, in the absence of which market conditions will continue to be tough. market improves then then growth will improve, otherwise it is going to remain tough, he said, adding that the NBFC is optimistic of margins improving hereon with the rate cut cycle expected to start from February 2025.

“While the overall macroeconomic environment remains challenging with subdued growth, we are encouraged by steady growth in loan disbursements, AUM growth, and sustained asset quality. We continue to actively run down the legacy book, ensuring a sharper focus on our Growth businesses, which are expected to perform well,” said Ajay Piramal, chairman, Piramal Enterprises.