Piramal Enterprises (PIEL) has carved a niche for itself in wholesale lending, and is now one of the dominant players in most of the segments in which it operates. In the lending business, the company has one of the lowest GNPAs and the highest profitability. Post the initial years of lower-tenure loan book, PIEL is moving toward secured and higher-tenure products, which provides support to growth. We expect a 40% loan CAGR in the NBFC business.
The Pharma business has demonstrated strong growth and improvement in profitability in recent years. With its focus on building a portfolio via inorganic acquisitions and the impending closure of the imaging business, we expect a sharp improvement in profitability. Over last five years, the stock has delivered 44% CAGR returns, and since our initiation three months ago , it has run up 54%.
Led by strong macro tailwinds and healthy profitability, we raise the target multiple for financial services to 3.6x from 2.7x (in line with peers). Our revised SOTP is Rs 3,044.
Our target price does not factor in the proposed capital raise of Rs 50b (~10% dilution), which, in our view, would be largely utilized for the financial services business. Since its foray into the financial services business in FY12, PIEL has exhibited a loan book CAGR of over 100%, mainly driven by its focus on catering to all the needs of developers – right from equity capital for land purchase to last mile inventory funding.
The company has significantly expanded its product suite over the years, with new products such as construction finance and LRD contributing to incremental loan growth.
We expect pharma revenue CAGR of ~20% till FY20, driven by recent acquisitions (leading to an increase in the addressable market size to $ 20b in
FY18 from $1b in FY16), expansion into new areas and ADC manufacturing capacity and (3) capacity expansion at other facilities.