NBFC Piramal Enterprises crashed 8.1% in trade to lows of Rs 985.45 apiece after the street factored in the dismal first fiscal quarter earnings from the financial services company. Piramal Enterprises reported a Rs 509 crore consolidated net profit, led by its stake-sale of Shriram Finance worth Rs 855 crore, without which the company’s bottom line would have been in the deep red.
Piramal Enterprises Q1FY24
The company’s net profit tanked 94% from Rs 8,155 crore in the year-ago period. However, on a sequential basis, the company was in profit this quarter compared to the Rs 196 crore loss in Q4FY23. The net profit included a gain of Rs 8.6 billion from the stake sale in Shriram Finance and a goodwill write-off of Rs 2.8 billion.
Share buyback
Piramal Enterprises announced a stock buyback on Friday. The company will buy back 1.4 crore shares, or 5.87% of the equity share capital, for Rs 1,750 crore at Rs 1,250 per share. “The buyback (5.9% of outstanding capital, at Rs1,250 per share), and the decision of the promoter group to not participate in the buyback, gives investors comfort around capital allocation and the promoter’s long-term commitment to the franchise,” said Emkay.
Axis Securities added that as per the SEBI rules, 15% of the total tender offer is reserved for the small shareholder category (an investor with an investment of not exceeding Rs 2 lakh in the company as of the record date). The total public holding in this company is 56.03% and the small shareholder category holding stands at 12.19% or 2.9 crore shares. The promoter holding stands at 43.48% or 10.3 crore shares. As mentioned above, 15% of the buyback offer of 1.4 crore shares would be reserved for the company’s small shareholders which amount to 21 lakh shares (15% of 1.4 crore shares). Hence, the Minimum Acceptance Ratio for the General category remains at 6% while the Acceptance Ratio for the Small shareholder would be 7%.
Should you buy, sell, or hold?
“To reflect the Q1 developments, especially goodwill impairment and wholesale assets transition to SR, we change our FY24-26 estimates. Hence, we cut earnings for FY24-25E. Overall, PIEL seems to be progressing well on its medium-term plan of delivering 3% RoA, and should be assessed over the medium-term outlook, and beyond the near term. We reiterate our BUY rating on the stock, with SoTP-based Jun-24E target price of Rs1,230/share,” said Emkay.
“PIEL has already completed the stake sale of Shriram Finance and partially deployed the proceeds for a share buyback of ~INR17.5b at INR1250 per share. We believe that PIEL might further deploy the excess capitalization on its balance sheet for some M&A activities in retail product segments. We estimate a ~18% AUM CAGR over FY23-25, including further moderation in the Wholesale book and a 45% CAGR in Retail AUM over the same period. We reiterate our BUY rating on the stock with a TP of INR1,260 (based on Mar’25E SoTP),” said Motilal Oswal Financial Services.