The board of Piramal Enterprises approved the buyback of up to 1.4 crore shares, or 5.87 per cent of the equity share capital, for ₹1,750 crore. The shares, with a face value of ₹ two, are proposed to be bought through the tender offer route at ₹1,250 per share, a 25 per cent premium over the last closing price.

The entire buyback process, in which the promoter and promoter groups will not participate,  is expected to be completed within two months.

“Considering this buyback and dividends paid over the past 12 months, the company has returned a total of ₹3,278 crore which is around 16 per cent of the company’s three-month average market capitalisation,” the company said.

In the earnings call, Chairman Ajay Piramal said that the buy-back is being undertaken with the objective of long-term wealth creation for stakeholders and for effective utilisation of capital.

“This capital allocation strategy aims to combine investing in our core business and returning excess capital to shareholders.” 

Following the buy-back, the capital adequacy ratio of the company will fall from 34.3 per cent as of June 30 to 31 per cent, which will be sufficient to support growth for the next four-five years, he said.

Q1 results

Piramal Enterprises posted a net profit of ₹509 crore for Q1 FY24 led by gains of ₹855 crore from the sale of 8.34 per cent stake in Shriram Finance for ₹4,820 crore during the quarter.

Total income fell nine per cent Y-o-Y and 10 per cent Q-o-Q to ₹1,935 crore. Net interest income was 17 per cent lower Y-o-Y and 22 per cent Q-o-Q to ₹891 crore.

Jairam Sridharan, MD of Piramal Capital & Housing Finance, said that while AUM growth was largely flat on year, the decline in income was because the change in the product mix and creation of SRs (security receipts) led to an increase in the share of non-earning assets. Total AUM stood at ₹63,938 crore.

The SR book for the lender stood at around ₹5,300 crore as of June 30 of which 70 per cent was wholesale at ₹3,600 crore. In the year ago period, the SR balance was much lower at about ₹300 crore, Sridharan said, adding that the outstanding is expected to continue to reduce led by recovery efforts.

Retail lending grew 57 per cent yoy to ₹34,891 crore, accounting for 55 per cent as against 34 per cent a year ago. Retail disbursements for the quarter were up 132 per cent Y-o-Y at ₹5,707 crore.

The environment is very conducive for retail lending and the company expects to grow the portfolio at over 50 per cent at least for the next few quarters, he said.

Gross NPA ratio improved to 2.8 per cent from 3.8 per cent a quarter ago, and net NPA ratio to 1.5 per cent from 1.9 per cent.

Wholesale loan quality

AUM of the legacy wholesale book fell 38 per cent Y-o-Y to 26,002 crore. Stage two and three assets on this book decline 34 per cent Q-o-Q. On the other hand, the new cash-flow and asset-backed wholesale two book of the company grew multifold to ₹3,045 crore across real estate and corporate mid-market loans.

Provision cover on the wholesale AUM fell to 7.6 per cent from 10.5 per cent in the previous quarter owing to sell down and resolution of stressed assets. The company generated ₹2,431 crore cash through accelerated repayments and resolution proceeds of legacy wholesale loans.

It also sold loans, including those acquired from DHFL, through two ARC transactions against which SRs of ₹2,004 crore were issued and ₹316 crore received as cash after a 62 per cent mark down.

Sridharan said that the DHFL portfolio now accounts for less than one per cent of the total book, adding that he sees room for some more improvement in the quality of the wholesale book. Within retail, the secured book remains strong whereas the company will closely monitor the unsecured book.