Money & Banking

Men are getting separated from boys in the NBFC sector, says Piramal Enterprises chief

| Updated on October 27, 2019

Mumbai, October 25

The ₹5,400-crore capital-raise by Piramal Enterprises shows that even in the current environment there are people who are willing to invest in the NBFC space, said its chairman Ajay Piramal. In an interview with BusinessLine, he said the capital raised would be used to diversify the book and invest more in consumer lending and housing finance. Noting that there is a lot of consolidation taking place in the NBFC sector, Piramal said more confidence building measure are required. In the pharma space, he said the company is looking for acquisitions. Excerpts:

What’s your take on what is happening in the NBFC sector?

There is consolidationtaking place in NBFCs, and the men are getting separated from the boys. Only a few NBFCs are doing well. There are very few NBFCs that are getting capital today and there are others who are struggling. For instance, one of the reasons why we also raised capital now is to demonstrate that even in this environment there are people who are willing to invest in the NBFC space. All existing shareholders are investing. CDPQ is an existing shareholder. They have many relationships with us. They came in equity in 2017, now they are again coming in equity. Promoters who have the largest share with 46 per cent, we don’t want to dilute. So, we have said, whatever is the amount, even if it is in the event that the issue is not fully subscribed, we will underwrite it. Informed investors believe in the model of the business; they believe in the management and are coming in.

You are raising capital after long? Is it only to send out a signal that there is money out there?

We raised capital two years ago in 2017. Our underlying belief is that the Indian economy will continue to grow. We want to be a $5-trillion economy. For that, financial services sector has to grow and in this space NBFCs do play an important role. Then the next corollary is that because there is consolidation taking place, fewer NBFCs are there. There is a large market available. To take advantage of a situation like this, you need capital.

What will you do with the capital raised?

We want to diversify our book. People think our whole book used to be wholesale real estate. Only 48 per cent of our book is in residential real estate; the balance is in some commercial real estate, some of it is in other corporate loans, and about 13 per cent is in retail housing. We want to go retail not only in housing but also in consumer. Going forward, we want to invest more in consumer lending and housing finance. Ultimately, in two to three years, we will do a 50:50; half will be in wholesale, which includes residential real estate, commercial real estate, and other corporate loans. And 50 per cent would be in this (consumer lending and housing finance).

How is your wholesale book doing?

It is doing well. If you look at our second quarter numbers, our gross NPAs is 0.9 per cent; our provisioning is double of that, so we are being conservative. If I look at the last 12 months, during this period, we got in terms of repayments of our principle, interest and re-financing; we have collected ₹19,000 crore. The book is good, we are keeping it at this level, and by March we may bring down the wholesale book to some extent.

A lot of NBFCs are talking about lowering wholesale and bringing an alternate investment fund model to get into the commercial lending space. Are you also planning on these lines?

We are also thinking of that. One is we could do co-lending with other banks and share the risks and give us a fee for underwriting. We are looking at a fund structure to see how we can fund. Some of the loans in corporate, including non-real estate, the tenure is long. So, how do you match the asset and liability is by going through a fund structure.

There were some reports of SoftBank being in talks with you?

Yes, it was true. They wanted to enter India in the financial services. They had approached us, we were in talks with them, but as you know they had their own issues. Those talks are not there.

Would it have made a bigger difference if a larger, external investor like SoftBank had come in?

An existing investor is a bigger sign because the existing investor knows what we have done, they have seen our working, and they believe the management and story. I look at it the other way. CDPQ is a long-term investor; they are not even private equity which needs a finite period. They are a pension fund so they are long term.

How do you think the Insolvency and Bankruptcy Code is shaping up?

IBC for us is alright. We have a fund there with Bain. We will make the first closure of the fund in the next few months. It’s a fund to invest either those which go into IBC or even pre-IBC. We have not done investment in IBC. Overall for the country IBC is not doing well. There have been such delays. Some of the biggest resolutions – of the 12 big ones – only three or four have been done. Essar, Bhushan, all of them are stuck for long. And, there are a lot of questions which have to be sorted out.

How has partial guarantee worked out? Are banks still hesitant to lend?

Government gave a partial guarantee of 10 per cent. But that scheme has not really taken off. They were going to guarantee about ₹1 lakh crore, only ₹ 15,000 has got in-principle sanction. The actual disbursement is even lower, and the scheme is about to expire as the scheme is only for four months. The implementation is taking much longer. Banks are also hesitant to lend to NBFCs. They have burnt their…every day you hear some new news. We have given many suggestions, let them act.

When do you see the crisis ending?

They have to sort it out. The government will have to take some bold steps to sort it out. It is becoming worse. Those companies, which could have been revived, are also going down. The GDP has fallen. Everyone has to be prepared for the worst, can’t depend on anyone outside.

What is happening on the Shriram Capital deal? Are you looking at any acquisitions in the financial sector?

It will happen. There are many opportunities in the financial sector. We will look at it, provided it makes sense, the quality of the asset and team is good, the culture fits in with us.

How do you deal with the sentiment?

You don’t look at what happens to stock price, look at the basic fundamental. We are raising this capital to strengthen ourselves. You have to look after your own self. So, with this we will be more insulated from an environment which is tough, believing that the story in mid-term is good for India.

How is the real estate demand?

Demand for good developers and right size of products is there. The right price is also important. They are still doing well. 10 per cent of developers are doing well, the balance are suffering. Demand for luxury flats is limited as costs are really high.

Are people pushing back big purchases?

Consumption has to come up. Also, this is where NBFCs were funding, which has now gone down. And, people need to have confidence to spend. That feel good factor has to come.

How is your real estate book on the NBFC side doing?

We have done well. Wherever we think there is stresswe take action 12-18 months in advance. Sometimes we move the project from one developer to another; sometimes we ask the developer you reduce the rates, or the size of the flats. It is a mix of things.

How is your pharma business doing?

It has done well. We had 19 per cent growth in topline in the first six months. Our margin is now 24 per cent. This is global pharma. Our global pharma is different from others. We have complex, speciality generic products. We do products and services for global pharma companies. That’s been a steady good business. In the last eight years, we have had a CAGR of 16 per cent topline, and margins have also been going up. We are one of the rare companies where we have not had a single day’s closure for FDA. Even in the last six months, we had three FDA inspections, which went off well. We have assets in North America, India, and Europe, and so we are diversified.

Is it tempting for you to go back to what Piramal was in the pharma space?

We are looking at it, but we have not yet come up with an attractive opportunity. We could get one, but not have found anything. And to start from scratch is going to take too long. We are in the OTC space, that’s done well. Internationally, we do look at some products. We have set up a good sales and distribution network globally; so, if we get good products we do. So, in the last six months, we have introduced seven new products – some them are in licence, some of them are own products.

Published on October 25, 2019

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